Test Bank for Accounting Principles 14th Edition Jerry J.
Weygandt, Paul D. Kimmel, Jill E. Mitchell
,Test Bank for Accounting Principles, 14th Edition by Jerry J. Weygandt, Paul D.Kimmel
CHAPTER 1
ACCOUNTING
IN ACTION
CHAPTERLEARNINGOBJECTIVES
1. Identify the activities and users associated with accounting.Accounting is an informationsystem that
identifies, records, and communicatesthe economic events of an organization to interested users. The
major users and uses of accounting are as follows: (a) Management uses accounting information to
plan, organize, and run the business. (b) Investors (owners) decide whether to buy, hold, or sell their
financial interests on the basis of accounting data. (c)Creditors (suppliers and bankers) evaluate the
risks of granting credit or lending money onthe basis of accounting information. Other groups that
use accounting information are taxing authorities, regulatoryagencies, customers,and labor unions.
2. Explain the buildingblocks of accounting:ethics, principles, and assumptions.Ethics are the standards of
conduct by which actions are judged as right or wrong. Effective financial reporting depends on sound
ethical behavior.
Generally accepted accounting principles are a common set of standards used by accountants. The
primary accounting standard- setting body in the United States is the Financial Accounting Standards
Board.
3. State the accountingequation,and defineits components.The basic accountingequationis: Assets =
Liabilities + Owner'sEquity
Assets are resources a business owns. Liabilities are creditorship claims on total assets.
Owner'sequityis the ownershipclaim on total assets. The
expandedaccountingequationis:
Assets Liabilities + Owner'sCapital Owner'sDrawings+ Revenues
Expenses
Investments by owners (assets the owner puts into the business) are recorded in a category called
owner’s capital. Owner’sdrawings are the withdrawal of assets by the owner for personal use. Revenues
are the gross increase in owner’s equity from business activities for the purpose of earning income.
Expenses are the costs of assets consumed or services used in the process of earning revenue.
Owner’s equity is increased by an owner’s investmentsand by revenues from business operations.
Owner’s equity is decreased by an owner’s withdrawals of assets and by expenses.
4. Analyze the effects of business transactionson the accountingequation.Each business transaction must
have a dual effect on the accounting equation. For example, if an individual asset increases, there
must be a corresponding (1) decrease in another asset, or (2) increasein a specific liability, or (3)
increase in owner'sequity.
5. Describe the four financial statements and how they are prepared.An income statement presents the
revenues and expenses, and resulting net income or net loss for a specific period of time. An
owner's equity statement summarizes the changes in owner's equity for a specific period of time. A
balance sheet reports the assets, liabilities, and owner's equity at a specific date. A statementof cash
flows summarizes informationabout the cash inflows (receipts) and outflows (payments) for a specific
periodof time.
,
, 1-2 Test Bank for Accounting Principles, Fourteenth Edition
a6. Explain the career opportunitiesin accounting. Accounting offers many different jobs in fields such as
public and private accounting, governmental, and forensic accounting. Accounting is a popular major
because there are many different types of jobs, with unlimitedpotentialfor career advancement.
Weygandt, Paul D. Kimmel, Jill E. Mitchell
,Test Bank for Accounting Principles, 14th Edition by Jerry J. Weygandt, Paul D.Kimmel
CHAPTER 1
ACCOUNTING
IN ACTION
CHAPTERLEARNINGOBJECTIVES
1. Identify the activities and users associated with accounting.Accounting is an informationsystem that
identifies, records, and communicatesthe economic events of an organization to interested users. The
major users and uses of accounting are as follows: (a) Management uses accounting information to
plan, organize, and run the business. (b) Investors (owners) decide whether to buy, hold, or sell their
financial interests on the basis of accounting data. (c)Creditors (suppliers and bankers) evaluate the
risks of granting credit or lending money onthe basis of accounting information. Other groups that
use accounting information are taxing authorities, regulatoryagencies, customers,and labor unions.
2. Explain the buildingblocks of accounting:ethics, principles, and assumptions.Ethics are the standards of
conduct by which actions are judged as right or wrong. Effective financial reporting depends on sound
ethical behavior.
Generally accepted accounting principles are a common set of standards used by accountants. The
primary accounting standard- setting body in the United States is the Financial Accounting Standards
Board.
3. State the accountingequation,and defineits components.The basic accountingequationis: Assets =
Liabilities + Owner'sEquity
Assets are resources a business owns. Liabilities are creditorship claims on total assets.
Owner'sequityis the ownershipclaim on total assets. The
expandedaccountingequationis:
Assets Liabilities + Owner'sCapital Owner'sDrawings+ Revenues
Expenses
Investments by owners (assets the owner puts into the business) are recorded in a category called
owner’s capital. Owner’sdrawings are the withdrawal of assets by the owner for personal use. Revenues
are the gross increase in owner’s equity from business activities for the purpose of earning income.
Expenses are the costs of assets consumed or services used in the process of earning revenue.
Owner’s equity is increased by an owner’s investmentsand by revenues from business operations.
Owner’s equity is decreased by an owner’s withdrawals of assets and by expenses.
4. Analyze the effects of business transactionson the accountingequation.Each business transaction must
have a dual effect on the accounting equation. For example, if an individual asset increases, there
must be a corresponding (1) decrease in another asset, or (2) increasein a specific liability, or (3)
increase in owner'sequity.
5. Describe the four financial statements and how they are prepared.An income statement presents the
revenues and expenses, and resulting net income or net loss for a specific period of time. An
owner's equity statement summarizes the changes in owner's equity for a specific period of time. A
balance sheet reports the assets, liabilities, and owner's equity at a specific date. A statementof cash
flows summarizes informationabout the cash inflows (receipts) and outflows (payments) for a specific
periodof time.
,
, 1-2 Test Bank for Accounting Principles, Fourteenth Edition
a6. Explain the career opportunitiesin accounting. Accounting offers many different jobs in fields such as
public and private accounting, governmental, and forensic accounting. Accounting is a popular major
because there are many different types of jobs, with unlimitedpotentialfor career advancement.
