Accounting: What, and Why?

What is accounting?

There are 5 main activities:

Gathering Financial Information

Need to figure out the activities of the business or organization.

Preparing and Collecting Permanent Records

Records provide evidence of purchase, proof of payment, details of payroll, and so on. They also serve as the basis for dealings with other companies.

Rearranging, Summarizing, and Classifying the Data

It needs to be organized into a usable form.

Preparing Information Reports and Summaries

To help management make decisions To serve the needs of groups outside the

business, like bankers and investors To measure the profitability of the business

Establishing Controls to Promote Accuracy/Honesty Among Employees

As businesses grow, owners cannot take a daily role in all aspects of these businesses. They have to hire others to help them.

As soon as employees are hired, accounting controls become very important to ensure that the business is run properly and ethically.

Here are some questions we can answer with accounting

Is the business earning enough profit? Are the selling prices of the product set at the

right price? How much does Badr’s Organization

Services owe us? How much do we owe Bo Yan Carpentry? What is the value of all of the goods for sale?

Here are some questions we can answer with accounting:

Do any of the goods for sale need to be restocked?

To whom was cheque number 222 issued? How much does it cost to produce product

X? How much did Daniella earn last year? Are our customers paying their bills on time?

Here are some questions we can answer with accounting

Do we have enough money to meet our needs?

Can we finance a business expansion?

Questions others might ask

Should I lend money to this business? (bankers)

Should I buy into this business? (Potential investors)

Should I sell this business? (An owner) Is the business operating efficiently?

(Absentee owner)

Questions others might ask

Is the company growing satisfactorily? (Absentee owner)

Can the business afford to pay more to its employees? (Labour union)

Is the business paying the proper amount of income tax? (The government)

What can you use accounting for?

On the job Daily life Owning your own business Professional Accountant

-CA, CGA, CMA-Public accountants-Audits

Characteristics of business (Types of Business)

What is a business?

Manufacture and/or sale of goods or services in order to earn a profit.

The Service Business

Sells a service to the public. Makes no products (as its main activity)

What are some examples?

The Merchandising Business

Buys goods Resells them at higher prices (for profit)

Sometimes, service businesses sell products, but it is not the main businesses.

Manufacturing or Producing Business

Buys raw materials Converts them into products Sells these for profit.

Manufacturing or Producing Business

Similar to manufacturing, but they make materials.

Farms, oil companies, etc.

Non-profit Organization

Its activities help society. Not looking for profit.

Non-Profit Organizations

Keeping good records is very important for these organizations.

They very often get tax-exemptions or payments from the government.

They have to prove that their money is being used properly.

Non-Profit organizations

Charities

This is one of the worst charities in the United States. For every dollar that it raises for children, only 3 cents actually go to helping kids.

Forms of Business Ownership

Badr Organization Services-This is called Sole Proprietorship.-One owner. Could work alone, might have employees.

Weixi, Tony, and Mike, Lawyers-This is called a Partnership.-More than one owner.

Muna Corp. or Bo Yan Ltd. are called limited companies or corporations-Special forms of business. Different rights.-Owned by shareholders.

Categories of Accounting Work

1. Routine Daily Activities-Bills to process -Cheques to prepare -Daily banking -Recording transactions -Preparing business papers

Categories of Accounting Work

2. Periodic Accounting Activities-Happen at regular intervals-Payroll-Financial reports monthly-Sales taxes to the government (regularly)-Income Tax returns (Once a year)

Categories of Accounting Work

3. Miscellaneous Activities-Cannot be predicted-Employees leaving-New equipment coming in-Problems with bank loans

The Accounting Cycle

Fiscal Periods-Usually a year

Accounting Cycle refers to , activities that occur regularly through the year.

Becoming an Accountant

Very BORING. Very important though. Good pay too.

Lots of jobs using accounting skills. Some are entry-level (not a lot of skills needed).

Others are more demanding. Business, Commerce, Economics degrees all

expose you to accounting. Experience is as important as education.

Professional Accounting Organizations

To be an accountant you need to pass a test given by a Canadian Accounting Association.

Canadian Institute of Chartered Accountants(Chartered Accountants CA)

Certified General Accountants Association of Canada(Certified General Accountants CGA)

Society of Management Accountants of Canada(Certified Management Accountant CMA)

How to be one!

Need an undergraduate degree. Two to three years of special courses after

graduation. Different associations have their own

requirements. CICA publishes the handbook that the other

two use as rules.

Changes for Canadian Accountants

The groups might merge in the future. They would be “Chartered Professional

Accountants.” Over 200,000 accountants would be affected. There are also new laws. Before 2011,

accountants followed Canadian GAAP. Now they follow International Financial Reporting

Standards.

Roles in Accounting

Accounting Clerk/Bookkeeper-They record transactions, necessary documents are there.-Balancing the ledger-Making payroll calculations, preparing cheques and records-Carrying out transactions

Roles in Accounting

Accountants:-develop strategies for entering data correctly-ensuring standards are met-interpreting the data-prepare reports based on data-decision-making-supervising accounting employees

Technology

We will be working with technology. Accountants have to know how to use it.

They are responsible for setting up systems (using software).

Clerks use them to enter data, accountants have to be excellent with the software.

Weekend Work (to go with your balance sheet assignment)

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