Accounting Notes PDF

Accounting Notes: Unit 1: Accounting Fundamentals: Why Take Accounting: For a job If you own a business Daily life What is Accounting: Gathering of financial information about the activities of an organization Preparation and collection of permanent records Su...

Accounting Notes: Unit 1: Accounting Fundamentals: Why Take Accounting: For a job If you own a business Daily life What is Accounting: Gathering of financial information about the activities of an organization Preparation and collection of permanent records Summarizing, rearranging, and classifying of information into a more usable form Preparation of controls to promote accuracy and honesty among employees Establishment of controls to promote accuracy and honesty among employees Types of Businesses: Service business - a business that provides services ○ Dentist ○ Hair salon Merchandising business - buys goods and sells at higher price ○ Walmart ○ Bestbuy Manufacturing business - buys raw materials and converts to new products ○ BMW ○ Apple Non-Profit organization - purpose is to meet social needs ○ Church ○ YMCA Accountant vs Accounting Clerk: Accounting Clerk (bookkeeper): prepares the accounting information, deals with procedures on a routine basis (e.g. payroll, recording purchases, etc.). Accountant: more broader, supervises the accounting department, interprets accounting information, and participates in management decisions. CGA: Certified General Accountant CMA: Certified Management Accountant CPA: Certified Public Accountant Auditing: Reviewing and evaluating the information used to prepare a company’s financial statements Value of a Person or Company: What you OWN (Assets) - What you OWE (Liabilities) = Net Worth (Capital / Owner’s Equity) Accounting Terms: Assets: items of value owned by a business or person Liabilities: debts of a business or person Owner’s Equity or Capital: net worth Owner’s personal money invested in business - capital Accounts Receivable (A/R): money that is owed to a business from a customer ○ Debtor: customer who owes you money ○ Asset Accounts Payable (A/P): money a business owed to someone else ○ Creditor: the person/business whom you owe money to ○ Liability Fundamental Accounting Equation: ○ A = L + OE ○ OE = A - L ○ L = A - OE Accounting Cycle: series of accounting activities included in recording financial information for a specific time period Balance Sheet: A balance sheet is a statement showing the financial position of a person, business, or other organizations. Steps for Preparing a Balance Sheet: 1. Prepare a 3 line heading a. Who - name of business (no short forms) b. What type of financial statements (Balance Sheet or Income Statement) c. When - date when you prepared the balance sheet (written out in full) 2. Write the title “Assets” a. List the assets on the left side, in order of liquidity (how easily it can be turned into cash)  i. Cash ii. Accounts Receivable - alphabetical order 1. Person - last name 2. Business - 1st letter of business name iii. Inventory iv. Supplies v. Furniture vi. Equipment vii. Car viii. Buildings ix. Land 3. Write the title “Liabilities” a. List liabilities on the right side, in order of when they are due i. Accounts Payable ii. Bank loan iii. Mortgage b. Put a single line and write total liabilities 4. Write the title “Owner’s Equity” a. Calculate total assets b. Calculate OE c. Write owner’s first and last name followed by the word capital i. e.g. J. Doe, capital 5. Totals: a. Total Assets on left side b. Total Equity + Liabilities on Right Side c. They ust line up 6. $ Signs: a. First number in each column (first asset, first liabilities) b. Final totals (total assets, total equity + liabilities) c. Total of 4 $ 7. Single lines: a. Above total assets b. Above total liabilities c. Above total equity + liabilities d. Total of 3 8. Double lines: a. Under total assets b. Under total equity + liabilities c. Total of 2 9. Check if fundamental accounting equation holds true a. Does A = L + OE GAAPS: Generally Accepted Accounting Principles: set of rules and procedures accountants must follow so accounting information is reliable; Canadian Institute of Chartered Accountants; Accounting Standards Board Business Entity Concept: financial data for a business must be kept separate from owner’s data Going Concern Concept: assumes that a business will continue to operate unless it is known that it will not Principle of Conservatism: when making estimates or assumptions, you should choose option that will result in lower net income and net assets Cost Principle: assets should always be recorded at their cost, not market value Materiality Principle: an accounting standard can be ignored if it does not cause the financial statements to be misleading (think about scale) Claims Against the Assets: when a business closes down, assets are liquidated. Money is given to: ○ Creditors first, then the owner ○ Owner has to accept any losses but can also benefit from any profits that might occur IFRS: International Financial Reporting Standards: introduced in 2006 - only public companies must use these; International Accounting Standards Board Revaluation Model ○ Different from cost principle ○ Allows accountants to change the value of certain assets based on market prices ○ e.g. buildings, property Other (From Homework): Describe the work of a Public Accountant: Public accountants offer their services to the general public for a fee, in the same way that a lawyer does. Name 3 Professional Accounting Organizations: Three professional accounting organizations are the Certified General Accountants Association, the Society of Management Accountants of Canada, and the Canadian Institute of Chartered Accountants. On average, how long does it take, after enrolment, to become a qualified professional accountant? On average, it takes about 7 years of post-secondary study and work to become a professional accountant. The professional accounting organization that is well-known for distance education. Certified General Accountants Association The professional accounting organization that emphasizes management accounting. Society of Management Accountants The professional accounting organization that publishes a handbook of Canadian accounting rules and standards. CICA A. The work of an accounting clerk is clerical in nature. B. The work of an accounting clerk is concerned with routine matters. C. An accounting clerk ensures that the supporting documents are present and correct for every transaction. D. An accountant/accounting clerk ensures that International Financial Reporting Standards are followed. E. An accounting clerk records the accounting entries in the books of account. F. An accounting clerk makes the payroll calculations. G. An accounting clerk prepares reports based on the data produced by the accounting system. H. An accounting clerk carries out all the necessary banking transactions. I. An accountant participates in management meetings. J. A professional accountant has a high-level position. 1. Over the years, what has the Canadian Institute of Chartered Accountants established? a. The standards of practice for all Canadian Accountants 2. In what publication are most of the rules of accounting found? a. CICA Handbook 3. What is the AcSB? a. Accounting Standards Board 4. What does IFRS stand for and what is the full name of the organization that sets IFRS? a. International Financial Reporting Standards; International Accounting Standards Board (IASB) 5. When did Canadian public companies start using IFRS? a. January 1, 2011 6. What does ASPE stand for? a. Accounting Standards for Private Enterprises 7. What types of businesses use ASPE, when did they start using them, and why would they use them instead of IFRS? a. Private businesses may use ASPE, They started using ASPE on January 1, 2011. They use them instead of IFRS because ASPE involve fewer changes for private businesses than adopting IFRS