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Chapter 1
Accounting and the Business Environment
Questions
1. Accounting is a system for measuring, processing, and communicating financial
information. Bookkeeping is a procedural element of accounting.
2. a. The general public uses accounting information to manage bank accounts, loan
payments, and so on.
b. Managers and owners of businesses use accounting to monitor expenses and
revenue recorded.
c. Investors and creditors use accounting information to evaluate investments and
loan applications.
d. Government agencies (including taxation authorities) use accounting data to create
reports and collect payments.
e. Not-for-profit organizations such as churches and hospitals use accounting
information in much the same way as managers of businesses do—to manage their
organizations.
3. Financial accounting communicates financial information about a company to
interested users who are external to the company (creditors and regulators, for
example). Management accounting provides information that is used within a company
to help make better future-oriented decisions.
4. The Accounting Standards Board formulates generally accepted accounting principles.
It is not a government agency.
5. Proprietorship A proprietorship has a single owner, called the proprietor, who often
manages the business. The business remains a business for the life of the owner. For
accounting purposes, each proprietorship is distinct from its owner. Thus, the
accounting records of the proprietorship do not include the proprietor’s personal
accounting records. However, from a legal perspective, the business is the proprietor,
so if the business cannot pay its debts, lenders can take the proprietor’s personal assets
(cash and belongings) to pay the proprietorship’s debt.
Partnership A partnership joins two or more individuals together as co-owners.
Accounting treats the partnership as a separate organization distinct from the personal
affairs of each partner. The partnership’s life is limited by the lives of the owners or
the interest of the owners in remaining partners. From a legal perspective, a partnership
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, Full download please contact or qidiantiku.com
is the partners in a manner similar to a proprietorship. If the partnership cannot pay its
debts, lenders can take each partner’s personal assets to pay the partnership’s debts.
Corporation A corporation is a business owned by shareholders. These are the people
or other corporations who own shares of ownership in the business. A corporation is a
separate legal entity that has an unlimited lifespan. Unlike a proprietorship or a
partnership, once a corporation is formed, it is a legal entity separate and distinct from
its owners. Since corporations are entities separate from their owners, they will prepare
financial reports separate from their owners. If a corporation goes bankrupt, lenders
cannot take the personal assets of the shareholders.
6. The owner of a proprietorship is called the proprietor, the owners of a partnership are
called partners, and the owners of a corporation are called shareholders.
7. One advantage of the corporate form of ownership compared to the proprietorship
form is, in most instances, it is easier for a shareholder to sell the shares (the
investment) in a corporation than it is to sell the investment in a partnership or
proprietorship. A second advantage is the shareholders of a corporation have limited
legal liability, while the legal liability of a proprietorship extends to the owner.
8. The economic entity assumption draws clear boundaries around each entity. It is
important because it allows decision makers to evaluate each entity as a separate
economic unit.
9. The going concern assumption says that the entity will remain in operation for the
foreseeable future. This means that there is no need to consider what assets might be
worth if they were liquidated, but rather one should continue to use the historic cost of
assets.
10. The cost principle dictates that assets and services purchased be recorded at the actual
cost.
11. Liabilities = Assets – Owner’s Equity.
12. An account receivable is an asset because it is an economic resource that provides a
future benefit—the right to collect cash from another party. An account payable is a
liability because it is another party’s claim against the business’s cash—an economic
obligation.
13. The result of operations is a net loss of $4,400, because expenses exceed revenues.
14. A more descriptive title for the balance sheet is the “statement of financial position.”
15. The balance between assets on the left side and liabilities and owner’s equity on the
right side of the balance sheet gives this financial statement its name. The balance
appears in the accounting equation, Assets = Liabilities + Owner’s Equity, which is
essentially a summary of the balance sheet in equation form.
16. Another title of the income statement is the “statement of operations” or the “statement
of earnings.”
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,Full download please contact or qidiantiku.com
17. The balance sheet is like a snapshot of the entity at a specific time. The income
statement is like a moving picture/video of the entity’s operations during a period of
time.
