Week 1 Flashcards
(46 cards)
Define Accounting
-Information system for measuring, processing and communicating financial information.
Why is accounting known as the “language of business”?
Helps a wide range of users make business decisions.
What are some examples of users of accounting ?
-individual investors, businesses, government agencies, lenders
Why are ethics and rules crucial in accounting an business?
- considerations for all areas of accounting and business
- need relevant and reliable info about companies to make decisions
- proffesional accounting groups in canal assure that accountants behave ethically
What are the three basic forms of business organizations?
Proprietorship, Partnership and corporation.
What is a proprietorship from a business perspective?
Business where single owner = the proprietor.
-Each proprietorship is DISTINCT from owner
What is a proprietorship from legal perspective ?
Business = proprietor. if business cannot pay debts, lenders can take personal assets to pay the proprietorship debts.
What is a partnership from a business perspective?
Two or more individuals together as co owners, can be small or large.
Each owner = a partner.
What is a partnership from a legal perspective
Partner = Business, where lenders can take partners personal assets to pay the partnership debts ** except for LLP*
Whats LLP?
Limited Liability Partnership, meaning partners cannot make others MORE liable, and each partner is only liable for his and her actions.
What is a corporation from a business perspective ?
Business which is owned by shareholders, these shareholders own share of ownership within the business.
What is the dominant form of business organizations in canada?
Corporations
What is a corporation from a legal perspective ?
Formed when the federal government or provincial government approves the articles of its corporation.
Legal Entity which is SEPARATE + INDISTINCT from its owners
What does “artificial person” mean? How does it relate in a corporation?
Similar rights to an actual person.
This means it may buy/sell property
May enter into contracts, sue or become sued.
The life of an organization is limited by owners death or choices in a ..
Proprietorship and Partnership
The life of an organization is indefinite in a ..
Corporation
Are shareholders personally liable in a corporation?
NO!
What is the stable monetary unit assumption?
Allows for accountants to ignore effects of inflation in accounting records.
Accountants can ad/subtract dollar amount for activities which happened at different times.
What is the cost principle ? At what price is it recorded ?
Acquired assets/services which should be recorded a ACTUAL (historical cost).
If the company receives a product/service at a bargain price, is the bargain price recorded?
Yes, record ACTUAL cost and NOT expected cost.
What are the two restraints in accounting ?
1) Cost benefit Constraint
2) Materiality constraint
What is the cost benefit constraint?
Producing accounting information HAS its own cost to a company!
Information produced should exceed cost of producing information.
What is the materiality constraint?
Insignificant or small “materials” may be ignored. Piece of information = material.
Not defined by standards, but rather a matter of the information preparers judgement.
What is the going concern?
Assume that the entity on which is reported is going to be in business in a foreseeable future (i.e buying land to build office space for a business which is stable)
