Transcript Document 7900199

College
Accounting
First Canadian Edition
Price • Haddock • Brock • Hahn • Reed
McGraw-Hill Ryerson
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The Accounting
Cycle
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ACCOUNTING:
The Language of Business
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ACCOUNTING
•is “the Language of
Business”
•is used to gather and
communicate financial
information about an
organization.
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ACCOUNTING
•this information is
used by owners and
managers to make
decisions that will build
and improve the
business
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OBJECTIVE 1
Define Accounting
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ACCOUNTING DEFINED
The process by which financial
information about a business is
recorded, classified,
summarized, interpreted, and
communicated to owners,
managers, and other interested
parties.
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OBJECTIVE 2
Explain why it is
important to study
accounting
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THREE PROFESSIONAL
ACCOUNTING BODIES IN
CANADA
. Certified General Accountants
of Canada (CGA)
•Society of Management
Accountants of Canada (CMA)
•Canadian Institute of
Chartered Accountants (CA)
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FINANCIAL INFORMATION
NEEDED
• How much cash does the
business have?
• How much money do
customers owe the business?
• What is the cost of the
merchandise sold?
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FINANCIAL INFORMATION
NEEDED (Continued)
• How much did the
volume of sales
increase?
• What is the amount
owed to suppliers?
• How much profit has
the firm made?
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OBJECTIVE 3
Identify who needs
to receive
financial information
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USERS OF
FINANCIAL INFORMATION
•
•
•
•
•
Owners and Managers
Suppliers
Banks
Tax Authorities
Regulatory Agencies and
Investors
• Customers
• Employees and Unions
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OBJECTIVE 4
Describe generally
accepted accounting
principles
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GAAP
Generally Accepted
Accounting Principles
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GAAP
Include specific rules,
practices and procedures as
well as broad underlying
concepts and conventions.
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Historical Cost
Basis of
Measurement
Transactions and events are
recognized in financial statements
at the amount of cash or cash
equivalents paid or received when
they took place.
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USE OF GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
To ensure that generally accepted
accounting principles are followed by
publicly owned corporations, the stock
exchange requires that financial
information, in the form of financial
statements, be submitted annually.
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OBJECTIVE 5
Compare the three types
of business entities
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ENTITY
Anything having its own
separate identity, such
as an individual, a town,
a university, or a
business.
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ENTITY
ASSUMPTION
The concept of keeping a firm’s financial
records separate from the owner’s
personal financial records.
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SOLE PROPRIETORSHIP
• A business entity
owned by one person.
• Ends when the owner
quits or dies.
• Owner is legally
responsible for the
debts and taxes of the
business.
Mike’s
Bike Shop
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PARTNERSHIP
• A business entity owned by two or more
people who are legally responsible for the
debts and taxes of the business.
• Ends when one of the partners leave the
partnership.
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CORPORATION
•
•
•
•
A publicly or privately owned business.
Owned by stockholders.
Does not end when ownership changes.
Shareholders are not responsible for the
debts or taxes of the corporation.
• Financial affairs of the shareholders must be
kept separately from the corporation.
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OBJECTIVE 6
State the
steps in the
accounting cycle
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ACCOUNTING
CYCLE
1. RECORD
5. COMMUNICATE
4. INTERPRET
2. CLASSIFY
3. SUMMARIZE
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ACCOUNTING
CYCLE
1. RECORD
•
in journal
2. CLASSIFY
•
in a ledger
3. SUMMARIZE
•
All
transactions
in financial statements
4. INTERPRET
5. COMMUNICATE
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