MANUAL 2025 Miller-
Nobles Mattison Matsumura
,Chapter 1
Accounting and the Business Environment
Review Questions
1. Accounting is the information system that measures business activities, processes the information into
reports, and communicates the results to decision makers. Accounting is the language of business.
2. Financial accounting provides information for external decision makers, such as outside investors, lenders,
customers, and the federal government. Managerial accounting focuses on information for internal
3. Individuals use accounting information to help them manage their money, evaluate a new job, and better
decide whether they can afford to make a new purchase. Business owners use accounting information to
set goals, measure progress toward those goals, and make adjustments when needed. Investors use
accounting information to help them decide whether or not a company is a good investment and once they
have invested, they statements to analyze how their investment is performing.
Creditors use accounting information to decide whether to lend money to a business and to evaluate a
to make the loan payments. Taxing authorities use accounting information to calculate
the amount of income tax that a company has to pay.
4. Certified Public Accountants (CPAs) are licensed professional accountants who serve the general public.
They work for public accounting firms, businesses, government, or educational institutions. To be certified
they must meet educational and/or experience requirements and pass an exam. Certified Management
Accountants (CMAs) specialize in accounting and financial management knowledge. They work for a
single company.
5. The FASB oversees the creation and governance of accounting standards. They work with
governmental regulatory agencies, congressionally created groups, and private groups.
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,6. The guidelines for accounting information are called GAAP. It is the main U.S. accounting rule book
and is currently created and governed by the FASB. Investors and lenders must have information that is
relevant and has faithful representation in order to make decisions and GAAP provides the framework
for this financial reporting.
7. A sole proprietorship has a single owner, terminates upon owner has
personal liability for the debts, and it is not a separate tax entity. A partnership has two or
it is not a
separate tax entity. A corporation is a separate legal entity, has one or more owners, has indefinite life, the
tax entity. A limited-
liability company has one or more members and each is only liable for his or her own actions, has an
indefinite life, and is not a separate tax entity.
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, 8. The land should be recorded at $5,000. The cost principle states that assets should be recorded at their
historical cost.
9. The going concern assumption assumes that the entity will remain in business for the foreseeable future
and long enough to use existing resources for their intended purpose.
10. The faithful representation concept states that accounting information should be complete, neutral, and
free from material error.
11. The monetary unit assumption states that items on the financial statements should be measured in terms
of a monetary unit.
12. The IASB is the organization that develops and creates IFRS which are a set of global accounting
standards that would be used around the world.
13. Assets = Liabilities + Equity. Assets are economic resources that are expected to benefit the business in the
future. They are things of value that a business owns or has control of. Liabilities are debts that are owed
to creditors. They are one source of claims against assets. Equity is the other source of claims against
assets. Equity is the claims against assets and is the amount of assets that is left over after the
company has paid its liabilities. It represents the net worth of the business.
14. Equity increases with contributions and revenue. Equity decreases with expenses and
15. Revenues Expenses = Net Income. Revenues are earnings resulting from delivering goods or services
to customers. Expenses are the cost of selling goods or service.
16. Step 1: Identify the accounts and the account type. Step 2: Decide if each account increases or
decreases. Step 3: Determine if the accounting equation is in balance.
17. Income Statement Shows the difference between an revenues and expenses and reports the net
income or net loss for a specific period.
Statement of Equity Shows the changes in the capital account for a specific period
Balance Sheet Shows the assets, liabilities, and equity of the business as of a specific date.
Statement of Cash Flows Shows a cash receipts and cash payments for a specific period.
18. Return on Assets = Net income / Average total assets. ROA measures how profitably a company uses its
assets.
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Nobles Mattison Matsumura
,Chapter 1
Accounting and the Business Environment
Review Questions
1. Accounting is the information system that measures business activities, processes the information into
reports, and communicates the results to decision makers. Accounting is the language of business.
2. Financial accounting provides information for external decision makers, such as outside investors, lenders,
customers, and the federal government. Managerial accounting focuses on information for internal
3. Individuals use accounting information to help them manage their money, evaluate a new job, and better
decide whether they can afford to make a new purchase. Business owners use accounting information to
set goals, measure progress toward those goals, and make adjustments when needed. Investors use
accounting information to help them decide whether or not a company is a good investment and once they
have invested, they statements to analyze how their investment is performing.
Creditors use accounting information to decide whether to lend money to a business and to evaluate a
to make the loan payments. Taxing authorities use accounting information to calculate
the amount of income tax that a company has to pay.
4. Certified Public Accountants (CPAs) are licensed professional accountants who serve the general public.
They work for public accounting firms, businesses, government, or educational institutions. To be certified
they must meet educational and/or experience requirements and pass an exam. Certified Management
Accountants (CMAs) specialize in accounting and financial management knowledge. They work for a
single company.
5. The FASB oversees the creation and governance of accounting standards. They work with
governmental regulatory agencies, congressionally created groups, and private groups.
1-1
,6. The guidelines for accounting information are called GAAP. It is the main U.S. accounting rule book
and is currently created and governed by the FASB. Investors and lenders must have information that is
relevant and has faithful representation in order to make decisions and GAAP provides the framework
for this financial reporting.
7. A sole proprietorship has a single owner, terminates upon owner has
personal liability for the debts, and it is not a separate tax entity. A partnership has two or
it is not a
separate tax entity. A corporation is a separate legal entity, has one or more owners, has indefinite life, the
tax entity. A limited-
liability company has one or more members and each is only liable for his or her own actions, has an
indefinite life, and is not a separate tax entity.
1-2
, 8. The land should be recorded at $5,000. The cost principle states that assets should be recorded at their
historical cost.
9. The going concern assumption assumes that the entity will remain in business for the foreseeable future
and long enough to use existing resources for their intended purpose.
10. The faithful representation concept states that accounting information should be complete, neutral, and
free from material error.
11. The monetary unit assumption states that items on the financial statements should be measured in terms
of a monetary unit.
12. The IASB is the organization that develops and creates IFRS which are a set of global accounting
standards that would be used around the world.
13. Assets = Liabilities + Equity. Assets are economic resources that are expected to benefit the business in the
future. They are things of value that a business owns or has control of. Liabilities are debts that are owed
to creditors. They are one source of claims against assets. Equity is the other source of claims against
assets. Equity is the claims against assets and is the amount of assets that is left over after the
company has paid its liabilities. It represents the net worth of the business.
14. Equity increases with contributions and revenue. Equity decreases with expenses and
15. Revenues Expenses = Net Income. Revenues are earnings resulting from delivering goods or services
to customers. Expenses are the cost of selling goods or service.
16. Step 1: Identify the accounts and the account type. Step 2: Decide if each account increases or
decreases. Step 3: Determine if the accounting equation is in balance.
17. Income Statement Shows the difference between an revenues and expenses and reports the net
income or net loss for a specific period.
Statement of Equity Shows the changes in the capital account for a specific period
Balance Sheet Shows the assets, liabilities, and equity of the business as of a specific date.
Statement of Cash Flows Shows a cash receipts and cash payments for a specific period.
18. Return on Assets = Net income / Average total assets. ROA measures how profitably a company uses its
assets.
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