ANSWERS TO QUESTIONS - CHAPTER 1
1. Stakeholders are the parties that use accounting information.
Stakeholders with a direct interest include owners, managers, creditors, suppliers, and employees. These individuals are directly affected by what happens to the business.
Stakeholders with an indirect interest include financial analysts, brokers, attorneys, government regulators, and news reporters. These individuals use information in the financial reports to advise and influence their clients.
Students may give many different answers under the above categories depending on their level of experience in business.
All students are direct users of accounting information related to tuition and fees, financial aid, and account balances.
2. Accounting provides information that is useful in making decisions by all participants in the market for resource goods and services, both profit-oriented and nonprofit oriented. Because accounting’s role is so important, it is often called the language of business.
3. The primary mechanism used to allocate resources in the U.S. is competition for resources in the open market.
4. A market is a group of people or organizations that come together for the purpose of exchanging items of value.
5. The market for business resources involves three distinct participants: consumers, conversion agents, and resource owners. See Exhibit 1-1 that illustrates how market trilogy is involved in resource allocation.
6. Financial Resource: money
Physical Resource: natural resources (i.e. land, forests, mine ore, petroleum, etc.), buildings, machinery and equipment, furniture and fixtures
Labor Resource: includes both intellectual and physical labor; i.e. employees
7. Investors expect a distribution of the business’s profits as a return on their financial investment (capital allocation).
Creditors lend financial resources to businesses and receive interest as a return or profit on the loan.
8. Financial accounting provides information that is useful to external resource providers.
Managerial accounting provides information that is useful to managers in operating an organization (i.e., internal users).
9. Not-for-profit or nonprofit entities provide goods or services to consumers for humanitarian or special reasons rather than to earn a profit for owners. For example, certain not-for-profit entities allocate resources to provide for research of diseases or social/environmental welfare; others allocate resources to promote the arts and provide education.
10. The U.S. rules of accounting information measurement are called generally accepted accounting principles (GAAP).
11. Careers in public accounting consist of providing services to the general public from a public accounting firm. These services include auditing, tax, and consulting services. Careers in private accounting usually consist of working for a specific company (which would be a client of the public accounting firm) providing a wide variety of services to the company including recording transactions, preparing financial statements, internal auditing, and others.
12. Items reported on the financial statements are organized into classes or categories called elements. The ten elements of financial statements are:
1. Assets
2. Liabilities
3. Equity (Stockholders’ Equity)
4. Investments by Owners (Contributed Capital)
5. Revenue
6. Expenses
7. Distributions (Dividends)
8. Net Income
9. Gains
10. Losses
Accounts are specific items or subclassifications of the elements. Examples of accounts include cash, land, and common stock.
13. Assets, the economic resources of a business, are used to produce earnings.
1. Stakeholders are the parties that use accounting information.
Stakeholders with a direct interest include owners, managers, creditors, suppliers, and employees. These individuals are directly affected by what happens to the business.
Stakeholders with an indirect interest include financial analysts, brokers, attorneys, government regulators, and news reporters. These individuals use information in the financial reports to advise and influence their clients.
Students may give many different answers under the above categories depending on their level of experience in business.
All students are direct users of accounting information related to tuition and fees, financial aid, and account balances.
2. Accounting provides information that is useful in making decisions by all participants in the market for resource goods and services, both profit-oriented and nonprofit oriented. Because accounting’s role is so important, it is often called the language of business.
3. The primary mechanism used to allocate resources in the U.S. is competition for resources in the open market.
4. A market is a group of people or organizations that come together for the purpose of exchanging items of value.
5. The market for business resources involves three distinct participants: consumers, conversion agents, and resource owners. See Exhibit 1-1 that illustrates how market trilogy is involved in resource allocation.
6. Financial Resource: money
Physical Resource: natural resources (i.e. land, forests, mine ore, petroleum, etc.), buildings, machinery and equipment, furniture and fixtures
Labor Resource: includes both intellectual and physical labor; i.e. employees
7. Investors expect a distribution of the business’s profits as a return on their financial investment (capital allocation).
Creditors lend financial resources to businesses and receive interest as a return or profit on the loan.
8. Financial accounting provides information that is useful to external resource providers.
Managerial accounting provides information that is useful to managers in operating an organization (i.e., internal users).
9. Not-for-profit or nonprofit entities provide goods or services to consumers for humanitarian or special reasons rather than to earn a profit for owners. For example, certain not-for-profit entities allocate resources to provide for research of diseases or social/environmental welfare; others allocate resources to promote the arts and provide education.
10. The U.S. rules of accounting information measurement are called generally accepted accounting principles (GAAP).
11. Careers in public accounting consist of providing services to the general public from a public accounting firm. These services include auditing, tax, and consulting services. Careers in private accounting usually consist of working for a specific company (which would be a client of the public accounting firm) providing a wide variety of services to the company including recording transactions, preparing financial statements, internal auditing, and others.
12. Items reported on the financial statements are organized into classes or categories called elements. The ten elements of financial statements are:
1. Assets
2. Liabilities
3. Equity (Stockholders’ Equity)
4. Investments by Owners (Contributed Capital)
5. Revenue
6. Expenses
7. Distributions (Dividends)
8. Net Income
9. Gains
10. Losses
Accounts are specific items or subclassifications of the elements. Examples of accounts include cash, land, and common stock.
13. Assets, the economic resources of a business, are used to produce earnings.