CHAPTER 1
ACCOUNTING: INFORMATION FOR DECISION MAKING
OVERVIEW OF BRIEF EXERCISES, EXERCISES AND CRITICAL THINKING
CASES
Brief Learning
Exercises Topic Objectives Skills
B. Ex. 1.1 Users of accounting information 1, 3, 5 Analysis
B. Ex. 1.2 Components of internal control 2,5 Analysis
B. Ex. 1.3 Inexact or approximate measures 3,4 Analysis, judgment
B. Ex. 1.4 Standards for the preparation of 5,6 Analysis
accounting information
B. Ex. 1.5 FASB conceptual framework 1, 3, 5, 6 Analysis
B. Ex. 1.6 PCAOB 5, 6 Analysis, research
B. Ex. 1.7 COSO 2, 5, 6 Analysis, ethics
B. Ex. 1.8 Professional certifications in accounting 7, 8 Analysis
B. Ex. 1.9 AICPA code of professional conduct 5, 7 Analysis, ethics
B. Ex. 1.10 Personal benefits of accounting skills 1 Analysis
Learning
Exercises Topic Objectives Skills
1.1 You as a user of accounting information 1 Analysis, judgment
1.2 Real World: Boeing Company, 3, 4 Analysis, research
California Public Employees
Retirement System, China Airlines
Users of financial information
1.3 What is financial reporting? 3 Analysis, judgment
1.4 Generally accepted accounting principles 6 Analysis
1.5 Accounting organizations 6 Analysis, communication
1.6 Investment return 3 Analysis
1.7 Accounting terminology 3-5, 7 Analysis
1.8 Accounting organizations 6 Analysis
1.9 Financial and management accounting 3, 4 Judgment
1.10 Management accounting information 4 Communication, judgment
1.11 Accounting organizations 6 Analysis, judgment
1.12 Purpose of an audit 5 Analysis, judgment
1.13 Audits of financial statements 5 Analysis
1.14 Ethics and professional judgment 7 Analysis, communication,
judgment
1.15 Careers in accounting 8 Judgment, communication
1.16 Home Depot, Inc. general information 1, 3, 5 Analysis, judgment,
research
© The McGraw-Hill Companies, Inc., 2008
Overview
,Due to the introductory nature of this chapter and the conceptual nature of its contents, no items labeled
Problems are included. In all future chapters you will find a series of Problems that generally include
computations, are more complex, and generally require more time to complete than Exercises.
Critical Thinking Cases
1.1 Real World: Chrysler Corp. 5 Analysis, ethics, judgment
Reliability of financial statements
1.2 Objectives of financial accounting 3 Analysis, communication,
group, judgment
1.3 Accounting systems 2 Analysis, communication
1.4 Codes of ethics (Ethics, fraud & corporate 7 Analysis, communication,
governance) judgment
1.5 Accounting reports lack candor (Business 1, 3, 7 Analysis, ethics, judgment
Week)
1.6 Accessing information on the Internet 6, 7 Research, technology
(Internet)
© The McGraw-Hill Companies, Inc., 2008
Overview
,DESCRIPTIONS OF CRITICAL THINKING CASES
Below are brief descriptions of each case. These descriptions are accompanied by the estimated time (in
minutes) required for completion and by a difficulty rating.
Critical Thinking Cases
1.1 Chrysler Corp. 15 Easy
Reliability of Financial Statements
This case explores the general subject of integrity in financial statements—what
causes potential investors to be able to rely on information and what precludes
management from portraying a company in more positive terms than it should.
1.2 Objectives of Financial Accounting 15 Medium
Characteristics of accounting and accounting information (e.g., useful for
decision making, language of business) are used to explain the importance of
accounting information.
1.3 Accounting Systems 15 Easy
The purpose and functions of accounting systems are covered, as well as the
definition of what an accounting system is and who is responsible for designing
and implementing accounting systems.
1.4 Codes of Ethics 30 Medium
Ethics, Fraud and Corporate Governance
Students are placed in the position of a new employee who is faced with the
challenge of becoming familiar with an appropriate code of ethics and must think
through how that code might influence his/her behavior on the job.
1.5 Accounting Reports Lack Candor 20 Medium
Business Week
Students are asked to identify the objectives of financial reporting and apply the
AICPA Code of Professional Conduct to a case.
1.6 Accessing Information on the Internet 30 Medium
Internet
Students are introduced to learning on the Internet by accessing the Rutgers
University web page on accounting information. Once there they learn about
accounting firms, accounting textbook publishers, and professional accounting
organizations.
