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Summary Chapter 1 - Introduction to Financial Statements: Purpose and Uses (Financial Accounting: Tools for Business Decision-Making, 6th Canadian Edition) - ADM1340

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Course
ADM1340

Institution
University Of Ottawa (U Of O )

A foundational guide explaining the purpose and structure of financial statements, the various forms of business organization, and key accounting principles such as GAAP, IFRS, and ASPE. Includes descriptions of financing, investing, operating activities, and types of financial statements.

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Uploaded on December 23, 2024
Number of pages 15
Written in 2024/2025
Type Summary

accounting
financial statements
internal users
external users
proprietorship
partnership
corporation
gaap
gaap
aspe
financing activities
investing activities
operating activities
statement of income
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Chapter 1: The Purpose and Use of
Financial Statements
1.1 - Uses and Users of Financial Statements
Accounting: the information system that identifies and records the
economic events of an organization

Internal Users
● Have access to internal accounting information to help them make decisions
● Access this information as required
● Accounting provides various internal reports (e.g., forecast cash needs and financial
comparisons of operating alternatives).

External Users
● DO NOT have access to accounting information other than what is available to the
general public
● Many other external users, such as:
○ Non-management employees
○ Potential employees
○ Customers
Investors (Owners/ Shareholders)
● Use accounting information to make decisions to buy, hold, or sell their ownership
interest
Creditors (Lenders)
● Such as bankers and suppliers
● Use accounting information to evaluate the risks of lending money or of selling on
credit

, 1.2 - Forms of Business Organization
Proprietorships
Definition: A business owned by one person (the proprietor)
● The owner has full control and is personally responsible for all business debts
(unlimited liability).
● Business income and losses are the owner's personal responsibility.
● The business records must be kept separate from the owner's personal records.
● Common examples include small businesses like hair salons, plumbers, and small
retail stores.
● A proprietorship is easy and inexpensive to set up with minimal capital needed.
● The business's life is tied to the owner's life, meaning it ends if the owner stops
operating it.

Partnership
Definition: A business owned by more than one person
● Partnerships are often formed to combine resources or skills.
● A formal partnership agreement outlines key details, making it more complex and
costly to establish than a proprietorship.
● Each partner usually has unlimited liability for all partnership debts.
● Partnership records must be kept separate from each partner’s personal activities.

Corporations
Definition: A business organized as a separate legal entity owned by shareholders
● It is complex and costly to establish compared to other business forms.
● Shareholders own shares and can become owners with small investments.
● Corporations have an indefinite life, continuing regardless of changes in ownership.
● Ownership is easily transferred through the sale of shares.
● Shareholders typically have limited liability, meaning they aren't responsible for
corporate debts beyond their investment.

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