Chapter 1: Accounting and
Business
Types of Business
1.
2.
The Service Business
1. They sell a service to the public.
2. Examples are accounting firm, hair
salon, dental clinic or Air Canada
(airline company)
The Merchandising Business
1. They buy goods and resells them at a
higher price for a profit.
2. Examples are the Future Shop and the
Gap stores.
Types of Business
1.
The Manufacturing Business
1. They buy raw materials and converts
them into a new product. Then they
sell the new products to customers for a
profit.
2. Examples are Ford, Toyota, Samsung
(TV, computer, smartphone)
Types of Business
4.
Producing Business
• They obtain their product from the
nature.
• They sell these products to customers
for a profit.
• Examples are grain farming, fishing,
gold mining and oil extraction
Types of Business
5. The Non-Profit Organization
• They carry on activities to meet social
needs.
• They do not try to make profit.
• Examples are churches, Me to We,
Habitat for Humanity
Changes for Canada’s Professional Accoutants
1.
2.
3.
CA, CGA and CMA are trying to merge.
All three designation might be replaced by
CPA (Chartered Professional Accountant)
Canada in near future.
In US, CPA stands for Certified Public
Accountant.
Many American companies like Wal-Mart
and Enterprise Rent a car let CPA (US)
hold the highest regards.
Changes for Canada’s Professional Accoutants
1.
Accountants have started using IFRS
(International Financial Reporting
Standards) instead of Canadian GAAP
(Generally Accepted Accounting
Principle) = Accountants have started
using international accounting rule
instead of Canadian accounting rule since
January 1, 2011.
TERMS: Assets
Assets are resources owned by a business.
• Things, which will bring cash or
benefits to the business in the future or
now.
• have monetary value owned by a
business
TERMS: Assets
Assets are resources owned by a business.
• They might be acquired through
• Borrowing (bank, friends)
• Owners paid cash for it.
• Or combination of both borrowing and
owner’s
• Examples are: Cash, building,
machine, computer, delievery truck,
Accounts Receivable or AR (memo
which indicates that customers owe
Terms Continued:

Liabilities:
• Debts of the business
• Examples are: credit card debt, loan
(short term such as 2 years), mortgage
(long term loan such as 30 years) and
Accounts Payable (memo which
indicates that future shop owes money
to Apple)
Terms Continued:

Owners Equity:
• My own definition: True Asset
• Difference between assets and
liabilities
• OE = Assets - Liability
• Claims against assets
• Owners Equity is also called net worth
or capital
Scenario #1
I’m a bank loans officer. Patrick has come to me to start a
banana case business and needs to borrow $20,000
from the bank.
What does Patrick need to tell me to help me decide if the
loan should be approved?


Items he own
Items he owe
Scenario #1
What do I do with this information?
I should determine Pat’s owner’s equity. His owner’s equity is the
difference between what he owns and what he owes.
Financial Position of a business is the financial status of the
business based on its assets, liabilities and owner’s equity.
I can see his financial position, meaning I can make a decision whether
my bank can go after Patrick’s asset in case he goes bankrupt.
Items Owned By Pat:
Cash
Clothing
Furniture
Equipment
Auto
Total Assets
$12,000
3,000
10,000
11,000
15,000
$51,000
Items Patrick owe to others:
Visa:
Student Loan:
Total Liability
$1000
$10,000
$11,000
What is Pat’s Financial Position?
Total amounts owned (Total Assets):
LESS: Total amounts owed (Total Liability):
EQUAL: Equity (Capital/Net Worth)
$51,000
$11,000
$40,000
Conclusion of the banker
Therefore as a banker, I can lend him $20000
because the bank will go after Patrick’s equity
(which is $40000) in case Patrick goes
bankcrupt.
If Patrick goes bankrupt, his assets will be sold to
pay back his liabilities. Since the value of his
total assets are higher than the value of his total
liabilities, the bank can receive their money
back. Banks and investors always want to
know the total assets – total liability, which is
owners equity.
Fundamental Accounting Equation:
Owners Equity = Assets – Liability
Owners Equity + Liability = Assets
Assets = Liabilities + Owners Equity
Easiest way to remember is “ALO”
Aloha is “hi” and “Goodbye” “Love” and “Peace” in
Hawaian Language
Let’s spend 3 minutes with your partner and explain to
each other about this equation and definition of each
term.
Example Problem:
The Accounting Equation
Assets = Liability + Owners Equity
For example: If James’ total assets = $10,000 and his total
liabilities are $6,000 then what is his owners equity?
Answer: Assets = Liabilities + Owners Equity
$10,000 = $6,000 + ??
What’s the owner’s claims against the assets?
Classwork / Homework
1.
2.
Review Questions Page 12 Q#8, 16, 17,
Review Exercise Page 13 Q# 1L, 1M,
3. Page 20 Exercises #1-6