What is Accounting?

Accounting is the language of business in the sense that it is used to: identify, record, and report the transactions of a business.

A business may be in the form of a proprietorship, partnership, or a corporation. Each business organization form has characteristics which are similar to the others and some which are unique.

  • Proprietorship – the business owned by one person who is personally liable (ie responsible) for all debts incurred by the business.
  • Partnership – the business owned by more than one person each of whom is personally liable for all debts incurred by the business.
  • Corporation – the business owned by shareholders. Created under provincial and federal laws, a corporation is a separate legal entity and is responsible for its own debts.

Business transactions are accumulated and reported on three types of financial statements:

  • 1. Income Statement – reports on revenues and expenses.
  • 2. Balance Sheet – reports on assets, liabilities, and owner’s/shareholder’s equity.
  • 3. Statement of Cash Flows – reports on sources and uses of cash.

Collectively, these statements describe the financial well-being of a business. Other economic entities which report financial transactions include: cities, clubs & societies, schools & hospitals, strata corporations, and government agencies.

Those needing and interested in reading and interpreting financial statements are called the users. They include:

  1. Owners
  2. Managers
  3. Lenders
  4. Governments
  5. Labour Unions
  6. Customers/Vendors
  7. Investment Analysts
  8. Investors