ACCOUNTING AND

BUSINESS
Chapter 1

As a student just beginning the

study of accounting, you would
naturally like to know exactly
what accounting is. There is no
simple definition. Accounting is a
system of dealing with financial
information that provides
information for decision-making
 What is Accounting?
Five main activities involved in Accounting

Gathering financial information about the

activities of a business or other
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 dealing with other
 Five main activities cont.
Rearranging, summarizing and
classifying financial information into a
more useable form

Preparing information reports and

summaries for the following purposes:
a) To help management reach decisions.
b) To serve the needs of groups outside the
business, such as bankers and investors.
c) To measure the profitability of the
business.
 Five main activities cont.
Establishing controls to promote accuracy
and honesty among employees

-As businesses grow, owners can no

longer look after everything alone. They
have to hire others to help them. As soon
as employees are hired, accounting
controls become essential.
 Accounting An Informational System

By enabling financial information to be

gathered and prepared, a good accounting
system provides the answers to many
questions. For example, owners and
managers might seek answers to questions
such as the following:
Is the business earning enough money? Are the selling prices of the products
high enough?
How much does ABC Company owe the business? How much does the business
owe to XYZ Company?
What is the value of all of the goods for sale? Do any of the goods for sale need
to be restocked?
To whom was cheque No. 502 issued? How much does it cost to produce
product W? How much did John Smith earn last year?
Are our customer paying their bills on time? Do we have enough money to
meet our needs?
Can we finance a business expansion?
 Accounting An Informational
System Pt. 2
Other persons, companies, or organizations
might seek answers to the following
questions:

Should I lend money to this business? (A banker)

Should I buy into this business? (A potential investor)
Should I sell this business? (Owner)
Is the business well run? (An absentee owner) (Owner who is not at the
business)
Is the company growing satisfactorily (An absentee owner)
Can the business afford to pay more to its employees? (a labour union)
Is the business paying the proper amount of income tax? (the
government)
 Why Study Accounting?
Accounting on the Job

Those of you who decide to enter the

business world will find employment
more easily if you have a background in
accounting. A large number of jobs
require accounting and clerical skills. The
higher levels require more training and
experience but they also offer higher
salaries.
 Why study Accounting?
Accounting in Daily Life

A working knowledge of accounting is an

advantage in daily life. An accounting
background will help you with the language of
business as well as accounting concepts. You
will be better able to handle your personal
business affairs, such as preparing a personal
budget, keeping personal financial records,
and preparing your income tax return. With an
improved grasp of financial matters, you will
be in a better position to take advantage of
business opportunities or to understand the
 Why Study Accounting
Owning Your Own Business
Many people want to own their own business. In fact, small
business. In fact, small business is the fastest growing segment
of our economy. If you achieve this goal, you will soon find your
self faced with accounting tasks such as:
Banking
Keeping track of the amounts owed by customers
Keeping accounting records for the government
Producing an income statement for income tax purposes
Possibly, preparing payrolls and making payroll deductions

Clearly, a knowledge of accounting is helpful in small business. If a

business is to be successful, the owner must be able to make
sound management decisions based on good financial records.
Accounting as a Profession

There are three types of professional organizations of accountants in

Canada
1. Charted Accountant (CA)
2. Certified General Accountant (CGA)
3. Certified Management Accountant (CMA)
A public accountant serves the general public for a fee in the
same way as a doctor or a lawyer does. The main type of work
done by a public accountant is auditing.
Auditing is the examination and testing of books, records, and
procedures of a business in order to be able to express an
opinion about it financial statements.
Public accountants also work as management consultants and tax
advisors.
 Complexity of Business
There are many laws laid down by the
government concerning fair business
practices, income taxes and so on.

These laws have become very complex

The increasing complexity is why

accounting is such an important
profession.
Characteristics of Business
Businesses are the economic framework
upon which our society is built.

But, what is a business?

Generally: a business involves the

manufacture and/or sale of goods or
services in order to earn a profit.
 Types of Business
There are 4 types of business:

1. The Service Business

2. The Merchandising Business
3. The Manufacturing or Producing Business
4. The Non-Profit Organization
 The Service Business

-A service business sells a service to the

public
-It does not make or sell a product as its
main activity
-Common service business:
-Hairdressing salon
-Tutoring service
-Dentist
 The Merchandising
Business
-A merchandising business buys goods and
resells them at a higher price for a profit.

