,ACCESSs5Tests5Banks5fors5Financials5Accountings58ths5Canadians5Editions5Libby
Chapter 1 s5
Financial Statements and Business Decisions
s5 s5 s5 s5
Revised:s5Augusts55,s52022
ANSWERSs5TOs5QUESTIONS
1. Accountings5iss5as5systems5thats5collectss5ands5processess5(analyzes,s5measures,s5ands5
records)s5financials5informations5abouts5ans5organizations5ands5reportss5thats5informa
tions5tos5decisions5makers.
2. Financials5accountings5involvess5preparations5ofs5thes5basics5financials5statementss5ands5relat
eds5disclosuress5fors5externals5decisions5makers.s5Reportings5iss5generallys5ons5as5quarterlys5a
nds5annuals5basis.s5Managerials5accountings5involvess5thes5preparations5ofs5detaileds5plans,s5
budgets,s5forecasts,s5ands5performances5reportss5fors5internals5decisions5makers.s5Reporting
s5iss5ons5ans5ongoings5basis.
3. Financials5reportss5ares5useds5bys5boths5internals5ands5externals5groupss5ands5individuals.
s5Thes5internals5userss5ares5thes5variouss5managerss5ofs5thes5entity,s5e.g.s5marketing,s5cre
dit,s5ands5purchasing.s5Thes5externals5groupss5includes5thes5owners,s5investors,s5creditors
,s5governmentals5agencies,s5others5interesteds5parties,s5ands5thes5publics5ats5large.
4. Investorss5purchases5alls5ors5parts5ofs5as5businesss5ands5hopes5tos5gains5bys5receivings5parts5o
fs5whats5thes5companys5earnss5and/
ors5bys5sellings5theirs5shares5ofs5thes5companys5ins5thes5futures5ats5as5highers5prices5thans5the
ys5paid.s 5 Creditorss5lends5moneys5tos5as5companys5fors5as5specifics5lengths5ofs5times5ands5ho
pes5tos5gains5bys5chargings5interests5ons5thes5loan.
5. Ans5accountings5entitys5iss5thes5organizations5fors5whichs5financials5datas5ares5tos5bes5collecte
d.s5Typicals5accountings5entitiess5ares5as5business,s5as5church,s5as5governmentals5unit,s5as5uni
versity,s5ands5others5nonprofits5organizationss5suchs5ass5as5hospital.s5As5businesss5iss5defined
s5ands5treateds5ass5as5separates5entitys5becauses5thes5owners,s5creditors,s5investors,s5ands5ot
hers5interesteds5partiess5needs5tos5evaluates5itss5performances5ands5itss5potentials5separatel
ys5froms5others5entitiess5ands5froms5itss5owners.
6. Names5ofs5Statement Alternatives5Title
a. Statements5ofs5earnings Incomes5statement
b. Statements5ofs5financials5position Balances5sheet
c. Statements5ofs5cashs5flows Cashs5flows5statement
7. Thes5headings5ofs5eachs5ofs5thes5fours5requireds5financials5statementss5shoulds5includes5thes5follo
wing:
(a) Names5ofs5thes5entity
(b) Titles5ofs5thes5statement
(c) Specifics5dates5ors5thes5periods5ofs5times5its5covers
Financials5Accounting,s58ce,s5Libby,s5Libby,s5Hodge,s5Kanaan,s5 ©s52023s5McGraw-
Sterling Hills5Limited.s5Alls5rightss5reserved.
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,ACCESSs5Tests5Banks5fors5Financials5Accountings58ths5Canadians5Editions5Libby
(d) Units5ofs5measure
Financials5Accounting,s58ce,s5Libby,s5Libby,s5Hodge,s5Kanaan,s5 ©s52023s5McGraw-
Sterling Hills5Limited.s5Alls5rightss5reserved.
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, ACCESSs5Tests5Banks5fors5Financials5Accountings58ths5Canadians5Editions5Libby
8. (a)
Thes5purposes5ofs5thes5statements5ofs5earningss5iss5tos5presents5informations5abouts5t
hes5revenues,s5expenses,s5ands5thes5nets5earningss5ofs5thes5entitys5fors5as5specifieds5pe
riods5ofs5time,s5ins5orders5tos5helps5assesss5itss5financials5performances5durings5thats5p
eriod.
