2. CHAPTER 1: Accounting in Action
Identify the use and users of accounting and the objective of financial reporting.
Compare different forms of business organizations and explain how Canadian accounting standards apply to these organizations.
Describe the components of the financial statements and explain the accounting equation.
Determine what events are recognized in the financial statements and how the events are measured.
Analyze the effects of business transactions on the accounting equation.
Prepare financial statements.
Copyright John Wiley & Sons Canada, Ltd. 2

3. Why is Accounting Important?
The information system that identifies, records and communicates economic events to users
Important to the world economy
Helpful for all business endeavours
Solid foundation for other business disciplines
Relevant and useful in other disciplines
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4. Using Accounting Information
Internal Users
Used for planning, organizing and running companies
Includes finance, marketing, human resources, production, company officers
External Users
Investors, creditors, labour unions, customers, regulators and other authorities
Used for decisions of ownership, credit, lending, assess compliance, performance
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5. Objective of Financial Reporting
Accounting information is communicated to external users via financial statements.
The main objective of financial statements is to provide useful information to investors and creditors (external users) to make decisions about a business.
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6. Copyright John Wiley & Sons Canada, Ltd.
Accounting & Ethics
For information to have value, must be prepared by individuals with high standards of ethical behaviour
Ethics
Standards of conduct used to judge actions
To Solve Ethical Dilemmas
Recognize situation and ethical issues involved
Identify and analyse elements
Identify alternatives and weigh effects on stakeholders
Select the most ethical alternative
Copyright John Wiley & Sons Canada, Ltd.

7. CHAPTER 1: Accounting in Action
Identify the use and users of accounting and the objective of financial reporting.
Compare different forms of business organizations and explain how Canadian accounting standards apply to these organizations.
Describe the components of the financial statements and explain the accounting equation.
Determine what events are recognized in the financial statements and how the events are measured.
Analyze the effects of business transactions on the accounting equation.
Prepare financial statements.
Copyright John Wiley & Sons Canada, Ltd. 7

8. Business Organizations
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9. Generally Accepted Accounting Principles (GAAP)
Common set of accounting standards
Responsibility of the Accounting Standards Board (AcSB)
Publicly accountable enterprises must adopt International Financial Reporting Standards (IFRS)
Private companies may adopt Accounting Standards for Private Enterprises (ASPE) or IFRS
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10. Concepts & Assumptions
Economic entity concept – activities of a unit or organization in society are kept separate and distinct from other entities and owner
Going concern assumption – organization will continue to operate in the foreseeable future
Monetary unit – only include transactions that can be expressed as an amount of money
Copyright John Wiley & Sons Canada, Ltd.

11. CHAPTER 1: Accounting in Action
Identify the use and users of accounting and the objective of financial reporting.
Compare different forms of business organizations and explain how Canadian accounting standards apply to these organizations.
Describe the components of the financial statements and explain the accounting equation.
Determine what events are recognized in the financial statements and how the events are measured.
Analyze the effects of business transactions on the accounting equation.
Prepare financial statements.
Copyright John Wiley & Sons Canada, Ltd. 11

12. Copyright John Wiley & Sons Canada, Ltd.
Balance Sheet
Assets
Resources owned or controlled by a business
Used to carry out activities such as production and distribution
Provide future services or benefits
Liabilities
Obligations arising from past events to make a future payment of assets or services
Present debts and obligations
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13. Balance Sheet (Continued)
Owner’s Equity
Represents owner’s claim on assets
Owner’s Equity = Assets − Liabilities
Components of owner’s equity (Shown in the Statement of Owner’s Equity):
Investments: Assets put into business by owner
Drawings: Cash or other assets withdrawn by owner for personal use
Profit = Revenues − Expenses
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14. Copyright John Wiley & Sons Canada, Ltd.
Accounting Equation
Assets must equal the sum of liabilities and owner’s equity
Liabilities are shown before owner’s equity because creditors’ claims are paid before ownership claims
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15. Copyright John Wiley & Sons Canada, Ltd.
Income Statement
Revenues: Increase Owner’s Equity
Result from business activities that are performed to earn profit
Result in an increase in an asset or a decrease in a liability
Expenses: Decrease Owner’s Equity
The cost of assets consumed or services used
Result in an decrease in an asset or an increase in a liability
Exclude withdrawals made by owners
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16. Accounting Differences by Type of Organization
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17. Accounting Equation Expanded
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18. CHAPTER 1: Accounting in Action
Identify the use and users of accounting and the objective of financial reporting.
Compare different forms of business organizations and explain how Canadian accounting standards apply to these organizations.
Describe the components of the financial statements and explain the accounting equation.
Determine what events are recognized in the financial statements and how the events are measured.
Analyze the effects of business transactions on the accounting equation.
Prepare financial statements.
Copyright John Wiley & Sons Canada, Ltd. 18

