Module 1: Part 2

Question 1

What is a Financial Accounting and Reporting Standard?

Answer 1

• Guidelines that companies follow in measuring and reporting financial information

Question 2

What is the classification of users of financial information?

Answer 2

• SPLICEGM (Suppliers, People, Lenders, Investors, Customers, Employees, Government and Management)

1. Primary/Internal: Decision Making (E, M)
2. Secondary/External: for their own specific purpose (S, P, L, I, C, G)

Question 3

How do the users of financial information use this information?

Answer 3

1. Internal -

Employees: Salary increase, payment of salary or retirement

Management: Manage business operations

2. External -

Suppliers: assess the firm’s ability to pay bills, set credit limit for firm

People: Social responsibility (Profit, People, Planet)

Lenders/Banks: decide whether or not to make a loan and provide its terms

Investors: assess company profitability and risk

Customer/Client: determine firm’s economic health and its likelihood to continue providing service or products

Government: determine tax base for income, business, and local tax

Question 4

What is a business organization and what are the forms of business organization?

Answer 4

• Entity formed with the purpose of conducting commercial activities

Types (SPCC):

1. Sole or Single Proprietorship - owned and managed by one person, unlimited/sole liability, and tax is based on tax table
2. Partnership - two or more persons joining together to do business, unlimited/shared liability, not taxable
3. Corporation - two or more persons forming a body authorized by law to do business, each member has his or her own liability, taxed 25% of income
4. Cooperative - people centered enterprise, jointly owned and democratically controlled for socio-economic purposes

Question 5

What are the forms of business organization based on their operations?

Answer 5

1. Service Provider - service income, incur cost of service, with no inventory
2. Merchandising - sale of merchandise, incur cost of sales, merchandise inventory
3. Manufacturing - sale of finished goods, cost of goods manufacturing, raw materials, work in progress and finished goods inventory

Question 6

What is the difference of Trading and Manufacturing?

Answer 6

Trading: buys finished goods

Manufacturing: produces and manufactures goods for selling

Question 7

What is accounting information?

Answer 7

• Financial statements generated through book-keeping and accounting