(b) Thes5purposes5ofs5thes5statements5ofs5financials5positions5iss5tos5reports5thes5financial
s5positions5ofs5ans5entitys5ats5as5givens5date,s5thats5is,s5tos5reports5informations5abouts
5thes5assets,s5obligations,s5ands5shareholders’s5equitys5ofs5thes5entitys5ass5ats5as5speci
fics5date.
(c) Thes5statements5ofs5changess5ins5equitys5reportss5thes5ways5thats5nets5earnings,s5thes
5distributions5ofs5nets5earningss5(dividends),s5ands5others5changess5tos5shareholders’s
5equitys5affecteds5thes5company’ss5financials5positions5durings5thes5accountings5perio
d.s5Thes5focuss5ins5thiss5chapters5iss5ons5retaineds5earnings.s5Nets5earningss5fors5thes5y
ears5increasess5thes5balances5ofs5retaineds5earningss5whereass5thes5declarations5ofs5d
ividendss5tos5thes5shareholderss5decreasess5retaineds5earnings.
(d) Thes5purposes5ofs5thes5statements5ofs5cashs5flowss5iss5tos5presents5informations5abouts
5thes5flows5ofs5cashs5intos5thes5entitys5(sources),s5thes5flows5ofs5cashs5outs5ofs5thes5entit
ys5(uses),s5ands5thes5nets5increases5ors5decreases5ins5cashs5durings5thes5period.
9. Thes5statements5ofs5earningss5ands5thes5statements5ofs5cashs5flowss5ares5dateds5“Fors5thes5Y
ears5Endeds5Decembers531”s5becauses5theys5reports5thes5inflowss5ands5outflowss5ofs5resourc
ess5durings5as5periods5ofs5time.s5Ins5contrast,s5thes5statements5ofs5financials5positions5iss5date
ds5“Ats5Decembers531”s5becauses5its5representss5thes5resources,s5obligations,s5ands5sharehol
ders’s5equitys5ass5ats5as5specifics5date,s5Decembers531.
10. Assetss5ares5importants5tos5investorss5ands5creditorss5becauses5assetss5provides5as5basiss5fors
5judgings5whethers5sufficients5resourcess5ares5availables5tos5operates5thes5company.s5Liabiliti
ess5ares5importants5tos5creditorss5ands5investorss5becauses5thes5companys5musts5bes5ables5to
s5generates5sufficients5cashs5froms5operationss5ors5seeks5furthers5borrowings5tos5meets5thes5
paymentss5requireds5bys5debts5agreements.s 5 Ifs5as5businesss5doess5nots5pays5itss5creditors,s5t
hes5laws5mays5gives5thes5creditorss5thes5rights5tos5forces5thes5sales5ofs5assetss5sufficients5tos5m
eets5thes5creditors’s5claims.
11. Nets5earningss5iss5thes5excesss5ofs5totals5revenuess5overs5totals5expenses.s5Nets5losss5iss5th
es5excesss5ofs5totals5expensess5overs5totals5revenues.
12. Thes5accountings5equations5fors5thes5statements5ofs5earningss5iss5Revenuess5–
s5Expensess5=s5Nets5earnings.s5Revenuess5results5froms5thes5sales5ofs5goodss5ands5servicess5t
os5customers,s5regardlesss5ofs5thes5timings5ofs5collections5ofs5cashs5froms5customers.s5Expen
sess5represents5thes5monetarys5values5ofs5resourcess5thes5entitys5useds5up,s5ors5consumed,s5
tos5earns5revenuess5durings5thes5period.s5Nets5earningss5iss5simplys5thes5excesss5ofs5revenue
ss5overs5expenses.
Financials5Accounting,s58ce,s5Libby,s5Libby,s5Hodge,s5Kanaan,s5 ©s52023s5McGraw-
Sterling Hills5Limited.s5Alls5rightss5reserved.
