INTERMEDIATE ACCOUNTING 1
CHAPTER 1 ENVIRONMENT AND
THEORETICAL STRUCTURE OF
FINANCIAL ACCOUNTING EXAM
QUESTIONS AND ANSWERS
The primary function of financial accounting is to - Answer-provide useful financial
information to users who are external to the business enterprise, particularly investors
and creditors.
Investors and creditors will then make critical resource allocation decisions that affect
the global economy.
Financial information is primarily conveyed to external users through financial
statements and related notes.
Financial accounting provides financial information to - Answer-external users
Financial intermediaries - Answer-External user group that includes financial analysts,
stockbrokers, mutual fund managers, and credit rating organizations. These users
provide advice to investors and creditors and/or make investment-credit decisions on
their behalf.
The financial statements most frequently provided are - Answer-1) the balance sheet,
also called the statement of financial position, (2) the income statement, also called the
statement of operations, (3) the statement of cash flows, and (4) the statement of
stockholder's equity.
Financial reporting - Answer-Refers to the process of providing financial statements to
external users.
Capital markets provide a mechanism to - Answer-help our economy allocate resources
efficiently. A composite of all investors and creditors.
The three primary forms of business organization are - Answer-the sole proprietorship,
the partnership, and the corporation.
In the U.S., sole proprietorship and partnership outnumber - Answer-corporations.
Corporations - Answer-Acquires capital from investors in exchange for ownership
interest and from creditors by borrowing.
, Investors provide resources, usually cash, to a - Answer-corporation in exchange for an
ownership interest, that is, shares of stock.
Creditors lend cash to the corporation, either by - Answer-making individual loans or by
purchasing publicly traded debt such as bonds.
A corporation's shareholders will receive cash from their - Answer-investment through
the ultimate sale of the ownership shares of stock.
Cash-basis accounting produces a - Answer-measure called net operating cash flow.
Net operating cash flow - Answer-The difference between cash receipts and cash
disbursements from providing goods and services.
Over short periods of time, operating cash flow may not be an - Answer-accurate
predictor of future operating cash flows.
Net income is considered a better indicator of - Answer-future operating cash flows than
is current net operating cash flow.
Net income is the difference between - Answer-revenues and expenses.
Net income is considered a better indicator of future operating cash flows than is current
net operating cash flow.
Accrual income attempts to measure the resource inflows and outflows generated by -
Answer-operations during the reporting period, which may not correspond to cash
inflows and outflows.
GAAP = - Answer-generally accepted accounting principles
The 1933 Securities Act and the 1934 Securities Exchange Act were designed to -
Answer-restore investor confidence.
The Securities Exchange Commission (SEC) has the authority to - Answer-set
accounting standards for companies, but it relies on the private sector to do so.
The first private sector body to assume the task of setting accounting standards was the
- Answer-Committee on Accounting Procedure (CAP). The CAP was a committee of the
American Institute of Accountants (AIA). The AIA was renamed the American Institute of
Certified Public Accountants (AICPA) in 1957, which is the national professional
organization for certified professional accountants.
In 1959, the Accounting Principles Board (APB) replaced the - Answer-CAP
Criticism of APB led to the creation in 1973 of the - Answer-Finacial Accounting
Standards Board (FASB) and its supporting structure. FASB is supported by its parent
CHAPTER 1 ENVIRONMENT AND
THEORETICAL STRUCTURE OF
FINANCIAL ACCOUNTING EXAM
QUESTIONS AND ANSWERS
The primary function of financial accounting is to - Answer-provide useful financial
information to users who are external to the business enterprise, particularly investors
and creditors.
Investors and creditors will then make critical resource allocation decisions that affect
the global economy.
Financial information is primarily conveyed to external users through financial
statements and related notes.
Financial accounting provides financial information to - Answer-external users
Financial intermediaries - Answer-External user group that includes financial analysts,
stockbrokers, mutual fund managers, and credit rating organizations. These users
provide advice to investors and creditors and/or make investment-credit decisions on
their behalf.
The financial statements most frequently provided are - Answer-1) the balance sheet,
also called the statement of financial position, (2) the income statement, also called the
statement of operations, (3) the statement of cash flows, and (4) the statement of
stockholder's equity.
Financial reporting - Answer-Refers to the process of providing financial statements to
external users.
Capital markets provide a mechanism to - Answer-help our economy allocate resources
efficiently. A composite of all investors and creditors.
The three primary forms of business organization are - Answer-the sole proprietorship,
the partnership, and the corporation.
In the U.S., sole proprietorship and partnership outnumber - Answer-corporations.
Corporations - Answer-Acquires capital from investors in exchange for ownership
interest and from creditors by borrowing.
, Investors provide resources, usually cash, to a - Answer-corporation in exchange for an
ownership interest, that is, shares of stock.
Creditors lend cash to the corporation, either by - Answer-making individual loans or by
purchasing publicly traded debt such as bonds.
A corporation's shareholders will receive cash from their - Answer-investment through
the ultimate sale of the ownership shares of stock.
Cash-basis accounting produces a - Answer-measure called net operating cash flow.
Net operating cash flow - Answer-The difference between cash receipts and cash
disbursements from providing goods and services.
Over short periods of time, operating cash flow may not be an - Answer-accurate
predictor of future operating cash flows.
Net income is considered a better indicator of - Answer-future operating cash flows than
is current net operating cash flow.
Net income is the difference between - Answer-revenues and expenses.
Net income is considered a better indicator of future operating cash flows than is current
net operating cash flow.
Accrual income attempts to measure the resource inflows and outflows generated by -
Answer-operations during the reporting period, which may not correspond to cash
inflows and outflows.
GAAP = - Answer-generally accepted accounting principles
The 1933 Securities Act and the 1934 Securities Exchange Act were designed to -
Answer-restore investor confidence.
The Securities Exchange Commission (SEC) has the authority to - Answer-set
accounting standards for companies, but it relies on the private sector to do so.
The first private sector body to assume the task of setting accounting standards was the
- Answer-Committee on Accounting Procedure (CAP). The CAP was a committee of the
American Institute of Accountants (AIA). The AIA was renamed the American Institute of
Certified Public Accountants (AICPA) in 1957, which is the national professional
organization for certified professional accountants.
In 1959, the Accounting Principles Board (APB) replaced the - Answer-CAP
Criticism of APB led to the creation in 1973 of the - Answer-Finacial Accounting
Standards Board (FASB) and its supporting structure. FASB is supported by its parent
