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ACC 100 Chapter 1

1. Write a definition of the primary sector. What industries would be categorized in the primary sector? Primary Primary sectors are where the raw materials or foods come from, it is the starting point of any industry. Industries that fit into are logging, mining, agriculture and fishing, etc.… 2. Write a definition of the secondary sector. Give examples of three business that would be categorized in the secondary sector. Secondary sectors are where they take the extracted materials or food from the primary sector and turn them into goods. Examples of such businesses would be car manufacturing factories, frozen food factories and cardboard box factories. 3. Write a definition of the tertiary sector. Provide the names of three companies that would be categorized in the tertiary sector (e.g. Canadian Tire) A tertiary sector is when the finished product is sent off from secondary sectors to destinations where they are sold. Such examples are restaurants, furniture stores and music shops. 1. A fashion designer would be categorized in which business sector? Be sure to explain WHY you think it belongs in that sector. Depends on what they do if they use the fabrics to create clothing then they would be secondary if they only design the clothing it would be tertiary as it is just a service. A retailer earns profit by reselling goods or providing services to consumers. Wholesalers buys large quantities of goods from manufacturers, resells to retailers. Wholesalers do not sell to consumers (the public). Stakeholders are individuals who affect or are affected by the actions of the business. Internal stakeholders work for the business. External stakeholders are outside the business their objectives relate to decisions they will make about money. Internal Stakeholders: Employees - accounting, cash flow, collections Managers CEO - capital structure (debt, equity(shares), preferred shares) Plant supervisors - afford to raise wages

External Stakeholders: Creditor - loan you money, % interest Analyst - Independent decision, buy, sell, hold... Investor - good investment, dividend, growth Accounting system: an information system that collects, groups, and communicates business financial position, including its financial health and profitability. Without it stakeholders cannot make decisions that help meet their objective. External stakeholders don't have access to the accounting system, so they rely on financial statements. Financial statements: tell a business's story what it does and how well it does it. They provide financial performance, current financial positions, and the clash flow. External stakeholders use such information to make decisions. Qualitative characteristics: what the stakeholders want financial information to be faithful, relevant, comparable, verifiable, timely and understandable. Qualities include: Faithful: Truthful, meaning it is complete, free of error, and neutral (unbiased). Relevant: Applicable or pertinent to your decision-making, helps you predict the future and/or confirm decisions you made in the past. Comparable: Can compare the same business from year to year OR between two different businesses in the same industry. Verifiable: Anyone looking at the information would determine similar amounts Timely: Information is provided quickly (as old information is less useful) Understandable: Group and present information so it is clear and concise.

ICDQ1-1 Categorize each of the following jobs or businesses into the correct business sector. Use 1 for primary, 2 for secondary, and 3 for tertiary. Name/Description Business Sector Q1 Medical researcher 3 Q2 Clothing manufacturer 2 Q3 Taxi (or Uber) driver 3 Q4 Lawn care company 3 Q5 Coca-Cola Company 2 Q6 Fish farms in British Columbia 1 Q7 Ryerson University 3 ICDQ1-2 In order to meet their objectives, stakeholders have questions they need answered. Match the following stakeholders with the question(s) stakeholders would most likely ask about a business, given their objective(s). Stakeholders: Q1. Q2. Q3. Q4. Q5.

Tax adviser to a business Marketing manager Auditor in a large accounting firm Supplier Creditor (banker)

Question(s) stakeholders might ask, given what they want. B. A. E. C. D.

Question ID: A. B. C. D. E.

Questions: What is the expected revenue from a new product? Are tax laws being followed? Will a business be able to pay for its purchases on time? Does the business have enough cash to pay interest? Is the business following required accounting rules?

ICDQ1-3 For each of the independent scenarios given below, name the qualitative characteristic that you think applies and indicate if the qualitative characteristic has been VIOLATED (not followed) or FOLLOWED. Be sure to explain WHY you think that is true! More than one qualitative characteristic may apply. Your answer should be in the following format: "The qualitative characteristic ____(name of characteristic)____ is being (choose either violated or followed) because __ _(explanation why you think this is the case)________." Your explanation MUST reference the definition of the qualitative characteristic that you chose. The owner of a business buys a car for her daughter using the business’s money and records the car on the business’s accounting system. The car is never used for business purposes. Violated faithful characteristic for using companies expenses for personal use.

Cooper Company changed one of its accounting policies this year because the new policy will provide better information for decision-making. The business has recalculated the financial information for all prior years and announced the change, including its effect on the financial statements, to all stakeholders. Company has followed all characteristics including Relevant, Understandable.