© The McGraw-Hill Companies, Inc., 2008
Desc. of Cases
, SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
Note to instructor: We regularly include discussion questions as part of the assigned homework. One
objective of these questions is to help students develop communications skills; however, we find that
they also increase students’ conceptual understanding of accounting.
1. Accounting is a means to an end because it supports and facilitates decisions by providing
important information. The real end product is a more informed business decision because of the
availability of accounting information.
2. Accounting is a way of communicating the results of business activity and, therefore, is
sometimes described as the language of business. Among the important accounting measurements
that communicate business activity and justify describing accounting as the language of business
are costs, prices, sales volume, profits, and return on investment.
3. All organizations have a need to use accounting information, even if that information is as simple
as the cash flowing into and out of the organization. This includes government organizations, not-
for-profit organizations (e.g., charities, churches), and even individuals.
4. The primary distinction between financial and other types of accounting information is based on
the users of the information. Financial accounting information is provided primarily to external
users, such as investors and creditors. Internal accounting information, on the other hand, is
prepared primarily for use by management. While there is some overlap between the information
needs of these two groups, external users have different objectives than management and need
different information.
5. These four concepts may be described as an endless cycle in which economic activities occur, are
measured by an accounting process which produces accounting information which, in turn,
facilitates decision making which restarts the process as economic activities result from those
decisions.
6. An accounting system consists of the personnel, procedures, and records used by an organization
to develop accounting information and communicate that information to decision makers. The
primary purpose or objective of an accounting system is to meet the organization’s needs for
accounting information as efficiently as possible.
7. To be cost-effective, the benefit of doing something must exceed the cost of doing it. In the case
of an accounting system, the information provided by the system must be at least as valuable as
the cost of the system to be cost-effective. We might be able to produce more sophisticated, better
information, for example, but if the cost of doing that exceeds the benefit, to still produce the
information would not be cost-effective.
8. The three basic functions of an accounting system are to:
• Interpret and record business transactions.
• Classify the effects of similar transactions in a manner that permits determination of key
elements of information useful to management and used in accounting reports.
• Summarize and communicate the information contained in the system to decision makers.
© The McGraw-Hill Companies, Inc., 2008
Q1-8
ACCOUNTING: INFORMATION FOR DECISION MAKING
OVERVIEW OF BRIEF EXERCISES, EXERCISES AND CRITICAL THINKING
CASES
Brief Learning
Exercises Topic Objectives Skills
B. Ex. 1.1 Users of accounting information 1, 3, 5 Analysis
B. Ex. 1.2 Components of internal control 2,5 Analysis
B. Ex. 1.3 Inexact or approximate measures 3,4 Analysis, judgment
B. Ex. 1.4 Standards for the preparation of 5,6 Analysis
accounting information
B. Ex. 1.5 FASB conceptual framework 1, 3, 5, 6 Analysis
B. Ex. 1.6 PCAOB 5, 6 Analysis, research
B. Ex. 1.7 COSO 2, 5, 6 Analysis, ethics
B. Ex. 1.8 Professional certifications in accounting 7, 8 Analysis
B. Ex. 1.9 AICPA code of professional conduct 5, 7 Analysis, ethics
B. Ex. 1.10 Personal benefits of accounting skills 1 Analysis
Learning
Exercises Topic Objectives Skills
1.1 You as a user of accounting information 1 Analysis, judgment
1.2 Real World: Boeing Company, 3, 4 Analysis, research
California Public Employees
Retirement System, China Airlines
Users of financial information
1.3 What is financial reporting? 3 Analysis, judgment
1.4 Generally accepted accounting principles 6 Analysis
1.5 Accounting organizations 6 Analysis, communication
1.6 Investment return 3 Analysis
1.7 Accounting terminology 3-5, 7 Analysis
1.8 Accounting organizations 6 Analysis
1.9 Financial and management accounting 3, 4 Judgment
1.10 Management accounting information 4 Communication, judgment
1.11 Accounting organizations 6 Analysis, judgment
1.12 Purpose of an audit 5 Analysis, judgment
1.13 Audits of financial statements 5 Analysis
1.14 Ethics and professional judgment 7 Analysis, communication,
judgment
1.15 Careers in accounting 8 Judgment, communication
1.16 Home Depot, Inc. general information 1, 3, 5 Analysis, judgment,
research
© The McGraw-Hill Companies, Inc., 2008
Overview
,Due to the introductory nature of this chapter and the conceptual nature of its contents, no items labeled
Problems are included. In all future chapters you will find a series of Problems that generally include
computations, are more complex, and generally require more time to complete than Exercises.
