Chapter 3
The Accounting Framework
72
In Summary
Describe the users of accounting information
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Internal users include owners and employees of the business.They use accounting information
to make internal strategic decisions regarding products, services, and business departments.
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External users include investors, suppliers, lenders, and customers of the business. Financial
statements help these users make important business decisions.
Describe the fields of accounting
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Financial accounting serves the needs of external users by preparing financial statements.
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Managerial accounting provides valuable information to internal users to make decisions
regarding the future of the business.
Compare the different forms of organization
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A small business that is owned by one person is generally structured in the form of a sole
proprietorship. Sole proprietorships are private enterprises.
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A partnership is a business owned by two or more persons operating under a partnership
agreement. Partnerships are private enterprises.
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A corporation is a business that is registered with the provincial or federal government and
sells ownership of the company to individuals in the form of shares. Corporations may be
private or public.
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Sole proprietorships and partnerships are subject to unlimited liability, which means that
one or more owners are personally and legally accountable for the liabilities of the business.
Corporations (both private and public) are subject to limited liability, which means that their
risk is limited to their monetary investment in the business.
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Unlike other businesses, profits made by not-for-profit organizations may be paid out (redis-
tributed) to the community by providing services.
Identify the qualitative characteristics of financial information
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The four qualitative characteristics of financial information are relevance, reliability, under-
standability, and comparability.
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Accountants may face a trade-off between two or more characteristics (e.g. relevance and
reliability).
List and apply basic accounting assumptions and principles
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The assumptions of the accounting framework are the business entity, going concern, and
monetary unit assumptions.
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