Required Preparations

Please ensure that you have prepared the following prior to our second class in week 1:

• Make sure you can access your eText
• Make sure you can access our course in BrightSpace
• Make sure you have Visual Studio install on your laptop
• Make sure you can access your School OneDrive
• Read Chapter 1 in your eText
• Complete the "Getting to know you" Survey

The History of the Internet

As you might expect for a technology so expansive and ever-changing, it is impossible to credit the invention of the internet to a single person. The internet was the work of dozens of pioneering scientists, programmers and engineers who each developed new features and technologies that eventually merged to become the “information superhighway” we know today.

Long before the technology existed to actually build the internet, many scientists had already anticipated the existence of worldwide networks of information. Nikola Tesla toyed with the idea of a “world wireless system” in the early 1900s, and visionary thinkers like Paul Otlet and Vannevar Bush conceived of mechanized, searchable storage systems of books and media in the 1930s and 1940s. 

Still, the first practical schematics for the internet would not arrive until the early 1960s, when MIT’s J.C.R. Licklider popularized the idea of an “Intergalactic Network” of computers. Shortly thereafter, computer scientists developed the concept of “packet switching,” a method for effectively transmitting electronic data that would later become one of the major building blocks of the internet.

The first workable prototype of the Internet came in the late 1960s with the creation of ARPANET, or the Advanced Research Projects Agency Network. Originally funded by the U.S. Department of Defense, ARPANET used packet switching to allow multiple computers to communicate on a single network. 

On October 29, 1969, ARPAnet delivered its first message: a “node-to-node” communication from one computer to another. (The first computer was located in a research lab at UCLA and the second was at Stanford; each one was the size of a small house.) The message—“LOGIN”—was short and simple, but it crashed the fledgling ARPA network anyway: The Stanford computer only received the note’s first two letters.

The balance sheet is also called the statement of financial position.

The balance sheet reports a company’s financial position as at a specific date (e.g., last day of a monthly, quarterly, or annual reporting period).  Since it is presented as at a specific date, you can think of the balance as a snapshot of the company’s financial position at a particular point in time.

Note: the other 3 statements cover a period of time.

From the balance sheet above, note the Accounting Equation (Assets = Liabilities + Shareholders’ Equity):
Total Assets = $90,973 which equals the Total Liabilities and Shareholders’ Equity = $90,973.

Balance Sheet Has Three Main Elements:

1. Assets: Economic resources controlled by the entity as a result of past business events from which future economic benefits may be obtained.
   1. Current assets: Expected to be converted to cash, sold, or consumed during the next 12 months or within the business’ operating cycle, whichever is longer, and include:
      1. Cash and cash equivalents
      2. Short-term investments
      3. Accounts and notes receivable
      4. Inventory
      5. Prepaid expenses
   2. Non-current assets: Will be held longer than one year and include:
      1. Property and equipment
      2. Land
      3. Buildings
      4. Computers
      5. Equipment
      6. Intangibles
      7. Long-term investments
2. Liabilities: Debts the entity owes as a result of a past event, and which it expects to pay off in the future using some of its assets.
   1. Current liabilities: Debts payable in the next 12 months or within the business’ operating cycle, whichever is longer, and include:
      1. Accounts payable
      2. Income taxes payable
      3. Accrued expenses payable
      4. Current maturities of long-term debt
   2. Non-current liabilities: Debts payable more than one year from the balance sheet date and include:
      1. Long-term notes payable
      2. Bonds payable
3. Shareholders’ equity: Owners’ remaining interest in the assets of the company after deducting all its liabilities (i.e., owners’ claim on the company’s assets net of company’s liabilities, hence, called net assets), consisting of two components:
   1. Share capital: capital (usually in the form of cash) received from its owners in exchange for shares of the company. Also called common shares.
   2. Retained earnings: the cumulative net income earned by the company over its lifetime, less its cumulative net losses and dividends. 
      Note: a portion of net income is typically distributed to shareholders in the form of dividends and the remainder is retained by the business that is called retained earnings.

The balance sheet takes its name from the fact that the assets (A) must always equal (be in balance with) the sum of the liabilities (L) and the shareholders' equity (SE).

A = L + SE

(Assets) = (Liabilities) + (Shareholders' Equity)

Assets refer to the economic resources of the company.

Companies can finance the economic resources in two ways:

1. Liabilities: Financing provided by creditors
2. Shareholders' equity: Financing provided by shareholders

Typical Account Titles

In this section, you will:

• Determine whether a relation represents a function.
• Find the value of a function.
• Determine whether a function is one-to-one.
• Use the vertical line test to identify functions.
• Graph the functions listed in the library of functions.

A jetliner changes altitude as its distance from the starting point of a flight increases. The weight of a growing child increases with time. In each case, one quantity depends on another. There is a relationship between the two quantities that we can describe, analyze, and use to make predictions. In this section, we will analyze such relationships.

