ACCT253

• The declining balance method is a type of accelerated depreciation where the asset is depreciated at a higher rate in the early years and at a lower rate in the later years.
• Accounting is the process of identifying, measuring, recording, and communicating an organization's economic activities to users
• Internal users of accounting information work for the organization and are responsible for planning, organizing, and operating the entity
• External users of accounting information do not work for the organization and include investors, creditors, labour unions, and customers
• Managerial accounting serves the decision-making needs of internal users
• Financial accounting focuses on external reporting and meeting the needs of external users
• A business organization sells products and/or services for profit
• A non-business organization, such as a charity or hospital, exists to meet various societal needs and does not have profit as a goal
• Three types of business organizations are:

  • Proprietorship: owned by one person, not a separate legal entity, profits taxed as part of the owner's personal income tax return, and subject to unlimited liability
  • Partnership: owned by two or more individuals, not a separate legal entity, owners subject to unlimited liability
  • Corporation: owned by one or more owners known as shareholders, can have different types of shares, and when there is only one type of share, it is usually called common shares
• A private enterprise (PE) holds its shares privately and does not sell them publicly, while a publicly accountable enterprise (PAE) sells its shares publicly, typically on a stock exchange
• Limited liability means that the owners or shareholders of a corporation are not responsible for the corporation's debts beyond what they invested in the corporation
• Ethics play a role in accounting by guiding the application of underlying accounting concepts or principles
• GAAP in Canada is based on International Financial Reporting Standards (IFRS) for publicly accountable enterprises (PAE), while private enterprises (PE) can follow either IFRS or Accounting Standards for Private Enterprises (ASPE)
• The six qualitative characteristics of GAAP are: relevance, faithful representation, comparability, verifiability, timeliness, and understandability
• Principles supporting GAAP qualitative characteristics include: business entity, consistency, cost, full disclosure, going concern, matching, materiality, monetary unit, and recognition
• Financial information is communicated to external users through financial statements
• The four financial statements are: income statement, statement of changes in equity, balance sheet, and statement of cash flows
• The income statement measures financial performance, while the balance sheet measures financial position
• The statement of cash flows explains how the balance in cash changed over a period of time by detailing the sources and uses of cash by type of activity: operating, investing, and financing
• Retained earnings is the sum of all net incomes earned by a corporation over its life, less any distributions of these net incomes to shareholders, which are called dividends
• The three primary components of the balance sheet are assets, liabilities, and equity
• Equity consists of share capital and retained earnings
• The three primary components of the balance sheet are:

  • Assets
  • Liabilities
  • Equity
• Equity consists of two components:

  • Share capital: Represents how much shareholders have invested
  • Retained earnings: Sum of all net incomes earned by a corporation over its life, less any distributions of these net incomes to shareholders
• Assets are economic resources that provide future benefits to the business
• Examples of assets include:

  • Cash
  • Accounts receivable
  • Prepaid expenses
  • Equipment
  • Trucks
• Liabilities are obligations to pay an asset in the future
• Examples of liabilities include:

  • Accounts payable
  • Unearned revenue
• Operating activities are day-to-day processes involved in selling products and/or services to generate net income
• Investing activities involve buying assets needed to generate revenues
• Financing activities involve raising money needed to invest in assets
• Notes to the financial statements provide greater detail about various amounts shown in the financial statements or provide non-quantitative information that is useful to users
• The accounting equation is Assets = Liabilities + Equity
• The distinctions among calendar, interim, and fiscal year ends:

  • Fiscal year: 12-month period for preparing annual financial statements
  • Interim financial statements: Prepared more frequently, usually every three months
  • Year-end financial statements: Prepared for all entities