Accounting: The Key to Success

C H A P T E R 1

1. Describe the purpose and importance of accounting. (LO1)

2. Describe forms of business organization. (LO2)

3. Identify users and uses of, and opportunities in, accounting. (LO3)

4. Identify and explain why ethics and social responsibility are crucial to accounting. (LO4)

Learning Objectives

1-2

Learning Objectives

5. Identify, explain, and apply accounting principles. (LO5)

6. Identify and explain the content and reporting aims of financial statements. (LO6)

7. Analyze business transactions by applying the accounting equation. (LO7)

8. Prepare financial statements reflecting business transactions. (LO8)

1-3

• A system (process and rules) • Related to the preparation of Financial

Information• To be used in

• Analysis• Decisions• Management

What is Accounting?

1-4 LO 1

Bookkeeping or Recordkeeping

Recording of financial transactions Manual or electronic Purpose is to create a reliable bank of

data

1-5

Clerk

Scribe

Recorder

• Sole Proprietorship• Partnership• Corporation

Forms of Organization

1-6 LO 2

• One owner• Separate entity for

accounting purposes• Not a separate legal entity

from the owner• Unlimited liability• Limited life• Owner taxed on profits

Sole Proprietorships

1-7 LO 2

• Two or more owners• Separate entity for

accounting purposes• Not a separate legal

entity from the owners• Unlimited liability• Limited life• Owners taxed on profits

Partnerships

1-8 LO 2

Corporations• One or more owners• Separate entity for accounting

purposes• Separate legal entity from the

owner(s)• Limited liability• Unlimited life• Corporation taxed on profits• Size doesn’t matter

1-9 LO 2

• Not-for-profit and government organizations

• No identifiable owner• Examples: schools,

charities, libraries, hospitals, police, shelters

Non-Business Organizations

1-10 LO 2

1-11 See Page 5 of the Textbook

Exercise

Exercise 1-1 pg 43 (What kind is it?) QS 1-2 pg 39 (Accounting v Bookkeeping)

1-12

Users of Accounting Information

Internal Managers Employees Owners?

External: Not directly involved in running the organization Bankers and other creditors Investors and potential

investors Unions External auditors CRA

1-13 LO 3

Investors v Managers v Owners: All the same people, or NOT

What are the manufacturing expenses per unit of product?

What is the most profitable mix of services? How much do we have to sell to break even? How much profit did we earn last month? Are we keeping our expenses under control?

Typical Questions Asked by Internal Users

1-14 LO 3See Page 6

Can the company repay current loans? Is the purchaser able to pay for goods

purchased? Do revenues include only those for the current

period? Have all expenses been recorded? Is net income large enough to support a request

for increased pay?

Typical Questions Asked by External Users

1-15 LO 3

• One of the primary goals of accounting is to provide useful information for decision making.

• In order for the information to be useful, it must be trusted.

• Accountants must act in an ethical manner in order for the information they produce to be trusted.

Ethics in Accounting

1-16 LO 4

• Maintain a high level of professional competence

• Treat sensitive information as confidential• Exercise due care and professional

judgment• Must not be associated with deceptive

information

Ethical Obligations of Accountants

1-17 LO 4

Practice

Exercise 1-4 page 44 (Ethics)

1-18

Broad fields of accounting include:• Financial accounting• Managerial accounting• Taxation• Accounting-related fields

Accounting Opportunities

1-19 LO 3

Accountants may work as:• Private accountants• Public accountants• Government accountants

Accounting Opportunities

1-20 LO 3

Professional certifications in Canada:• Certified General Accountant (CGA)• Certified Management Accountant (CMA)• Chartered Accountant (CA)

Professional Certification

1-21 LO 3

Exercise

Critical Thinking Mini Case page 62 Problem? Goals? Assumptions? Facts? Conclusion and Consequences?

1-22

First D2L Quiz DUE before seminar starts!

Exercise 1-3 Problem 1-1A

Homework – Additional Practice

1-23