A relation is a set of ordered pairs. The set consisting of the first components of each ordered pair is called the domain and the set consisting of the second components of each ordered pair is called the range. Consider the following set of ordered pairs. The first numbers in each pair are the first five natural numbers. The second number in each pair is twice that of the first.

$$\{(1,\text{ }2),\text{ }(2,\text{ }4),\text{ }(3,\text{ }6),\text{ }(4,\text{ }8),\text{ }(5,\text{ }10)\}$$

The domain is \(\{1,\text{ }2,\text{ }3,\text{ }4,\text{ }5\}\). The range is \(\{2,\text{ }4,\text{ }6,\text{ }8,\text{ }10\}\).

Note that each value in the domain is also known as an input value, or independent variable, and is often labeled with the lowercase letter \(x\). Each value in the range is also known as an output value, or dependent variable, and is often labeled lowercase letter \(y\).

A function \(f\) is a relation that assigns a single value in the range to each value in the domain. In other words, no x-values are repeated. For our example that relates the first five natural numbers to numbers double their values, this relation is a function because each element in the domain, \(\{1, 2, 3, 4, 5\}\), is paired with exactly one element in the range, \(\{2, 4, 6, 8, 10\}\).

Now let’s consider the set of ordered pairs that relates the terms “even” and “odd” to the first five natural numbers. It would appear as

$$\{{(\text{odd},\text{ }1),\text{ }(\text{even},\text{ }2),\text{ }(\text{odd},\text{ }3),\text{ }(\text{even},\text{ }4),\text{ }(\text{odd},\text{ }5)}\}$$

Notice that each element in the domain, \(\{even, odd\}\) is not paired with exactly one element in the range, \(\{1, 2, 3, 4, 5\}\). For example, the term “odd” corresponds to three values from the range, \(\{1, 3, 5\}\) and the term “even” corresponds to two values from the range, \(\{2, 4\}\). This violates the definition of a function, so this relation is not a function.

Figure 1 compares relations that are functions and not functions.

A function is a relation in which each possible input value leads to exactly one output value. We say “the output is a function of the input.”

The input values make up the domain, and the output values make up the range.

Examples

Given a relationship between two quantities, determine whether the relationship is a function.

Once we determine that a relationship is a function, we need to display and define the functional relationships so that we can understand and use them, and sometimes also so that we can program them into computers. There are various ways of representing functions. A standard function notation is one representation that facilitates working with functions.

To represent “height is a function of age,” we start by identifying the descriptive variables \(h\) for height and \(a\) for age. The letters \(f\), \(g\), and \(h\) are often used to represent functions just as we use \(x, y\), and \(z\) to represent numbers and \(A, B\), and \(C\) to represent sets.

$$ \begin{array}{lcccc}h\text{ is }f\text{ of }a&&&&\text{We name the function }f;\text{ height is a function of age}.\\h=f(a)&&&&\text{We use parentheses to indicate the function input}\text{. }\\f(a)&&&&\text{We name the function }f;\text{ the expression is read as “}f\text{ of }a\text{.”}\end{array} $$

Remember, we can use any letter to name the function; the notation \(h(a)\) shows us that \(h\) depends on \(a\). The value a  a must be put into the function \(h\) to get a result. The parentheses indicate that age is input into the function; they do not indicate multiplication.

We can also give an algebraic expression as the input to a function. For example \(f(a+b)\) means "first add a and b, and the result is the input for the function f." The operations must be performed in this order to obtain the correct result.

Function Notation

The notation \(y=f(x)\) defines a function named \(f\). This is read as "\(y is a function of x\)". The letter \(x\) represents the input value, or independent variable. The letter \(y\), or \(f(x)\), represents the output value, or dependent variable.

The balance sheet is also called the statement of financial position.

The balance sheet reports a company’s financial position as at a specific date (e.g., last day of a monthly, quarterly, or annual reporting period).  Since it is presented as at a specific date, you can think of the balance as a snapshot of the company’s financial position at a particular point in time.

Note: the other 3 statements cover a period of time.

From the balance sheet above, note the Accounting Equation (Assets = Liabilities + Shareholders’ Equity):
Total Assets = $90,973 which equals the Total Liabilities and Shareholders’ Equity = $90,973.

Balance Sheet Has Three Main Elements:

1. Assets: Economic resources controlled by the entity as a result of past business events from which future economic benefits may be obtained.
   1. Current assets: Expected to be converted to cash, sold, or consumed during the next 12 months or within the business’ operating cycle, whichever is longer, and include:
      1. Cash and cash equivalents
      2. Short-term investments
      3. Accounts and notes receivable
      4. Inventory
      5. Prepaid expenses
   2. Non-current assets: Will be held longer than one year and include:
      1. Property and equipment
      2. Land
      3. Buildings
      4. Computers
      5. Equipment
      6. Intangibles
      7. Long-term investments
2. Liabilities: Debts the entity owes as a result of a past event, and which it expects to pay off in the future using some of its assets.
   1. Current liabilities: Debts payable in the next 12 months or within the business’ operating cycle, whichever is longer, and include:
      1. Accounts payable
      2. Income taxes payable
      3. Accrued expenses payable
      4. Current maturities of long-term debt
   2. Non-current liabilities: Debts payable more than one year from the balance sheet date and include:
      1. Long-term notes payable
      2. Bonds payable
3. Shareholders’ equity: Owners’ remaining interest in the assets of the company after deducting all its liabilities (i.e., owners’ claim on the company’s assets net of company’s liabilities, hence, called net assets), consisting of two components:
   1. Share capital: capital (usually in the form of cash) received from its owners in exchange for shares of the company. Also called common shares.
   2. Retained earnings: the cumulative net income earned by the company over its lifetime, less its cumulative net losses and dividends. 
      Note: a portion of net income is typically distributed to shareholders in the form of dividends and the remainder is retained by the business that is called retained earnings.