Greene Company receives a bill for $13,000 but records it as $1,300. Violated faithful characteristic for lying about statements.

ICDQ1-4 Draw a line between the qualitative characteristic and the assumption you think was developed to ensure that financial information has that quality. Note that some characteristics may connect to more than one assumption.

ICDQ1-5 You have already seen the scenarios, below, when you looked at qualitative characteristics. Now, instead of using the qualitative characteristics, choose the assumption that you think applies and indicate if it has been VIOLATED (not followed) or FOLLOWED. Be sure to explain WHY you think that is true! More than one assumption may be applicable. The owner of a business buys a car for her daughter using the business's money and records the car on the business’s accounting system. The car is never used for business purposes. Separate Entity (car is not used for business)

Cooper Company changed one of its accounting policies this year because the new policy will provide better information for decision-making. The business has recalculated the financial information for all prior years and announced the change, including its effect on the financial statements, to everyone who uses the statements. Full Disclosure (Disclosing fully of changes in the company)

Greene Company receives a bill for $13,000 but records it as $1,300. Full disclosure (Lying about statements)

Practice Questions PQ1-1 Categorize each of the following jobs or businesses into the correct business sector. Use 1 for primary, 2 for secondary, and 3 for tertiary. Name/Description Carpenter Doctor McDonald's Corporation Hydro One Web designer Advertising company Dairy farmer

Business Sector

The Keg Restaurant Firefighter

PQ1-2 In order to meet their objectives, stakeholders have questions they need answered. Match the following stakeholders with the question(s) they would most likely ask about a business, given their objective(s). Note that stakeholders might have multiple questions but focus on which questions would be critical to each stakeholder. Stakeholders:

1. 2. 3. 4. 5. 6. 7.

Marketing manager Auditor in a large accounting firm Production manager in a manufacturing firm Shareholder Canada Revenue Agency Creditor (banker) Store manager

Question: A. B. C. D. E. F. G.

Question(s) that stakeholders might ask, given their objectives.

Questions: Are there enough raw materials to manufacture the new product? What is total taxable income? Does the business have enough cash to pay dividends? What is the advertising budget for the current year? What is the business's current level of debt? Has the company followed GAAP when preparing their financial information? What products need to be ordered?

PQ1-3 Provide the definition of each of the qualitative characteristics WITHOUT looking at the chapter! Quality: Description: Faithful

Relevant

Comparabl e

Verifiable

Timely

Understan dable

PQ1-4 For each of the scenarios given below, name the qualitative characteristic that you think applies and indicate if that qualitative characteristic has been VIOLATED (not followed) or FOLLOWED. Be sure to explain WHY you think that is true! More than one qualitative characteristic may apply. ABC Company has always included a 12-month period, from the beginning of January to the end of December, in its financial statements. This year, because December sales were very poor, the business has included 13 months, from the beginning of January to the end of the following January.

HDT Company is a new business that just started out. At the end of the year the business’s accountant checks out how other businesses in this industry are recording their business transactions and ensure HDT uses similar policies.

DHD Company has not produced financial statements in 2 years. The bank has asked repeatedly but the owner of DHD Company has ignored the bank’s request.

PQ1-5 Provide the definition of each of the assumptions WITHOUT looking at the chapter! Assumption Description: Separate Entity Unit-of-Measure Going Concern Historic Cost Time Period (Periodicity) Full Disclosure

PQ1-6 You have already seen the scenarios below when you looked at qualitative characteristics. Now that you know the assumptions, choose the assumption that you think applies and indicate if it has been VIOLATED (not followed) or FOLLOWED. Be sure to explain WHY you think that is true! More than one assumption may apply. ABC Company has always included a 12-month period, from the beginning of January to the end of December, in its financial statements. This year, because December sales were very poor, the

business has included 13 months, from the beginning of January to the end of the following January.

HDT Company is a new business that just started out. At the end of the year the company’s accountant checks out how other businesses in this industry are recording their business transactions and ensure HDT uses similar policies.

DHD Company has not produced financial statements in 2 years. The bank has asked repeatedly but the owner of DHD Company has ignored the bank’s request.

PQ1-7 Name all the qualitative characteristics and then name the assumptions. DO NOT look at the chapter…do it from memory…because, for midterms and exams, you have to be able to name and define every single one of them! When you have named them indicate, using connecting lines, which assumption was developed in response to which qualitative characteristic. Note that some characteristics may connect to more than one assumption....