Critical Thinking Cases
1.1 Real World: Chrysler Corp. 5 Analysis, ethics, judgment
Reliability of financial statements
1.2 Objectives of financial accounting 3 Analysis, communication,
group, judgment
1.3 Accounting systems 2 Analysis, communication
1.4 Codes of ethics (Ethics, fraud & corporate 7 Analysis, communication,
governance) judgment
1.5 Accounting reports lack candor (Business 1, 3, 7 Analysis, ethics, judgment
Week)
1.6 Accessing information on the Internet 6, 7 Research, technology
(Internet)
© The McGraw-Hill Companies, Inc., 2008
Overview
,DESCRIPTIONS OF CRITICAL THINKING CASES
Below are brief descriptions of each case. These descriptions are accompanied by the estimated time (in
minutes) required for completion and by a difficulty rating.
Critical Thinking Cases
1.1 Chrysler Corp. 15 Easy
Reliability of Financial Statements
This case explores the general subject of integrity in financial statements—what
causes potential investors to be able to rely on information and what precludes
management from portraying a company in more positive terms than it should.
1.2 Objectives of Financial Accounting 15 Medium
Characteristics of accounting and accounting information (e.g., useful for
decision making, language of business) are used to explain the importance of
accounting information.
1.3 Accounting Systems 15 Easy
The purpose and functions of accounting systems are covered, as well as the
definition of what an accounting system is and who is responsible for designing
and implementing accounting systems.
1.4 Codes of Ethics 30 Medium
Ethics, Fraud and Corporate Governance
Students are placed in the position of a new employee who is faced with the
challenge of becoming familiar with an appropriate code of ethics and must think
through how that code might influence his/her behavior on the job.
1.5 Accounting Reports Lack Candor 20 Medium
Business Week
Students are asked to identify the objectives of financial reporting and apply the
AICPA Code of Professional Conduct to a case.
1.6 Accessing Information on the Internet 30 Medium
Internet
Students are introduced to learning on the Internet by accessing the Rutgers
University web page on accounting information. Once there they learn about
accounting firms, accounting textbook publishers, and professional accounting
organizations.
© The McGraw-Hill Companies, Inc., 2008
Desc. of Cases
, SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
Note to instructor: We regularly include discussion questions as part of the assigned homework. One
objective of these questions is to help students develop communications skills; however, we find that
they also increase students’ conceptual understanding of accounting.
1. Accounting is a means to an end because it supports and facilitates decisions by providing
important information. The real end product is a more informed business decision because of the
availability of accounting information.
2. Accounting is a way of communicating the results of business activity and, therefore, is
sometimes described as the language of business. Among the important accounting measurements
that communicate business activity and justify describing accounting as the language of business
are costs, prices, sales volume, profits, and return on investment.
3. All organizations have a need to use accounting information, even if that information is as simple
as the cash flowing into and out of the organization. This includes government organizations, not-
for-profit organizations (e.g., charities, churches), and even individuals.
4. The primary distinction between financial and other types of accounting information is based on
the users of the information. Financial accounting information is provided primarily to external
users, such as investors and creditors. Internal accounting information, on the other hand, is
prepared primarily for use by management. While there is some overlap between the information
needs of these two groups, external users have different objectives than management and need
different information.
5. These four concepts may be described as an endless cycle in which economic activities occur, are
measured by an accounting process which produces accounting information which, in turn,
facilitates decision making which restarts the process as economic activities result from those
decisions.
6. An accounting system consists of the personnel, procedures, and records used by an organization
to develop accounting information and communicate that information to decision makers. The
primary purpose or objective of an accounting system is to meet the organization’s needs for
accounting information as efficiently as possible.
7. To be cost-effective, the benefit of doing something must exceed the cost of doing it. In the case
of an accounting system, the information provided by the system must be at least as valuable as
the cost of the system to be cost-effective. We might be able to produce more sophisticated, better
information, for example, but if the cost of doing that exceeds the benefit, to still produce the
information would not be cost-effective.
8. The three basic functions of an accounting system are to:
• Interpret and record business transactions.
• Classify the effects of similar transactions in a manner that permits determination of key
elements of information useful to management and used in accounting reports.
• Summarize and communicate the information contained in the system to decision makers.
© The McGraw-Hill Companies, Inc., 2008
Q1-8