1-3
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Chapter 1 s5
Financial Statements and Business Decisions
s5 s5 s5 s5
Revised:s5Augusts55,s52022
ANSWERSs5TOs5QUESTIONS
1. Accountings5iss5as5systems5thats5collectss5ands5processess5(analyzes,s5measures,s5ands5
records)s5financials5informations5abouts5ans5organizations5ands5reportss5thats5informa
tions5tos5decisions5makers.
2. Financials5accountings5involvess5preparations5ofs5thes5basics5financials5statementss5ands5relat
eds5disclosuress5fors5externals5decisions5makers.s5Reportings5iss5generallys5ons5as5quarterlys5a
nds5annuals5basis.s5Managerials5accountings5involvess5thes5preparations5ofs5detaileds5plans,s5
budgets,s5forecasts,s5ands5performances5reportss5fors5internals5decisions5makers.s5Reporting
s5iss5ons5ans5ongoings5basis.
3. Financials5reportss5ares5useds5bys5boths5internals5ands5externals5groupss5ands5individuals.
s5Thes5internals5userss5ares5thes5variouss5managerss5ofs5thes5entity,s5e.g.s5marketing,s5cre
dit,s5ands5purchasing.s5Thes5externals5groupss5includes5thes5owners,s5investors,s5creditors
,s5governmentals5agencies,s5others5interesteds5parties,s5ands5thes5publics5ats5large.
4. Investorss5purchases5alls5ors5parts5ofs5as5businesss5ands5hopes5tos5gains5bys5receivings5parts5o
fs5whats5thes5companys5earnss5and/
ors5bys5sellings5theirs5shares5ofs5thes5companys5ins5thes5futures5ats5as5highers5prices5thans5the
ys5paid.s 5 Creditorss5lends5moneys5tos5as5companys5fors5as5specifics5lengths5ofs5times5ands5ho
pes5tos5gains5bys5chargings5interests5ons5thes5loan.
5. Ans5accountings5entitys5iss5thes5organizations5fors5whichs5financials5datas5ares5tos5bes5collecte
d.s5Typicals5accountings5entitiess5ares5as5business,s5as5church,s5as5governmentals5unit,s5as5uni
versity,s5ands5others5nonprofits5organizationss5suchs5ass5as5hospital.s5As5businesss5iss5defined
s5ands5treateds5ass5as5separates5entitys5becauses5thes5owners,s5creditors,s5investors,s5ands5ot
hers5interesteds5partiess5needs5tos5evaluates5itss5performances5ands5itss5potentials5separatel
ys5froms5others5entitiess5ands5froms5itss5owners.
6. Names5ofs5Statement Alternatives5Title
a. Statements5ofs5earnings Incomes5statement
b. Statements5ofs5financials5position Balances5sheet
c. Statements5ofs5cashs5flows Cashs5flows5statement
7. Thes5headings5ofs5eachs5ofs5thes5fours5requireds5financials5statementss5shoulds5includes5thes5follo
wing:
(a) Names5ofs5thes5entity
(b) Titles5ofs5thes5statement
(c) Specifics5dates5ors5thes5periods5ofs5times5its5covers
Financials5Accounting,s58ce,s5Libby,s5Libby,s5Hodge,s5Kanaan,s5 ©s52023s5McGraw-
Sterling Hills5Limited.s5Alls5rightss5reserved.
1-1
mynursytest.st
,ACCESSs5Tests5Banks5fors5Financials5Accountings58ths5Canadians5Editions5Libby
(d) Units5ofs5measure
Financials5Accounting,s58ce,s5Libby,s5Libby,s5Hodge,s5Kanaan,s5 ©s52023s5McGraw-
Sterling Hills5Limited.s5Alls5rightss5reserved.
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, ACCESSs5Tests5Banks5fors5Financials5Accountings58ths5Canadians5Editions5Libby
8. (a)
Thes5purposes5ofs5thes5statements5ofs5earningss5iss5tos5presents5informations5abouts5t
hes5revenues,s5expenses,s5ands5thes5nets5earningss5ofs5thes5entitys5fors5as5specifieds5pe
riods5ofs5time,s5ins5orders5tos5helps5assesss5itss5financials5performances5durings5thats5p
eriod.
