Test Bank for Accounting Principles 14th Edition Jerry J. Weygandt, Paul D. Kimmel, Jill E. Mitchell

TestBankforAccountingPrinciples14thEditionJerryJ.
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Weygandt, PaulD.Kimmel, Jill E. Mitchell
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,Test Bank for Accounting Principles, 14th Edition by Jerry J. Weygandt, Paul D.Kimmel
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CHAPTER 1 v t




ACCOUNTING IN ACTION vt vt




CHAPTERLEARNINGOBJECTIVES v
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1. Identify the activities and users associated with accounting. Accounting is an
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information system that identifies, records, and communicates the economic events of
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an organization to interested users. The major users and uses of accounting are as
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follows: (a) Management uses accounting information to plan, organize, and run the
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business. (b) Investors (owners) decide whether to buy, hold, or sell their financial
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interests on the basis of accounting data. (c)Creditors (suppliers and bankers) evaluate the
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risks of granting credit or lending money onthe basis of accounting information.
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Other groups that use accounting information are taxing authorities, regulatory
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agencies, customers, and labor unions.
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2. Explain the building blocks of accounting: ethics, principles, and assumptions. Ethics are
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the standards of conduct by which actions are judged as right or wrong. Effective
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financial reporting depends on sound ethical behavior.
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Generally accepted accounting principles are a common set of standards used by
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accountants. The primary accounting standard-setting body in the United States is the
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Financial Accounting Standards Board.
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3. State the accounting equation, and define its components. The basic accounting equation is:
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v t Assets = Liabilities + Owner's Equity vt vt vt vt vt




Assets are resources a business owns. Liabilities are creditorship claims on total assets.
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Owner's equity is the ownership claim on total assets.
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v t The expanded accounting equation is:
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Assets Liabilities + Owner's Capital vt vt vt vt Owner's Drawings + Revenues vt vt vt vt




Expenses vt




Investments by owners (assets the owner puts into the business) are recorded in a v t v t v t v t v t v t v t v t v t v t v t v t v t




category called owner’s capital. Owner’s drawings are the withdrawal of assets by the owner
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for personal use. Revenues are the gross increase in owner’s equity from business activities for
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the purpose of earning income. Expenses are the costs of assets consumed or services
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used in the process of earning revenue. Owner’s equity is increased by an owner’s
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investmentsand by revenues from business operations. Owner’s equity is decreased by
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an owner’s withdrawals of assets and by expenses.
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4. Analyze the effects of business transactions on the accounting equation. Each business
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transaction must have a dual effect on the accounting equation. For example, if an
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individual asset increases, there must be a corresponding (1) decrease in another asset, or
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(2) increase in a
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5. Describe the four financial statements and how they are prepared. An income
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statement presents the revenues and expenses, and resulting net income or net loss
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for a specific period of time. An owner's equity statement summarizes the changes
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in owner's equity for a specific period of time. A balance sheet reports the assets,
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liabilities, and owner's equity at a specific date. A statement of cash flows summarizes
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information about the cash inflows (receipts) and outflows (payments) for a specific period of
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time.
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,
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vt vt Test Bank for Accounting Principles, Fourteenth Edition
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a6. vt Explain the career opportunities in accounting. Accounting offers many different jobs in
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fields such as public and private accounting, governmental, and forensic accounting.
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Accounting is a popular major because there are many different types of jobs, with unlimited
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potential for career advancement.
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