Accounting
It is a system that organizes financial data and shows information for decision making.
Accounting cycle
Financial Positions
Fundamental accounting equation
Assets = Liabilities + Owner's Equity
Owner's Equity
The amount of money between the assets and what they owe.
Liabilities
Any debts that effect the economic of the business owed by the business.
Assets
Anything that has an economic value owned by the business.
Balance Sheet
Business transactions
Actions that cause a change in the assets, liabilities or in the owner's equity.
Source documents
The original copy of the transactions or proof of the transactions on the balance sheet.
Formats for balance sheets
Statement of financial position
equity and then long-term liabilities and then current liabilities
long-term assets and then current assets
Classified balance sheet
current liabilities and then long-term liabilities and then equity
Long-term liabilities - things that take more than a year to pay off. For example: heavy bank loans or mortgages.
Current liabilities - things that are due in a year. For example: account payables.
current assets and then long-term assets
Long-term assets - items that last longer than a year. For example: equipment, buildings, or lands.
Current assets - cash or assets that are converted to cash within a year or can be used up in a year. For example: bank or accounts receivable.
Debtors and Creditors
Accounts payable (creditors)
They are accounts for the companies that the business purchased from and still have to pay them back. The people who are owed money to are creditors.
Accounts receivable (debtors)
They are accounts for customers who purchased products but have not paid the company yet. The people who owe money to the company are debtors.
GAAP
Generally Accepted Accounting Principles
Objectivity Principle
There has to be a clear, verifiable document proving that the transaction is real. If the transaction cannot be proven, then it will not be recorded.
Continuing Concern Principle
It is assumed that the business will keep running unless stated that it is not operating anymore.
The Cost Principle
All assets and liabilities that have value in the business have to be recorded.
Business Entity Concept
A long-standing principle that states that all personal affairs should be separate from the business' affairs.
Types of business transactions
Receipt on account
Money is received from the debtor to reduce the amount owed.
For example: Food Co. pays off the amount of $120 owed to Sunfood Supermarket on account.
Payment on account
Money is paid to creditor to reduce the amount owed.
For example: Jennifer paid $550 on account to reduce the amount of her mortgage.
Sale on account
The item that was sold was not paid for at the time.
For example: Kristin provided a $200 service for a customer on account.
Purchase on account
The purchased item or thing was not paid for at the time.
For example: Eric bought a building for $50,000 from Belleville Real Estate on account.
Ledger
T-accounts
Exceptional account balances
Usually the debit equals the credit but at times it has a balance opposite where the debit does not equal the credit and it doesn't mean a mistake was made.
Double-entry system of accounting
Whenever a transaction is made, two or more accounts are affected. Therefore, the total amount of debit amounts equal to the total amount of credit amounts.
Credit
on the right side
Debit
on the left side
Main topic
Trial balance
Out of balance
if the total amount of debit balances equals to the total of credit balances
In balance
if the total amount of debit balances equal to the total of credit balances
A list of ledger accounts that calculates the sum of the assets, liabilities, and owner's equity.
CPA - Chartered Professional Accountants
They are a trusted financial advisor who help individuals or businesses to reach their financial goals.
Forms of business ownerships
Corporation
These types of companies have parts of the the ownership sold to the public (stocks or shares) and the owners are called shareholders.
For example: Apple.
Municipal Corporations
They provide services for local citizens.
Crown Corporations
They are owned by provincial or federal governments.
Public Corporations
They are listed for sale to the public and anyone can buy them.
Private Corporations
They are not listed for sale on stock exchanges and only a few people can own the business.
Partnership
These types of companies are owned by two or more individuals and their responsibilities are split equally.
For example: online clothing business.
Limited Partnership
General Partnernship
Sole proprietorship
These types of companies are owned by one person.
For example: lemonade stands.
Roles in accounting
Forensic accountant
They are in charge of compiling financial evidence, developing computer applications, managing the information collected, and communicating their findings in form of reports or presentations.
Tax accountant
They are in charge of keeping their clients updated on their return information, and working with them before tax time to get a plan that will help them reach their desired financial goals.
CFO - Chief Financial Officer
They are in charge of cash flow, financial planning, analyzing the company's financial strengths and weaknesses, and proposing corrective actions.
Controller
They are in charge of reporting material budgeting variances or expenditure variances to management.
Auditor
They are in charge of reviewing the company's financial statements, documents, data, and accounting entries.
Bookkeeper
They in charge of the general ledger. They record all transactions, post costs and income, make payroll calculations, prepares payroll cheques, and other payroll records.
Types of businesses
ASPE
The Accounting Standards for Private Enterprises are accounting principles for small-medium sized enterprises that do not have to report their financial data to the public.
IFRS
The International Financial Reporting Standards are a group of accounting standards that have to be followed by businesses.
IASB
The International Accounting Standards Board is an organization that develops and approves IFRS for the private sector.
AcSB
The Accounting Standards Board establishes standards for use by Canadian entities outside the public sector (like private enterprises).
Not-For-Profit Organizations
Not-For-Profit Organizations are organizations that do charity work or help out for certain things and are not doing it for money or for profit. For example, Red Cross is a not-for-profit organization because they are helping people but they aren't making a profit.
Merchandising Business
The business does not make their own products but they buy products from manufacturing businesses and resell the products for a higher price. For example, Best Buy is a merchandising business because they get products from other companies and resells them.
Manufacturing Business
The business makes their own products and sells them. For example, Honda is a manufacturing business because they create their own models of cars and they sell them.
Service Business
The business does not sell products but they assist customers or does a service. For example, a hospital is a service business because they mainly treat patients and they aren't known for selling products.
