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ACCT 1110
Ch 1: Accounting and the Business Environment LO1 Define accounting and describe users Read and understand LO2 Compare different types of business organizations Read and understand LO3 Describe concepts and principles of accounting Read and understand LO4 Use the accounting equation Need to know well LO5 Intro to financial statements (income statement) Read and understand Why was the cow grumpy? It was moooo-dy LO1: What is accounting? A system to capture, process, record and report financial information. Who are the users of accounting information? Managers, owners/shareholders, potential investors, CRA (tax authority), lenders/creditors, employees Note the differences between financial accounting and managerial accounting Financial accounting – use in this class ASPE: Accounting Standards for Private Enterprises IFRS: International Financial Reporting Standards Ethics in Canadian Professional Accounting Designations
LO2: Compare and contrast the forms of business organizations
**1. Sole Proprietorship
- Partnerships (LLP – limited liability partnership)
- Company/Corporation**
Assets – things that bring us benefit, hold ownership, as a result of a past transaction Liabilities – things that we owe, need to settle in the future (loans payable, AP, mortgages payable, leases) Equity – net wealth, net assets, everything we own less everything we owe, increases with sales revenue, decreases with expenses I buy a condo for $500,000, I have $50,000 to put down I mortgage the remaining, $450, Assets = Liabilities + Equity
LO4: The accounting equation! (Assets = Liabilities + equity)
- The owner, Lisa Hunter, invests $250,000 to start a new business, HEC Assets increase by $250,000, Equity increases by $250,
- HEC purchases land for a future office location, paying $100,000 cash Assets decrease (cash) $100,000, Assets increase (land) $100,
- HEC buys stationery and other office supplies, agreeing to pay $7,000 within 30 days Assets increase by $7,000, liabilities increase by $7,
- HEC earns service revenue by providing environmental consulting services for clients. Assume the business earns $30,000 and collects this amount in cash. Equity increases by $30,000, assets increase by $30,
- HEC performs consulting services for clients who do not pay immediately. In return for the services, HEC issues an invoice, and the clients will pay the $25,000 amount within one month. Assets increase by $25,000, and equity increases by $25, During the month, HEC pays $12,000 in cash expenses:
- Office rent, $4, Assets decrease by $4,000 and equity decreases by $4,
- Employee salaries, $6, Assets decrease by $6,500 and equity decreases by $6,
- Utilities, $1, Assets decrease by $1,500 and equity decreases by $1,
- HEC pays $5,000 to the store from which it purchased $7,000 worth of office supplies in Transaction 3 Assets decrease by $5,000 and liabilities decreases by $5,
- Lisa Hunter remodels her home at a cost of $30,000, paying cash from personal funds No effect on the accounting equation.
- The business collects $15,000 from the client, as partial payment for the consulting services performed in Transaction 5 Assets increases by $15,000 and assets decreases by $15,
Assets = Liabilities + Owner’s Equity Cash Accounts Receivable Supplies Land Accounts Payable L. Hunter, Capital
- $250,000 $250,
- ( $100,000) $100,
- $7,000 $7,
- $30,000 $30,
- $25,000 $25,
- ( $4,000) ( $4,000)
- ( $6,500) ( $6,500) 8_._ ( $1,500) ( $1,500)
- ( $5,000) ( $5,000)
- $15, 000 ( $15, )
- $(6,000) $(6,000) The accounting equation must always balance!
LO5: Financial statements There are usually 5 reports that make up the financial statements – income statement, statement of owner’s equity, the balance sheet, the cash flow statement, and the notes
Chapter Learning Objective Questions MAL Demo 1 1. Define accting and describe users
- Compare types of business orgs E1-
- Describe concepts and principles of acctingE1-3 E1-
- Use accting equation to analyze E1-7 E1-
- Prepare FS E1-10, E1-9, P1-5A, P1-7A E1-
- Explain diff accting stndrds Each week, I will provide you with this table Questions – these are not for marks but assigned to you for study – students who complete these and obtain understanding tend to do better in the course than students who ignore them. Solutions are posted on Blackboard. MAL – these are for marks and completed on the Pearson learning platform. You can practice these using the “Study Plan” in MAL, then attempt it under Assignments for marks. Please note due dates. Demo – you’ll note video recordings of me walking through an example question. They are organized by chapter on Blackboard. These are good to watch if you are completely stuck.
