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ACC100

Midterm Notes

TermDefinition
Primary Sector grows & gathers raw materials (Ex. a tree)
Secondary Sector where raw materials are turned into products (Ex. a tree into a table)
Tertiary Sector where goods & services are sold to consumers (Ex. Canadian Tire, Lowe's, IKEA)
Retailer earns a profit by reselling goods/providing services to consumers (also called the public) in order to satisfy their wants & needs
Wholesaler buys large quantities of goods from manufacturers, warehouses them & then resells them to retailers, wholesalers typically do not sell to consumers (public)
Stakeholders individuals/groups who either affect the business or are affected by the actions of the business
Internal Stakeholders work for the business - their objectives generally related to their ability to keep their jobs, do their jobs more efficiently, get promoted & get paid for their work
External Stakeholders outside of the business - objectives generally relate to decisions they will make about money (also called resource allocation decisions) or about how the business can affect them, either positively/negatively
General Employee INTERNAL - earn high wages and keep their jobs
Marketing Manager INTERNAL- impact of advertising (marketing employees)
Company Lawyer INTERNAL - ensure laws are followed
Tax Manager INTERNAL - ensure taxes are minimized and tax laws are followed
Owners (sole proprietor) INTERNAL - maximize profit, grow/expand the business
Shareholders (of a corporation) EXTERNAL - decide to invest/not invest, earn income form their investment
Governments EXTERNAL - ensure businesses pay taxes, employ more people, follow laws
Customers EXTERNAL - buy quality products at low prices, gt the best warranties on products/services
Suppliers EXTERNAL - sell products/services to the businesses, get paid on time & in full
Creditors (banks) EXTERNAL - decide whether to lend money & how much, ensure business repays loan plus interest on time
Society/Community EXTERNAL - employ people from the community, improve the standard of living, run their businesses in an ethical manner, reduce/eliminate any negative environments effects of their business practices, support local charities
GAAP Generally Accepted Accounting Principles - guideline when preparing financial accounting information about a business that is useful to external stakeholders for decision making
Financial Statements Tell's a business's story, what they do, and how well they do it. Provide a business's financial performance, its current financial position & its cash flows.
Qualitative Characteristics Qualities that stakeholders WANT financial information to have so they can use the information for decision making
Faithful QUALITATIVE - truthful, meaning it os complete, free of error, and neutral (unbiased)
Relevant QUALITATIVE - applicable/pertinent to your own decision making, helps you predict the future and/or confirm decisions you made in the past
Comparable QUALITATIVE - can compare the same business from year to year OR between two different businesses in the same industry
Verifiable QUALITATIVE - anyone looking at the information would determine similar amounts
Timely QUALITATIVE - information is provided quickly (as old information is less useful)
Understandable QUALITATIVE - group & present information so it is clear & concise
Assumption Based on the qualitative characteristics & are used by preparers to correctly record, measure & report information, also helps preparers to ensure that the financial information has the qualities stakeholders need to make decisions
Faithful ASSUMPTION - only the activities of the business are included in the businesses financial information
Unit-of-Measure ASSUMPTION - all transactions must be reported using the monetary unit of the country the businesses head office is located in, even if the business has offices in many countries
Going concern ASSUMPTION - businesses will continue their operations well into the future
Historic cost ASSUMPTION - all purchases will be recorded at the amount that wa spaid for them
Time period (Periodicity) ASSUMPTION - information is broken into artificial time periods such as a month, quarter or year, so that stakeholders can analyze & compare information to make decisions
Full disclosure ASSUMPTION - if something will affect the decisions of the external stakeholders, it must be reported
Accounting system An information system that collects, groups & communicates a business's financial position, including its financial health & profitability. The end result of a business's accounting system is financial information in the form of financial systems.
5 Financial Reporting Elements 1, Assets 2. Liabilities 3. Equity 4. Revenue 5. Expenses
Assets Owned - ownership has transferred Benefit the company in the future - used to generate revenue Happened in the past - transfer was a past event
Liabilities Owned to third parties - obligation Repaid in the future - give up cash, goods, or services Happened in the past - due to past event
Equity Wealth due to owners - owner's capital or retained earning
Revenue Income EARNED - provided a service or sold goods
Expenses Used, consumed, or incurred to help generate revenue
Expanded Accounting Equation Assets = Liabilities + Owner's Capital + Revenue - Expenses - Dividends
Income Statement Reports results of operations; revenues, expenses, loss or profits . Measures performance over a period of time
Basic Financial Statements Income statement Statement of retained earnings Balance sheet Statement of cash flows
Statement of Retained Earnings Reports how profit (or net loss) / dividends change equity. Changes in equity are mainly due to generation and distribution of profit. Stakeholders asses use of profit and the amount retained vs. distributed to owners.
Balance sheet Reports the resources owned (assets), obligations owed (liabilities), wealth of the owners (equity)
Statement of Cash Flows Shows the cash inflows & outflows over the period as well as the cash position at the end of the period
Product costs All the costs that are incurred to purchase inventory. Includes the cost f the actual inventory purchased by also all the costs necessary to get the inventory onto the shelf, like shipping costs to get the inventory to your location.
Period costs All those costs that a business incurs in the normal course of the business that are NOT product costs. These are the expenses that are incurred to allow the business to run.
Perpetual inventory systems An excellent tracking system (computerized). It records every purchase and sale of inventory when it happens.
Credit terms Also known as "terms" for short , is the agreement between a business and their supplier with regards to when invoices have to be paid
Duty A tariff which importers pays on goods imported (brought) into Canada
Tariff A special tax charged on imports by the government to protect domestic businesses from more efficient or cheaper competition from other countries
F.O.B Shipping point The BUYER pays the shipping costs and the ownership of the goods transfers from the business shipping the goods to the buyer receiving the goods as soon as the goods are placed on the truck.
F.O.B Destination point The SELLER pays for the shipping costs and the ownership of the goods transfers from the business shipping the goods to the buyer receiving the foods only when the goods reach the buyer's door (the destination)
Created by: amaymesa