18. The statement of owner’s equity presents a summary of the changes that occurred in
owner’s equity during the period due to additional investments by the owner,
withdrawals by the owner, and net income or net loss.
19. Net income (or net loss) flows from the income statement to the statement of owner’s
equity. The ending balance of the Owner, Capital account then flows to the balance
sheet. The change in cash on the balance sheet during the period is explained by the
cash flow statement, and the ending balance of cash on the cash flow statement
matches the cash amount on the balance sheet.
20. Publicly accountable enterprises, which includes companies whose shares trade on
stock exchanges, must report their financial results under IFRS. They are not allowed
to report under accounting standards for private enterprises (ASPE). It makes sense
that Canadian publicly traded companies should report under IFRS since technology
and improved communications are allowing more businesses to either purchase or sell
in markets outside Canada and to have shareholders that reside anywhere in the world.
Investors in Canadian companies reside all over the world. It is important that these
investors be able to compare the financial results from companies in similar industries
that are located in different countries. Having one set of accounting principles for all
countries allows investors to do this.
Full download please contact or qidiantiku.com
, Full download please contact or qidiantiku.com
Starters
(5 min.) S1-1
a. FA b. FA c. FA d. FA (or MA if the owner is also a manager)
e. MA
(5 min.) S1-2
1. The banker is an external user.
2. The balance sheet would be the best financial statement for the bank to use, as it lists all
the assets, liabilities, and equities for the company.
(5 min.) S1-3
a. Marketing manager I = Internal
b. Canada Revenue Agency E = External
c. Investor E = External
d. Controller I = Internal
e. Supplier E = External
(5–10 min.) S1-4
Louise will want to consider the factors discussed in Exhibit 1–4. This shows that a
corporation is the only type of business organization that has an unlimited life. Also, the
corporation, not its shareholders, is responsible for business debts. In other words, Louise’s
liability will be limited.
Full download please contact or qidiantiku.com
Chapter 1
Accounting and the Business Environment
Questions
1. Accounting is a system for measuring, processing, and communicating financial
information. Bookkeeping is a procedural element of accounting.
2. a. The general public uses accounting information to manage bank accounts, loan
payments, and so on.
b. Managers and owners of businesses use accounting to monitor expenses and
revenue recorded.
c. Investors and creditors use accounting information to evaluate investments and
loan applications.
d. Government agencies (including taxation authorities) use accounting data to create
reports and collect payments.
e. Not-for-profit organizations such as churches and hospitals use accounting
information in much the same way as managers of businesses do—to manage their
organizations.
3. Financial accounting communicates financial information about a company to
interested users who are external to the company (creditors and regulators, for
example). Management accounting provides information that is used within a company
to help make better future-oriented decisions.
4. The Accounting Standards Board formulates generally accepted accounting principles.
It is not a government agency.
5. Proprietorship A proprietorship has a single owner, called the proprietor, who often
manages the business. The business remains a business for the life of the owner. For
accounting purposes, each proprietorship is distinct from its owner. Thus, the
accounting records of the proprietorship do not include the proprietor’s personal
accounting records. However, from a legal perspective, the business is the proprietor,
so if the business cannot pay its debts, lenders can take the proprietor’s personal assets
(cash and belongings) to pay the proprietorship’s debt.
Partnership A partnership joins two or more individuals together as co-owners.
Accounting treats the partnership as a separate organization distinct from the personal
affairs of each partner. The partnership’s life is limited by the lives of the owners or
the interest of the owners in remaining partners. From a legal perspective, a partnership
Full download please contact or qidiantiku.com
, Full download please contact or qidiantiku.com
is the partners in a manner similar to a proprietorship. If the partnership cannot pay its
debts, lenders can take each partner’s personal assets to pay the partnership’s debts.
