LO 1-1 Identify ways accounting benefits society Flashcards
Businesses earn profits by converting financial, physical, and labor resources into goods and services that satisfy consumer demands. This statement is
True
Resource owners want to provide resources to businesses with high profit potential because those businesses will pay higher taxes. This statement is
False
business must pay taxes, there is less profit available to share with the resource owners. Thus, resource owners want to avoid the consequences of taxation. The reason resource owners are willing to provide resources to companies with high profits is because those businesses have more profits to share with owners, are able to pay more interest to creditors, and are in a better position to pay higher prices for physical resources and wages. Ask yourself, would you want to work for a company that paid low wages because it had to pay high taxes.
Accounting provides a service to society by gathering and reporting information about a company’s profit potential. This statement is
True
Generally Accepted Accounting Principles (GAAP) are designed to provide guidance for
a. financial accounting.
b. managerial accounting.
c. tax accounting.
d. auditing service accounting.
financial accounting
Hector Lopez owns Hector Company. If Hector has 100% ownership interest in the company, the Company’s accountant will prepare only one set of statements that reflects the combined assets of Hector and his company. This statement is
False
Ellen Elder and her brother, Buster started Elder Company when they each invested $600 in the company. After the investments there will be
a. one reporting entity.
b. two reporting entities.
c. three reporting entities.
d. four reporting entities.
c. three reporting entities.
Paul Savage purchased a restaurant named Burger Haven from Larry Jones. The purchase would cause the number of reporting entities to
a. increase.
b. decrease.
c. remain constant.
d. the answer cannot be determined from the information provided.
c. remain constant.
These same entities existed before and after the purchase of the restaurant.
resource owners provide
resources to businesses
businesses take resources and convert them to
goods and services
goods and services are sold to _______ and for ____ than it cost them.
consumers
more
For Profit
sells good or services to earn profits
retained profits to
make more goods or services or dividends to investors as compensation
accountants
report on acquiring resources, offering services, how much profit was earned, and how much compensation went to investors
two types of accounting
managerial and financial
managerial accounting
used internally by managers for decision making
financial accounting
externally used by manager to report back to investors or owners
to know what to invest in - in a standardized manner by GAAP
GAAP
Generally Accepted Accounting Principles who make the standardized guidelines
“how to prepare info”
GAAP determine rules for
external users - financial accounting
accountants report
internally and externally
FASB
Financial Accounting Standards Board- they make the GAAP
accounting information and also provides
lots of jobs in accounting
jobs in private businesses
public accountants
provide audits for investors
this model is also applicable to
government and nonprofits
government model
government acquire resources from tax revenues and convert into public goods
non profits
obtain donations and help a cause
The primary purpose of managerial accounting is to prepare financial statements in accordance with a reporting framework (e.g. GAAP). This statement is
False- managers report to themselves however they want. Financial accounts report externally and must follow GAAP so the info is standardized
Accounting provides a service to society by gathering and reporting information about a company’s profit potential. This statement is
True
Generally Accepted Accounting Principles (GAAP) are designed to provide guidance for
financial accounting
Which of the following types of businesses require financial information to operate effectively?
For profit, non-profit, and government entities
Public accountants perform which of the following functions to ensure that financial information provided by a Company to investors is in accordance with G.A.A.P.?
conduct an audit -One of the jobs of a public accountant is to conduct an audit of a Company’s financial information. An audit ensures that financial information provided by the Company is in compliance with G.A.A.P. Investors rely on an audit to ensure the accuracy of financial information in order to make informed financial decisions.