The balance sheet takes its name from the fact that the assets (A) must always equal (be in balance with) the sum of the liabilities (L) and the shareholders' equity (SE).

A = L + SE

(Assets) = (Liabilities) + (Shareholders' Equity)

Assets refer to the economic resources of the company.

Companies can finance the economic resources in two ways:

1. Liabilities: Financing provided by creditors
2. Shareholders' equity: Financing provided by shareholders

Typical Account Titles

The income statement is also called the statement of profit and loss.

• It measures a company’s operating performance for a specific period of time such as a month, a quarter, or a year.

• On the income statement, we subtract expenses from revenues to arrive at net earnings (net income or profit).

• Common year-ends by industries:

  • Most companies: Dec 31
  • Canada’s big banks: Oct 31
  • Many retailers: Jan 31

Revenues and Expenses

Let’s first examine the income statement heading, and then the income statement elements. Below is an Excel spreadsheet that requires you to sign in to Office 365. Office 365 will be used throughout this course to display tables and complete concept checks. 

If you cannot see the Excel spreadsheet below, please follow the instructions for Viewing embedded content in Chrome.

Income statements provide financial information for a period in time. For example, as shown above, it is “for the year ended December 31, 20XX.” In comparison, the balance sheet reflects the information for a point in time, “As at December 31, 20XX.”

The income statement has two main elements:

1. Total revenue consists of:

   1. Revenue: earned by a company in the course of its ordinary, day-to-day business activities such as the sale of a company’s primary goods and services.
   2. Gains: earned from peripheral business activities.

2. Total expenses consists of:

   1. Expenses: incurred in the course of ordinary business activities.
   2. Losses: incurred in the course of peripheral activities.

Revenues minus expenses are reported as net income

• If revenues > expenses  → net income, also known as net profit.

• If revenues < expenses →  net loss.

Case Examples of Total Revenue and Total Expenses

Apple Inc.’s ordinary revenues come from retail sales of products and services; peripheral revenues may include sales from land owned by Apple Inc.

Apple Inc.’s ordinary expenses include the cost of manufacturing the iPhone, laptops, iWatch, and other Apple products.

Typical Account Titles

What Are Retained Earnings?

• Put simply, retained earnings are the accumulated net income/losses since the company’s inception, less any dividends declared to shareholders. The statement of retained earnings reports the changes in retained earnings during the same period covered by the income statement. 

Positive Balance v. Negative Balance

• When historical income is greater than expenses and dividends, the result will be a positive balance in retained earnings.

• When historical expenses and dividends are greater than income, the result will be a negative balance in retained earnings called deficit.

Review the statement of retained earning and note the following elements:

1. Opens with beginning retained earnings balance (Dec 31, 2018 above)

2. Adds net income (or subtracts net loss)

   1. Flows from the income statement
3. Subtracts dividends

4. Reports ending retained earnings balance (Dec 31, 2019 above)

The four main financial statements were briefly introduced in the first topic. The basis on which these financial statements are prepared is known as the Generally Accepted Accounting Principles (GAAP). These standards, which specify that financial information must be recorded, measured, and reported, are universally used by accountants to prepare financial statements consistently.

There are multiple sets of GAAP and each is applicable based on the type of entity or organization.

In Canada, GAAP are established by the Chartered Professional Accountants (CPA) of Canada.

• Canadian public enterprises (stock-listed corporations) must use International Financial Reporting Standards (IFRS).
• IFRS are set by the International Accounting Standards Board (IASB).
• For example: Canadian Tire is listed on the TSX (CTC.A) and must use IFRS to report its financial statements.

However, Canadian private enterprises (not issued stock or debt on public markets) can use either IFRS or Accounting Standards for Private Enterprises (ASPE). Most private companies use ASPE to prepare their financial statements. This is because IFRS is costly and complex, especially for larger companies with complex operations.

Other sets of GAAP are applicable to not-for-profit organizations, pension plans, and government entities. You will learn about these GAAP in advanced accounting courses.

(Adapted from Harrison et al., 2018, p. 7–8) 

The financial statements prepared using these standards help stakeholders assess the performance of the business for a given period. This table provides a great overview of the purpose served and questions answered by each of these financial statements:

(Harrison et al., 2018, p. 7)

Let’s take a look at each of these financial statements in greater detail.