19. Recognition and Measurement
Recognition – the process of recording a transaction in the accounting records
Measurement – determining the amount that should be recognized
Historical cost is the primary basis used – reliable and verifiable, however may not be relevant
Fair value may be more relevant – the amount of consideration if sold in the open market
Copyright John Wiley & Sons Canada, Ltd.

20. CHAPTER 1: Accounting in Action
Identify the use and users of accounting and the objective of financial reporting.
Compare different forms of business organizations and explain how Canadian accounting standards apply to these organizations.
Describe the components of the financial statements and explain the accounting equation.
Determine what events are recognized in the financial statements and how the events are measured.
Analyze the effects of business transactions on the accounting equation.
Prepare financial statements.
Copyright John Wiley & Sons Canada, Ltd. 20

21. Copyright John Wiley & Sons Canada, Ltd.
Transaction Analysis
Accounting identifies, records and communicates the economic events of an organization
Only events that cause changes in assets, liabilities or owner’s equity are recorded
Accounting equation must always equal
Each transaction will have a “dual effect” on the equation
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22. Copyright John Wiley & Sons Canada, Ltd.
1: Investment by Owner
Owner invests $15,000 in computer business and names it “Softbyte”
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23. Copyright John Wiley & Sons Canada, Ltd.
2: Purchase Equipment
Softbyte purchases computer equipment for $7,000 cash
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24. 3: Purchases Supplies on Credit
Softbyte purchases supplies that will last several months for $1,600 on account
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25. 4: Services Provided for Cash
Softbyte receives from customers $1,200 cash for programming services it provided
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26. 5: Purchase Advertising on Credit
Softbyte receives a bill for advertising for $250, which it pays at a later date
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27. 6: Services Provided for Cash & Credit
Softbyte provides $3,500 of programming services and receives payment of $1,500
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28. Copyright John Wiley & Sons Canada, Ltd.
7: Payment of Expenses
Expenses paid in cash: rent of $600, salaries of $900, utilities of $200
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29. 8: Payment of Accounts Payable
Softbyte pays its outstanding advertising bill of $250 in cash
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30. 9: Receipt of Cash on Account
Softbyte receives $600 in cash from customers billed in transaction 6
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31. 10: Signed Contract to Rent Equipment
No effect on the accounting equation because assets, liabilities and owner’s equity have not changed
Accounting transaction has not occurred
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32. 11: Owner Withdrawal of Cash
Softbyte’s owner withdraws $1,300 for his personal use
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33. CHAPTER 1: Accounting in Action
Identify the use and users of accounting and the objective of financial reporting.
Compare different forms of business organizations and explain how Canadian accounting standards apply to these organizations.
Describe the components of the financial statements and explain the accounting equation.
Determine what events are recognized in the financial statements and how the events are measured.
Analyze the effects of business transactions on the accounting equation.
Prepare financial statements.
Copyright John Wiley & Sons Canada, Ltd. 33

34. Copyright John Wiley & Sons Canada, Ltd.
Financial Statements
Prepared after all transactions identified, recorded and summarized and are prepared in the following order:
1. Income Statement – presents revenues, expenses and profit or loss for a specific period of time
2. Statement of Owner’s Equity – summarizes the changes in owner’s equity for a specific time period
3. Balance Sheet – reports assets, liabilities and owner’s equity at a specific date
4. Cash Flow Statement – summarizes cash inflows and outflows for a specific period of time
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35. Interrelationship of the Financial Statements
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36. Interrelationship of the Financial Statements - continued
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37. Copyright John Wiley & Sons Canada, Ltd.