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15 Cards in this Set

  • Front
  • Back
What are the Users of Accounting?
Internal users:
plan, organize,and run the company (e.g. finance directors, marketing managers, human resource personnel, production supervisors, and company officers)
Questions to ask: is there enough money to pay the bills?” or “which production line is the most profitable?”

External users
External users generally do not work for the company. The primary external users of accounting are investors, lenders, and other creditors

(taxing authorities such as the Canada Revenue Agency, who want to know whether the company respects tax laws.)

Questions
“Is the company earning enough to give me a return on my investment?”
“Will the company be able to pay its debts as they come due?
What is a proprietorship?
A business owned by one person.

The owner receives any profit, suffers any losses, and is personally liable (responsible) for all debts of the business. This is also known as unlimited liability.

There is no legal distinction between the business as an economic unit and the owner
What is a partnership?
a business owned by more than one person.
- often formed because one person does not have enough economic resources to initiate or expand the business or
- because partners bring unique skills or resources to the partnership

In a partnership, each partner generally has unlimited liability for all debt of the partnership, even if one of the other partners created the debt.

However, there are certain situations where partnerships can be formed with limited liability for selected partners
what is a corporation?
A corporation is a business organized as a separate legal entity owned by shareholders.

As an investor in a corporation, you receive shares to indicate your ownership claim.

Since a corporation is a separate legal entity (whether public or private), its life is indefinite.

That means that it continues regardless of who owns its shares. It is not affected by the withdrawal, death, or incapacity of a shareholder, as is the case in a proprietorship or partnership

Corporate shareholders are not responsible for corporate debts unless they have personally guaranteed them. So most shareholders enjoy limited liability since they only risk losing the amount they have invested in the company’s shares
What is the different between private and public corpoprations?
The shares of public corporations are publicly available on organized stock exchanges

The shares of private corporations are not publicly available
Name the three Business Activities
All businesses are involved in three types of business activities:

Financing activities
Investing activities
Operating activities
Describe Financing Activities
It takes money to make money

Corporations can raise funds through
(1) borrowing money (debt financing)
(2) issuing (selling) shares in exchange for cash

Amounts owed to lenders and creditors – in the form of debt and other obligations – are called liabilities

Common shares are the most frequently used class of shares and allow investors to buy a fractional ownership of a company
Describe Investing Activities
Investing activities involve the purchase (or sale) of long lived assets that a company needs in order to operate

Assets are resources that a company owns or controls. Every asset is capable of providing future economic benefits that can be short- or long-lived

Investing activities generally involve long-lived assets such as equipment, computers, vehicles, buildings and land. Together they are called property, plant and equipment
What is Cash's relationship to investing activities ?
Cash is one of the more important assets owned by a company. If a company has excess cash it does not need immediately, it might choose to invest in things like debt securities (like bonds) or equity securities (like shares). These are called investments
Describe Operating Activities
Once a business has the finances and has made the investments it needs to get started, it can begin its operations.

Operating activities result from day-to-day operations and include revenues and expenses and related accounts such as receivables, supplies, inventory and payables

Revenue refers to amounts earned from the sale of goods

Expenses are the cost of assets that are consumed or services that are used in the process of generating revenues.

Expenses are related to assets and liabilities. When an expense is incurred, an asset will decrease or a liability will increase
What are the Four financial statements are used to summarize the accounting data for a period.
In order of preparation, they are the:
1. Income statement
2. Statement of changes in equity
3. Statement of financial position
4. Statement of cash flows
Describe the Income statement
The income statement focuses on the accounts are affected by revenues and expenses

The net amount remaining after deducting expenses from revenues for a given period is the company’s profit (or loss if expenses exceed revenues).

The company’s profit is needed to update the retained earnings account in the statement of changes in equity
The statement of changes in equity
The statement of changes in equity reconciles each shareholders’ equity account (e.g, Common Shares, Retained Earnings, etc.).

It updates the beginning balance in each account for any changes during the period, arriving at the ending balance which is shown in the shareholders’ equity section of the statement of financial position.


For example, the beginning balance of the Retained Earnings account is increased (decreased) by any profit (loss) (determined on the income statement) and decreased by any dividends during the period to determine its ending balance
The statement of financial position
The statement of financial position is based on the accounting equation and is used to summarize the assets, liabilities and shareholders’ equity of the company


Assets= Liabilities + Owner's equity
The statement of cash flows
The statement of cash flows analyzes the cash inflows and outflows that resulted in the ending cash balance shown on the statement of financial position