Accounting

Claims Against the Asset: Who Owns What?

Owner

The owner of the business is the person in control of all the business's assets and directly receives the businesses profits. They are also responsible for all the businesses liabilities

Creditor

A creditor is and entity who is owed money, this means another entity is in debt to this entity

Debtor

A debtor is someone who owes money, or is in debt to another entity. The payment for this debt could be done in cash, with other assets, or services.

Accounting Principles: Rules and Regulators

Canadian Revenue Agency

The CRA is responsible for receiving and administering the taxes of Canadians, they also run programs for various benefit and incentive programs. The CRA enforces the taxation laws of Canada and is responsible to send out warnings and penalties in the case of incorrectly filed taxes.

Generally Accepted Accounting Principles

GAAPS are commonly followed accounting practices, standards, and procedures. This allows for consistent and honest accounting, and is important when.

Business Entity Concept

This GAAP dictates that business and personal accounting must be separate, and should never mix or appear on the others balance sheet.

Cost Principle

This GAAP states that the valuation of assets in a ledger or balance sheet must always be the original value, and not the current value of the asset. This is used in the case of recording the value of equipment, supplies, or automobiles.

Continuing Concern Concept

This GAAP makes accountants use the assumption that the business will continue to operate unless specifically stated otherwise, in which case the value of the companies assets will be revalued before being recorded on a final balance sheet.

Principle of Conservatism

This GAAP states that the valuation of assets should be fair and realistic. The accountants estimated value of the assets must be reasonable and not over or under value assets.

Objectivity Principle

This GAAP states that accounting recordings should only be based off of factual and real information, and not subjective data.

International Financial Reporting Standards

The IFRS sets a standard set of reporting rules for accounting, allowing business from varying countries to properly and efficiently share accounting data.

Financial Position

Profit

A financial gain made by a company, this is how much money is made by the company, and is calculated by subtracting the companies losses from the total revenue of the company in the same period.

Loss

The financial loss of a company, where the company has lost money. This can be done by selling supplies or equipment for less then what they were bought for, or having to pay expenses like rent or debts.

Revenue

The total income of the company, the amount paid for services or sales without accounting for the costs to provide the service or adding in the expenses for the company.

Analyzing Transactions

Debit and Credit Theory

This theory states that debt is recorded on the left side of the t-account, while credit is recorded on the right. At the same time assets, liabilities, and equity, are stored on the side of the table that they appear on in the basic accounting equation.

Debt

Money owed or due to another entity

Credit

Money or debt owed to you or your company

Double Entry Accounting System

This concept is used to make sure assets are equal to liabilities and credits, and is related to the basic accounting formula, this explains why equity is stored as a credit value.

The Accounting Equation

Equity

Equity is the value of your assets minus the value of your liabilities, this gives the overall value of the company.

Net Worth is a commonly understood way of talking about equity, when somebody mentions the net worth of a person or business, they are talking about equity.

Capital, is another term for the Equity of a company, this is most commonly done through the capital account on a balance sheet, capital can be further broken down into different accounts.

Fees Earned Account

Expenses Accounts

Owners Drawings Account, this account is money drawn by the owner for personal use, and is technically a loss to the business.

Liabilities

Liabilities are money owed to others by the company, this is the companies debts and obligations.

Accounts Payable, money owed to others for services or supplies/equipment

Loans, money borrowed from another entity which must be paid back with interest

Assets

Assets are the resources of the company, they make up the value of what is directly owned by the company and what is credited to the company by others.

Accounts Receivable, money owed to the company for services or sales.

Bank, the amount of physical money in the business, also known as Working Capital, which is money that can be readily spent by the company.

Supplies/Equipment, physical resources for the business

Financial Statements

Ledger

A ledger displays the debt and credit for accounts, and allows for a sum total of each, similar to a balance sheet showing whether debit and credit is in balance with one another.

Balance Sheet

A balance sheet is the formal way to share accounting information, and provides the final valuation of all assets, liabilities, and equity for a company at a certain time.

T-Accounts show transactions for a single account, which are in turn all put together on a balance sheet to calculate the final total, they can also be inputted into a ledger to find the valuation of assets, liabilities, and equity

d

Equation Analysis Sheets are a basic form of recording the value of accounts and showing transactions, as well as showing a companies total assets, liabilities, and equity. they are very good for representing change in the valuation of an account, however they are not very efficient when many equations are occuring.

Forms of Ownership

Sole Proprietorship

Where the business is under one owner and is not considered a separate entity from the owner, who owns all the assets, takes home all the profit, and makes all of the decisions.

Partnership

Similar to a sole proprietorship, a partnership is where two people share the assets and profits of the business, the business is still not considered a separate entity from the owners. A benefit is having more potential capital, however there is potential for disagreements.

Unlimited Liability, meaning that the owner/owners are fully responsible for all of the expenses, debts, and losses of the business.

Corporation

A corporation is considered a person by the law, and is a separate entity. The business is owned by shareholders, who buy stake in the company and share in the profits. A major issue is the amount of capital required to run a corporation, so there is constant pressure to attract new shareholders.

Shareholders, an entity that buys into a corporation by purchasing shares of the corporation, in doing this they receive dividends and share in the profit of the business.

Franchisee

A franchisee is where you open a specific branch for a franchise (e.g. McDonalds'), there are specific rules and fees to become a franchisee for a company, yet franchises tend to be a very safe and profitable business.

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