Accounting Chap 1

Question 1

Provides financial information about the current operations and financial condition of a business to individuals, agencies, and organizations.

Answer 1

Purpose of Accounting

Question 2

Users of Accounting Information

Answer 2

1. Owners
2. Managers
3. Creditors
4. Government agencies

Question 3

a system of gathering financial information about a business

and reporting this information to users.

Answer 3

Accounting

Question 4

6 major steps of the accounting process

Answer 4

1. Analyzing
2. Recording
3. Classifying
4. Summarizing
5. Reporting
6. Interpreting

Question 5

a) Looking at events that have taken place.

b) Thinking about how these events have affected the business.

Answer 5

Analyzing

Question 6

a) Entering financial information about events into an accounting system.
b) Financial information can be entered manually; however, most businesses use computers.

Answer 6

Recording

Question 7

a) Sorting and grouping similar items together.

b) Business accounts are classified.

Answer 7

Classifying

Question 8

a) Bringing various items of information together.

b) Determines a result.

Answer 8

Summarizing

Question 9

a) Communicating results.

b) Results are communicated in the form of financial statements.

Answer 9

Reporting

Question 10

a) Deciding the meaning and importance of reported information.
b) Uses ratio and percentage analyses to explain how pieces of information relate to one another.

Answer 10

Interpreting

Question 11

A. Developed by the Financial Accounting Standards Board (FASB), a private standard-setting body.
B. Provides concepts and guidelines to be followed during the accounting process.

Answer 11

Generally Accepted Accounting Principles (GAAP)

Question 12

5 steps for FASB use to develop GAAP:

Answer 12

1. The issue is placed on FASB’s agenda.
2. A discussion memorandum is issued.
3. Public hearings are held around the country.
4. An exposure draft is issued.
5. A final statement of financial accounting standards (SFAS) is
   issued.

Question 13

3 Types of Ownership Structures

Answer 13

SOLE PROPRIETORSHIP
PARTNERSHIP
CORPORATION

Question 14

1. The business is owned by one person.
2. The owner assumes all the risks for the business personally.
3. The owner makes all of the business decisions.

Answer 14

Sole Proprietorship

Question 15

1. The business is owned by more than one person.
2. Partners assume all the risks for the business personally.
3. Owners share risks and decision making.
4. Partners may disagree about the way the business should be run.

Answer 15

Partnership

Question 16

1. The business is owned by stockholders.
2. Corporations usually employ professional managers.
3. Owners’ risks are limited to their initial investment.
4. In publicly owned corporations, shareholders often have very little influence on business decisions.

Answer 16

Corporation

Question 17

Types of Businesses

Answer 17

SERVICE BUSINESS
MERCHANDISING BUSINESS
MANUFACTURING BUSINESS

Question 18

A BUSINESS THAT PROVIDES A SERVICE. ie Funeral Home, Computer Consultant, Physician

Answer 18

SERVICE BUSINESS

Question 19

A BUSINESS THAT BUYS A PRODUCT FROM ANOTHER BUSINESS TO SELL TO CUSTOMERS. ie: Department store, Funeral Home, Jewelry Store

Answer 19

MERCHANDISING BUSINESS

Question 20

A BUSINESS THAT MAKES A PRODUCT TO SELL. ie: Automobile Manufacturer, Furniture Maker, Toy Factory

Answer 20

MANUFACTURING BUSINESS

Question 21

How is a funeral home classified as a business??

Answer 21

Since a funeral home offers both service (funeral, cremation, etc.) AND merchandise (caskets, vaults, urns, clothing, etc.), it is considered a:

SERVICE-MERCHANDISING business

Question 22

1. Record, sort, and file accounting information.
2. Specialize in various areas of accounting.
3. Require at least one year of accounting education.

Answer 22

Accounting Clerks

Question 23

1. Supervise the work of accounting clerks, perform daily accounting work, and summarize accounting information.
2. In small-to-medium-sized businesses, may also help interpret accounting information.
3. Require one to two years of accounting education and some experience as an accounting clerk.

Answer 23

Bookkeepers

Question 24

1. Provide accounting, auditing, or tax services under the direct
   supervision of an accountant.
2. Generally require a two-year degree or significant accounting and bookkeeping experience.

Answer 24

Para-accountants

Question 25

1. Design the accounting information system and focus on analyzing and interpreting information.
2. Enter the field with a college degree in accounting. Since many states require 150 credit hours to sit for the CPA exam, many students are also earning a masters degree.

Answer 25

Accountants

Question 26

Accountants are employed in:

a) public accounting
b) private (managerial) accounting
c) governmental accounting
d) not-for-profit accounting

Answer 26

1

Question 27

Employees of private businesses
Controller
Accounting Information Systems; Financial, Cost, and Tax Accounting; Budgeting; and Internal Auditing
CMA (Certified Managerial Accountant)
CIA (Certified Internal Auditor)

Answer 27

PRIVATE ACCOUNTING