Forms of Organizations Accounting: Identifying, measuring and communicating economic information to various users Business: Sole Proprietorship o 1 owner,

, unlimited liability Partnership o 2 owners, unlimited liability Corporation o Many owners (ownership based on shares) o Organized under province or federal government o Limited liability Financial Statements Reports from management to the external users which summarize how the company performed during the period Their attempts are to capture financial information about a company so users can make informed decisions Income Statement Reports the results of operations for a specific period of time Statement of Retained Earnings Reports the changes in retained earnings for a specific period of time Opening R/E Add: Net Income Less: Dividend Closing R/E The profit that is retained or kept within the business for future growth Balance Sheets (Snapshot of financial position) Reports the assets, liabilities, and shareholders equity as at a specific point in time ASSETS = LIABILITIES + OWNERS EQUITY (SHAREHOLDERS EQUITY) Owners Equity only includes Common Shares and Retained Earnings Cash Flow Statement Reports the cash receipts and payments for a specific period of time Operating activities Investing Activities Financing Activities Net Change in Cash Cash (beg of year) Cash (closing of year) Shows what the company received and paid cash for

The Accounting Equation ASSETS = LIABILITIES + OWNERS EQUITY (shareholders equity) OWNED = OWNED TO THIRD PARITIES + OWNED TO OWNERS Business Activities Financing o Sources of cash Investing o Uses of cash to procure future benefits (assets) Operating o Cash flows from operating activities Financial Statement Assumptions Economic Entity Each entity has its own books, records and financial statements that are separate from owners No intermingling of personal and business assets and liabilities or income and expenses Time Period Assumes it is possible to break up an entitys earnings in discrete time periods (a month, quarter, year) Necessary to provide users with financial results on a timely basis Requires use of estimates Cost Principle Record assets at cost paid to acquire them Continue to value assets at historical cost until sold More objective than market value Monetary Unit How we measure (e.g. Canadian dollar, Japanese yen, Mexican peso, etc.) Assumes economic measure is relatively stable; no adjustment for inflation made in financial statements Going Concern Assume business will continue indefinitely into the foreseeable future Justifies use of historical cost