ACCT 1001
CHAPTER 1: ACCOUNTING IN ACTION
INTRODUCTION TO ACCOUNTING
Accounting is an information system that identifies, records, and
communicates economic events of an organization to interested users.
Purpose of Accounting
To provide financial information that is relevant, reliable, comparable,
and useful.
Supports internal decision-making (management) and external
decision-making (investors, creditors, regulators).
USERS OF ACCOUNTING INFORMATION
Internal Users External Users
Managers, Finance, HR, Investors, Creditors, CRA, Customers, Labour
Marketing Unions
Internal users use accounting data for planning, control, and
operational decisions.
External users use it to assess business performance, make lending or
investing decisions, and ensure regulatory compliance.
FORMS OF BUSINESS ORGANIZATION
Type Description Liability
Proprietorship Owned by one person Unlimited
Partnership Owned by two or more individuals Unlimited
Corporation Separate legal entity owned by shareholders Limited
FUNDAMENTAL ACCOUNTING ASSUMPTIONS AND
CONCEPTS
, Principle/Concept Explanation
Financial activities of a business are kept separate from
Reporting Entity
its owners and other businesses.
Business will continue operations into the foreseeable
Going Concern
future.
Financial reporting is done for specific and regular time
Periodicity
intervals (e.g., monthly, annually).
Only economic activities measurable in currency (e.g.,
Monetary Unit
CAD) are recorded.
KEY ACCOUNTING PRINCIPLES
Principle Description
Revenue Revenue is recognized when earned and realizable, not
Recognition necessarily when cash is received.
Matching Expenses must be recorded in the same period as the
Principle revenues they help generate.
Assets are recorded at their original purchase cost,
Historical Cost
regardless of current market value.
Assets and liabilities may be recorded at current market
Fair Value
value when more relevant.
General Determines when and how to record financial statement
Recognition items.
GAAP AND ACCOUNTING STANDARDS
Generally Accepted Accounting Principles (GAAP): A common set
of rules and guidelines.
IFRS (International Financial Reporting Standards): Mandatory
for publicly accountable enterprises in Canada.
ASPE (Accounting Standards for Private Enterprises): Optional
for private companies.
COMPONENTS OF FINANCIAL STATEMENTS
Element Description
Resources controlled by a business that provide future
Assets
economic benefit.
CHAPTER 1: ACCOUNTING IN ACTION
INTRODUCTION TO ACCOUNTING
Accounting is an information system that identifies, records, and
communicates economic events of an organization to interested users.
Purpose of Accounting
To provide financial information that is relevant, reliable, comparable,
and useful.
Supports internal decision-making (management) and external
decision-making (investors, creditors, regulators).
USERS OF ACCOUNTING INFORMATION
Internal Users External Users
Managers, Finance, HR, Investors, Creditors, CRA, Customers, Labour
Marketing Unions
Internal users use accounting data for planning, control, and
operational decisions.
External users use it to assess business performance, make lending or
investing decisions, and ensure regulatory compliance.
FORMS OF BUSINESS ORGANIZATION
Type Description Liability
Proprietorship Owned by one person Unlimited
Partnership Owned by two or more individuals Unlimited
Corporation Separate legal entity owned by shareholders Limited
FUNDAMENTAL ACCOUNTING ASSUMPTIONS AND
CONCEPTS
, Principle/Concept Explanation
Financial activities of a business are kept separate from
Reporting Entity
its owners and other businesses.
Business will continue operations into the foreseeable
Going Concern
future.
Financial reporting is done for specific and regular time
Periodicity
intervals (e.g., monthly, annually).
Only economic activities measurable in currency (e.g.,
Monetary Unit
CAD) are recorded.
KEY ACCOUNTING PRINCIPLES
Principle Description
Revenue Revenue is recognized when earned and realizable, not
Recognition necessarily when cash is received.
Matching Expenses must be recorded in the same period as the
Principle revenues they help generate.
Assets are recorded at their original purchase cost,
Historical Cost
regardless of current market value.
Assets and liabilities may be recorded at current market
Fair Value
value when more relevant.
General Determines when and how to record financial statement
Recognition items.
GAAP AND ACCOUNTING STANDARDS
Generally Accepted Accounting Principles (GAAP): A common set
of rules and guidelines.
IFRS (International Financial Reporting Standards): Mandatory
for publicly accountable enterprises in Canada.
ASPE (Accounting Standards for Private Enterprises): Optional
for private companies.
COMPONENTS OF FINANCIAL STATEMENTS
Element Description
Resources controlled by a business that provide future
Assets
economic benefit.
