Chapter 1 - Introduction to Accounting

Question 1

Name 10 users of accounting information.

Answer 1

Owners, Managers, Lenders, Suppliers, Investment analysts, Community representatives, Government, Employees, Competitors, Customers.

Question 2

What are the two fundamental requirements for accounting information to be useful?

Answer 2

• Relevance. Influence user decisions, predict and confirm. Needs to be material, meaning that misstatements would changes users’ decisions.
• Faithful representation. Reflect was has occurred correctly. Description of nature, suitable numerical measurements and explanation is necessary. Presented without bias and free from errors.

Question 3

What factors enhance the usefulness of accounting information?

Answer 3

• Comparability. Treat items alike over time and between businesses.
• Verifiability. Assurance of faithful presentation.
• Timeliness. Made available in time.
• Understandability. Presented as clear and concise as possible.

Question 4

What four features should an accounting information system have?

Answer 4

• Information identification (relevance).
• Information recording (systematically).
• Information analysis.
• Information reporting (suitable for user needs)

Question 5

In what 6 areas can we see differences between Management and Financial accounting?

Answer 5

• Nature of produced reports.
• Level of detail.
• Regulations.
• Reporting interval.
• Time orientation.
• Range and quality of information.

Question 6

What kinds of business ownership exist?

Answer 6

• Sole proprietorship
• Partnership
• Limited company
  (- Limited Liability Partnership)