L.O.: 1-1
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
8) The owners' equity of proprietorships and partnerships is different.
Answer: TRUE
Diff: 2 Type: TF
L.O.: 1-1
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
9) Financial accounting information is prepared exclusively for external users.
Answer: FALSE
Explanation: Financial accounting information is prepared for both internal and external users.
Diff: 1 Type: TF
L.O.: 1-1
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
10) Management accounting is prepared primarily for external users.
Answer: FALSE
Explanation: Management accounting is prepared primarily for internal users.
Diff: 1 Type: TF
L.O.: 1-1
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
11) One benefit of organizing a business as a proprietorship is that the proprietor is not required to pay income tax on the business' earnings.
Answer: FALSE
Explanation: The proprietor must report the proprietorship's income on his or her personal tax return.
Diff: 1 Type: TF
L.O.: 1-1
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
12) Accounting is often referred to as "the language of business." Why is accounting described this way? How is accounting different from bookkeeping?
Answer: Accounting is the system that measures business activities, processes that information into reports, and communicates the results to decision makers. Accounting, as an information system, provides the elements necessary for management and others to make decisions and estimate how well a company may perform in the future. Accounting is the common "language" used by managers, investors, and others to communicate information about a business.
Bookkeeping is simply the procedural element of accounting that processes the accounting data. Accounting is an information system, of which bookkeeping is a component.
Diff: 1 Type: ES
L.O.: 1-1
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
13) There are several types of decision makers who use accounting information. List five of these users of accounting information and give an example of a decision each would make.
Answer: Individuals
∙ to manage bank accounts
∙ to evaluate job prospects