Corporation A corporation is a business owned by shareholders. These are the people
or other corporations who own shares of ownership in the business. A corporation is a
separate legal entity that has an unlimited lifespan. Unlike a proprietorship or a
partnership, once a corporation is formed, it is a legal entity separate and distinct from
its owners. Since corporations are entities separate from their owners, they will prepare
financial reports separate from their owners. If a corporation goes bankrupt, lenders
cannot take the personal assets of the shareholders.
6. The owner of a proprietorship is called the proprietor, the owners of a partnership are
called partners, and the owners of a corporation are called shareholders.
7. One advantage of the corporate form of ownership compared to the proprietorship
form is, in most instances, it is easier for a shareholder to sell the shares (the
investment) in a corporation than it is to sell the investment in a partnership or
proprietorship. A second advantage is the shareholders of a corporation have limited
legal liability, while the legal liability of a proprietorship extends to the owner.
8. The economic entity assumption draws clear boundaries around each entity. It is
important because it allows decision makers to evaluate each entity as a separate
economic unit.
9. The going concern assumption says that the entity will remain in operation for the
foreseeable future. This means that there is no need to consider what assets might be
worth if they were liquidated, but rather one should continue to use the historic cost of
assets.
10. The cost principle dictates that assets and services purchased be recorded at the actual
cost.
11. Liabilities = Assets – Owner’s Equity.
12. An account receivable is an asset because it is an economic resource that provides a
future benefit—the right to collect cash from another party. An account payable is a
liability because it is another party’s claim against the business’s cash—an economic
obligation.
13. The result of operations is a net loss of $4,400, because expenses exceed revenues.
14. A more descriptive title for the balance sheet is the “statement of financial position.”
15. The balance between assets on the left side and liabilities and owner’s equity on the
right side of the balance sheet gives this financial statement its name. The balance
appears in the accounting equation, Assets = Liabilities + Owner’s Equity, which is
essentially a summary of the balance sheet in equation form.
16. Another title of the income statement is the “statement of operations” or the “statement
of earnings.”
Full download please contact or qidiantiku.com
,Full download please contact or qidiantiku.com
17. The balance sheet is like a snapshot of the entity at a specific time. The income
statement is like a moving picture/video of the entity’s operations during a period of
time.
18. The statement of owner’s equity presents a summary of the changes that occurred in
owner’s equity during the period due to additional investments by the owner,
withdrawals by the owner, and net income or net loss.
19. Net income (or net loss) flows from the income statement to the statement of owner’s
equity. The ending balance of the Owner, Capital account then flows to the balance
sheet. The change in cash on the balance sheet during the period is explained by the
cash flow statement, and the ending balance of cash on the cash flow statement
matches the cash amount on the balance sheet.
20. Publicly accountable enterprises, which includes companies whose shares trade on
stock exchanges, must report their financial results under IFRS. They are not allowed
to report under accounting standards for private enterprises (ASPE). It makes sense
that Canadian publicly traded companies should report under IFRS since technology
and improved communications are allowing more businesses to either purchase or sell
in markets outside Canada and to have shareholders that reside anywhere in the world.
Investors in Canadian companies reside all over the world. It is important that these
investors be able to compare the financial results from companies in similar industries
that are located in different countries. Having one set of accounting principles for all
countries allows investors to do this.
Full download please contact or qidiantiku.com
, Full download please contact or qidiantiku.com
Starters
(5 min.) S1-1
a. FA b. FA c. FA d. FA (or MA if the owner is also a manager)
e. MA
(5 min.) S1-2
1. The banker is an external user.
2. The balance sheet would be the best financial statement for the bank to use, as it lists all
the assets, liabilities, and equities for the company.
(5 min.) S1-3
a. Marketing manager I = Internal
b. Canada Revenue Agency E = External
c. Investor E = External
d. Controller I = Internal
e. Supplier E = External
(5–10 min.) S1-4
Louise will want to consider the factors discussed in Exhibit 1–4. This shows that a
corporation is the only type of business organization that has an unlimited life. Also, the
corporation, not its shareholders, is responsible for business debts. In other words, Louise’s
liability will be limited.
Full download please contact or qidiantiku.com
