Chapter 1 Discussion Q's

Question 1

What is accounting?

Answer 1

Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business.

Question 2

Difference between internal and external users of accounting information:

Answer 2

Internal users use accounting information to make decisions within the organization, while external users use it to make decisions outside the organization.

Question 3

Difference between managerial and financial accounting:

Answer 3

Managerial accounting focuses on providing internal management with information to make decisions, while financial accounting focuses on providing financial information to external users.

Question 4

Three types of business organizations:

Answer 4

Sole proprietorship, partnership, and corporation.

Question 5

What is a PAE? A PE?

Answer 5

PAE stands for Professional Accountancy Entity, while PE stands for Professional Ethical Principles.

Question 6

What does the term limited liability mean?

Answer 6

Limited liability means that the owners of a business are not personally liable for the debts of the business.

Question 7

GAAP refers to:

Answer 7

GAAP stands for Generally Accepted Accounting Principles

Question 7

Six qualitative characteristics of GAAP:

Answer 7

Relevance, faithful representation, comparability, verifiability , understandability, and timeliness.

Question 8

Five principles that support GAAP qualitative characteristics:

Answer 8

Historical cost, revenue recognition, matching, full disclosure, and materiality.

Question 9

Four financial statements:

Answer 9

Income statement, balance sheet, statement of cash flows, and statement of changes in equity.

Question 9

How financial information is communicated to external users:

Answer 9

Through financial statements, such as the income statement, balance sheet, and statement of changes in equity,etc.

Question 10

Financial statement that measures financial performance? Financial position?

Answer 10

Financial performance is measured by the income statement, while financial position is measured by the balance sheet.

Question 11

Information provided in the statement of cash flows:

Answer 11

The statement of cash flows provides information about a company’s cash inflows and outflows from operating, investing, and financing activities.

Question 12

How retained earnings and dividends are related:

Answer 12

Retained earnings represent the cumulative profits of a company that have not been distributed as dividends. Dividends are payments made to shareholders from these earnings.

Question 13

Three primary components of the balance sheet:

Answer 13

Assets, liabilities, and equity.

Question 14

Equity consists of what two components:

Answer 14

Common stock and retained earnings.

Question 15

How assets are financed:

Answer 15

Assets are financed by either liabilities or equity

Question 16

Three types of activities a business engages in:

Answer 16

Operating activities, investing activities, and financing activities.

Question 17

Accounting equation:

Answer 17

The accounting equation is Assets = Liabilities + Equity, which must always balance.

Question 18

Distinctions among calendar, interim, and fiscal year ends:

Answer 18

Calendar year ends on December 31st, interim year ends on a date other than December 31st, and fiscal year ends on any date chosen by a business for accounting purposes.