-Common merchandising business

-Clothing stores
-Music stores
-Supermarket
 The Manufacturing or
Product Business
-A manufacturing business buys raw materials,
converts them into new product, and sells
these products to earn a profit.
-Common manufacturing business:
-Construction company, paper mill, steel
plant
-A producing business produce materials that
they sell
-Common producing business:
-farm, oil extraction, mining, forestry, hunting
and fishing
 The Non-Profit
Organization
-A non-profit organization may carry on
activities to meet social needs and not for
financial profit.

-Common Non-Profit Organizations:

-Church
-A service club
-Organization (Cancer Society)
-Recreational club
 Forms of Business
Ownership
Sole Proprietorship
A business enterprise, the equity of which
belongs to one person (business that belongs
to one person).
Partnership

A form of business in which more than one

person shares in the ownership and operation
of a business.
Limited company or corporation

A special form of business that is owned by

share-holders
 Questions for today
1. What are the three types of professional
organizations of accountants in Canada?

2. What are the four types of business? Give

an example of a common type of each
business

3. What are the three forms of business

ownership? Define each type.
 The Nature of Accounting
Accounting work can be divided into three
categories

1. Routine Daily Activities

2. Periodic Accounting Activities
3. Miscellaneous Activities
 Routine Daily Activities
These activities occur in the same way
nearly every day of the year.

They include:
Processing bills

Preparing checks

Daily banking

Recording transactions

Preparing business papers

 Periodic Accounting
Activities
These activities occur at regular intervals.
Pay cheques are prepared every week or

two (sometimes monthly)

Bank accounts are checked every month

Financial reports are prepared each

month and every year

Income tax return is prepared each year,

as required by government regulation

 Miscellaneous Activities
These are activities that cannot be
predicted

Hiring new staff

Bank managers have last minute questions
Salespeople call
Last minute meetings
The Accounting Cycle

We will be cover the terms used here later in the

course
 The Accounting Cycle
Accounting is thought of as occurring in
cycles.
Accounting activities are performed in
relation to equal periods of time known
as fiscal periods
-Fiscal periods are usually one year
Each cycle is built upon the cumulative
results of previous cycles. The business
does not have a fresh start each fiscal
period.
 Professional Accounting
Organizations
Certified General Accountants Association
Members professional designation (CGA)
www.cga-canada.org
Society of Management Accountants of
Canada
Members professional designation (CMA)
www.cma-canada.org
Canadian Institute of Charted
Accountants
Members professional designation (CA)
www.cica.ca
 Training to be a Professional
Accountant
For each organization, they have their
specific requirements that can be found
on their website.
Takes around 6 years for post secondary
study and work
Require a university degree and to
complete 2-2 years of specialized
courses and work experience.
 Roles of Accounting
Many people confuse accounting and
bookkeeping. Accounting and
bookkeeping are different, although each
is essential to the successful operation of
a business. The terms bookkeeping and
accounting clerk describe the same job,
but accounting clerk is becoming the
more popular designation.
 The Accounting Clerk
Some of the jobs of an accounting clerk are:
Ensuring that transactions are properly

recorded and that the necessary

supporting documents are present and
correct
Recording the accounting entries in the

books of account and balancing the

ledger as necessary
Making the payroll calculations and

preparing the payroll cheques and other

payroll records
 The Accountant
Some of the things an accountant is concerned
with are:
Developing a system to ensure that correct

data are entered into the accounting system

Ensuring that generally accepted accounting

standards are met

Interpreting the data produced by the

accounting system
Preparing reports based on the data output

from the system

Participating in management meetings and

assisting in making business decisions

Supervising the work of all accounting

employees
 Accounting terms to know
Accountant Accounting Accounting Clerk
Accounting Cycle Auditing Bookkeeper
Corporation Limited Company
Manufacturing Business Merchandising Business
Non-Profit Organization Partnership
Producing Business Public Accountant
Service Business Sole Proprietorship
 Todays Questions
1. List the three activities accountants do
and give an example of each.
2. What is a fiscal period?
3. How long does it usually take to become
an accountant?
4. What are some jobs an accounting clerk
does?
5. What are some jobs an accountant does?