Chapter 1

What is accounting?
Accounting is an information system that identifies, records, and communicates economic events of an organization to interested users. Identifying involves selecting those events that are considered evidence of economic activity, relevant to a particular business organization. Once identified and measured in dollars and cents economic events are recorded and cents, economic events are recorded to provide a permanent history of the financial activities of the organization. Recording consists of keeping a chronological diary of the measured events in an orderly and systematic manner. The information is communicated through the preparation and distribution of accounting reports, the most common of which are called financial statement.

Who uses accounts information?

Internal users are those who manage the business and use accounting data in planning, controlling, and evaluate business and use accounting data in planning, controlling and evaluating business operations Examples include: Marketing managers. Production supervisions. Finance directors. company officers They require answers to questions such as I. II. Is there sufficient cash to pay the bills this month? What price must be charged for the product in order to make a profit? External users are those users outside of the business who need information about the financial position and performance of the company, included in this group are Investors: investors use accounting information to make decisions to buy, hold or sell their shares Creditors=creditors are accounting information to evaluate the risks of granting credit or lending money to a business.

Taxing authorities: the Canada customs and revenue agency wants to know whether the company respects the tax laws Others: other interested parties include regulatory agencies, customers and labour unions. Accounting must adapt and evolve to meet needs of the various users. Distinguishing between bookkeeping and accounting Bookkeeping usually involves only the recording of economic events and is therefore just one part of the accounting process Accounting involves the entire process of identification, recording and communicating. Financial accounting provides information for external users primarily. Managerial accounting provides information for internal users primarily The accounting profession There are 3 accounting designations available in Canada CA chartered accountant CGA certified general accountant CMA certified management accountant Accountants work in the following area. Public accounting accountants offer expert service to the general public through the services they perform Auditing- auditors examine information including the financial statements of companies and express an opinion as to whether the information is presented fairly in accordance with generally accepted accounting principle Taxations- tax specialist provide tax advice and planning, prepare tax retains and represent clients before government agencies Business advisory services consultants provide advice to management on matters such as the installations of basic computerized accounting systems, managing human resources, executive remuneration and, acquisition and dispositions. Private accounting- Managerial accountants and employees of individual companies and are involved in a number of activities including budgeting, tax accounting and internal auditing. Not for profit account- includes reports and control for government units, foundations, hospitals charities, etc Ethics- are the standards of conduct by which ones actions are judged a right or wrong, honest or dishonest.

In the process of solving an ethical dilemma the following steps should be applied Identify the ethical situation or issue that is involved Identify and analyse the principal statements in the situation Identify the alternatives and weigh the impact of each alternative on various shareholders. Generally accepted accounts principals. GAAP is a common set of standards used by accountants in reporting economic events the CICA is primarily responsible for establishing generally accepted accounting principles. GAAP has the status of law in Canada, for federally incorporated companies and for companies adhering to provincial securities commission CICA- Canadian institutes of chartered accounts. Assumptions. I. Going concern assumption Assumes that the firm will continue to operate in the foreseeable future supports the cost principle as the most relevant value to record assets, since they have been acquired for use and not for resale.