(b) Thes5purposes5ofs5thes5statements5ofs5financials5positions5iss5tos5reports5thes5financial
s5positions5ofs5ans5entitys5ats5as5givens5date,s5thats5is,s5tos5reports5informations5abouts
5thes5assets,s5obligations,s5ands5shareholders’s5equitys5ofs5thes5entitys5ass5ats5as5speci
fics5date.
(c) Thes5statements5ofs5changess5ins5equitys5reportss5thes5ways5thats5nets5earnings,s5thes
5distributions5ofs5nets5earningss5(dividends),s5ands5others5changess5tos5shareholders’s
5equitys5affecteds5thes5company’ss5financials5positions5durings5thes5accountings5perio
d.s5Thes5focuss5ins5thiss5chapters5iss5ons5retaineds5earnings.s5Nets5earningss5fors5thes5y
ears5increasess5thes5balances5ofs5retaineds5earningss5whereass5thes5declarations5ofs5d
ividendss5tos5thes5shareholderss5decreasess5retaineds5earnings.
(d) Thes5purposes5ofs5thes5statements5ofs5cashs5flowss5iss5tos5presents5informations5abouts
5thes5flows5ofs5cashs5intos5thes5entitys5(sources),s5thes5flows5ofs5cashs5outs5ofs5thes5entit
ys5(uses),s5ands5thes5nets5increases5ors5decreases5ins5cashs5durings5thes5period.
9. Thes5statements5ofs5earningss5ands5thes5statements5ofs5cashs5flowss5ares5dateds5“Fors5thes5Y
ears5Endeds5Decembers531”s5becauses5theys5reports5thes5inflowss5ands5outflowss5ofs5resourc
ess5durings5as5periods5ofs5time.s5Ins5contrast,s5thes5statements5ofs5financials5positions5iss5date
ds5“Ats5Decembers531”s5becauses5its5representss5thes5resources,s5obligations,s5ands5sharehol
ders’s5equitys5ass5ats5as5specifics5date,s5Decembers531.
10. Assetss5ares5importants5tos5investorss5ands5creditorss5becauses5assetss5provides5as5basiss5fors
5judgings5whethers5sufficients5resourcess5ares5availables5tos5operates5thes5company.s5Liabiliti
ess5ares5importants5tos5creditorss5ands5investorss5becauses5thes5companys5musts5bes5ables5to
s5generates5sufficients5cashs5froms5operationss5ors5seeks5furthers5borrowings5tos5meets5thes5
paymentss5requireds5bys5debts5agreements.s 5 Ifs5as5businesss5doess5nots5pays5itss5creditors,s5t
hes5laws5mays5gives5thes5creditorss5thes5rights5tos5forces5thes5sales5ofs5assetss5sufficients5tos5m
eets5thes5creditors’s5claims.
11. Nets5earningss5iss5thes5excesss5ofs5totals5revenuess5overs5totals5expenses.s5Nets5losss5iss5th
es5excesss5ofs5totals5expensess5overs5totals5revenues.
12. Thes5accountings5equations5fors5thes5statements5ofs5earningss5iss5Revenuess5–
s5Expensess5=s5Nets5earnings.s5Revenuess5results5froms5thes5sales5ofs5goodss5ands5servicess5t
os5customers,s5regardlesss5ofs5thes5timings5ofs5collections5ofs5cashs5froms5customers.s5Expen
sess5represents5thes5monetarys5values5ofs5resourcess5thes5entitys5useds5up,s5ors5consumed,s5
tos5earns5revenuess5durings5thes5period.s5Nets5earningss5iss5simplys5thes5excesss5ofs5revenue
ss5overs5expenses.
Financials5Accounting,s58ce,s5Libby,s5Libby,s5Hodge,s5Kanaan,s5 ©s52023s5McGraw-
Sterling Hills5Limited.s5Alls5rightss5reserved.
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