Chapter 1

Question 1

Business

Answer 1

An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers.

Question 2

Profit

Answer 2

Profit is the difference between the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services.

Question 3

Three types of businesses operating for profit

Answer 3

(1)Service, (2)Retail, (3)Manufacturing

Question 4

(1) Service business

Answer 4

Provides services rather than products to customers
Ex) Disney land is an entertainment service

Question 5

Retail business

Answer 5

Sell products they purchase from other businesses to customers
ex) amazon sells items from other businesses

Question 6

Manufacturing business

Answer 6

Change basic inputs into products that are sold to customers
Ex) Car companies sell cars to customers

Question 7

Accounting

Answer 7

An information system that provides reports to users about the economic activities and conditions of a business

Question 8

The process by which accounting provides information to users is as follows:

Answer 8

1. Identify users.
2. Assess users’ information needs.
3. Design the accounting information system to meet users’ needs.
4. Record economic data about business activities and events.
5. Prepare accounting reports for users.

Question 9

Managerial/management accounting

Answer 9

The accounting branch uses historical and estimated data to provide internal users (management) with information relevant to decision-making.
( information is sensitive and is not shared outside the business )
Objective: provide relevant and timely information for managers’ and employees’ decision-making needs.
Ex) Info about customers, prices, and plans to expand the business

Question 10

Private Accounting

Answer 10

The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization

Question 11

Financial Accounting

Answer 11

The branch of accounting that is concerned with recording transactions using generally accepted accounting principles (GAAP) for a business or other economic unit and with a periodic preparation of various statements from such records
Objective: provide relevant information for the decision-making needs of users outside of the business
Ex) financial reports on the operations and condition of the business are helpful for banks and other creditors in deciding whether to lend money to the business.

Question 12

General-purpose financial statements

Answer 12

are one type of financial accounting report that is distributed to external users. The term general purpose refers to the wide range of decision-making needs that these reports are designed to serve.

Question 13

What is the objective of accounting?

Answer 13

Provide relevant, timely information for user decision-making.

Question 14

Accountants must behave ethically, so…

Answer 14

Information they provide users will be trustworthy and, thus, useful for decision making

Question 15

Managers/employees must behave ethically in managing and operating a business. Otherwise…

Answer 15

No one will be willing to invest In or loan money to the business

Question 16

Ethics *

Answer 16

Moral principles guide the conduct of individuals.

Managers engaged in (accounting/business fraud) and (ethical violations) can lead to fines, firings, and lawsuits. Sometimes managers are criminally prosecuted, convicted, and sent to prison.

Question 17

(1) Failure of individual characters

Answer 17

Ethical managers/accountants are honest and fair.
However,
Managers/accountants often face pressures from supervisors to meet company and investor expectations, so they justify small ethical violations to avoid such pressures.
However,
These small violations became big ones as the company’s financial problems worsened.

Question 18

(2) Culture of greed and ethical indifference

Answer 18

Senior managers set the company culture by their behavior and attitude.
Senior managers create a culture of greed and indifference to the truth

Question 19

Sarbanes-Oxley act (SOX)

Answer 19

An act passed by congress to restore public confidence and trust in the financial statements of companies

Question 20

Public company accounting oversight board (PCAOB)

Answer 20

The Sarbanes-Oxley act established a new oversight body for the accounting profession.

Question 21

How does one behave ethically when facing financial types of pressure?

Answer 21

1. Identify an ethical decision using your personal standards of honesty and fairness.
2. Identify the consequences of the decision and its effect on others.
3. Consider your obligations and responsibilities to those affected by your decision.
4. Make a decision that is ethical and fair to those affected.

Question 22

Auditors

Answer 22

Accountants who provide audit services and verify the accuracy of financial records, accounts, and systems

Question 23

Ponzi scheme *

Answer 23

The investment manager uses funds received from new investors to pay a return to existing investors rather than basing returns on the investments’ actual performance. If the investment manager can attract new investors, he or she will have new funds to pay existing investors and continue the fraud.

Question 24

Public accounting

Answer 24

The field of accounting, where accountants and their staff provide services on a fee basis

Question 25

Certifies public accountants (CPAs)

Answer 25

Public accountants who have met a state’s education, experience, and examination requirements.

Question 26

What does the pathways commission want for future accountants? *

Answer 26

1. prosperous society and good decision making
2. critical thinkers who are comfortable addressing the shades of gray required by accounting judgments.

Question 27

Generally accepted accounting principles (GAAP)

Answer 27

Generally accepted guidelines for the preparation of financial statements
or
collection of accounting standards, principles, and assumptions that define how financial information will be reported.

Question 28

accounting standards

Answer 28

Rules that determine the accounting for individual business transactions.

Question 29

accounting principles/assumptions

Answer 29

Provide the framework upon which accounting standards are constructed.

Question 30

Financial Accounting Standards Board (FASB)

Answer 30

The authoritative body that has the primary responsibility for developing accounting principles/standards.

Question 31

Accounting standards codification

Answer 31

An electronic database maintained by the Financial Accounting Standards Board (FASB) that contains all of the accounting standards that make up the generally accepted accounting principles (GAAP).

Question 32

accounting standards updates

Answer 32

Published changes to accounting standards that are the source of updates to the accounting standards codification
( ASU is used to change FASB codification )

Question 33

Securities and Exchange Commission (SEC)

Answer 33

An agency of the U.S. government has authority over the accounting and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public.
(The SEC normally accepts the accounting standards set forth by the FASB. However, the SEC may issue Staff Accounting Bulletins on accounting matters that the FASB may not have addressed.)

Question 34

International Accounting Standards Board (IASB)

Answer 34

An organization that issues international financial reporting standards for many countries outside the united states

Question 35

What is the primary goal of financial accounting?

Answer 35

Provide information that is useful for decision-making. FInancial reports must possess 2 important characteristics
(1) Relevance
(2) faithful representation

Question 36

(1) Relevant

Answer 36

A characteristic of financial reports that pertain to information having the potential to impact decision making

Question 37

(2) faithful representation

Answer 37

A characteristic of financial reports that pertain to information accurately reflecting an entity’s economic activity or condition

Question 38

What characteristics enhance Relevant and faithful representation?

Answer 38

Comparability- allows users to identify similarities and differences among reported items.

Verifiability- allows users to agree on the meaning of reported items.

Timeliness- requires the distribution of financial reports in time to influence a user’s decision.

Understandability- requires clear and concise financial reports that facilitate user interpretation and analysis.

Question 39

Financial accounting and generally accepted accounting principles are based upon the following assumptions:

Answer 39

(1)Monetary unit

(2)Time period

(3)Business Entity

(4)Going concerned

Question 40

(1)Monetary Unit assumption

Answer 40

Requires that financial reports be expressed in a single money unit or currency.
(The monetary unit used is normally determined by the country in which the company operates. For example, in the United States, the U.S. dollar is used as the monetary unit.)

Question 41

(2) Time period assumption

Answer 41

The monetary unit used is normally determined by the country in which the company operates. For example, in the United States, the U.S. dollar is used as the monetary unit.