Accounting for Decision Makers -
C213 Exam-Graded A
Bookkeeping - ANS-is the preservation of a systematic, quantitative record of an activity
Accounting - ANS-A system of providing "quantitative information, primarily financial in
nature, about economic entities that is intended to be useful in making economic
decisions."
The key features of this definition are the following:
Numbers: Accounting is quantitative. This is a strength because numbers can be easily
tabulated and summarized. It is a weakness because some important business events,
such as a toxic waste spill and the associated lawsuits and countersuits, cannot be
easily described by one or two numbers.
A financial dimension: The status and performance of a business is affected by and
reflected in many dimensions—financial, personal relationships, community and
environmental impact, and public image. Accounting focuses on just the financial
dimension.
Usefulness: The practice of accounting is supported by a long tradition of theory; U.S.
accounting rules in fact have a theoretical conceptual framework, and some people
actually make a living as accounting theorists. However, in spite of its theoretical
beauty, accounting exists only because it is useful.
Future decisions based on past information: Although accounting is the structured
reporting of what has already occurred, this past information can only be useful if it
impacts decisions about the future.
financial accounting - ANS-which is the name given to accounting information provided
for and used by external users.
Managerial accounting - ANS-the name given to accounting systems designed for
internal users
financial statements - ANS-The three primary financial information documents: the
balance sheet, income statement, and statement of cash flows.
balance sheet - ANS-reports the resources of a company (the assets), the company's
obligations (the liabilities), and the owners' equity, which represents how much money
has been invested in the company by its owners.
,income statement - ANS-This document reports the amount of net income earned by a
company during a period, with annual and quarterly income statements being the most
common.
statement of cash flows - ANS-This document reports the amount of cash collected and
paid out by a company in the following three types of activities: operating, investing, and
financing.
The emphasis in financial accounting is on which of the following external user groups?
- ANS-Investors and creditors
The primary internal group that uses accounting information is - ANS-Management
Internal reports are generally used by - ANS-Management
Which of the following is NOT an external user of financial information? - ANS-
Management
accounting standards are set by the? - ANS-Financial Accounting Standards Board
(FASB). The FASB is based in Norwalk, Connecticut; its seven full-time members are
selected from a variety of backgrounds—professional accounting, business,
government, and academia. FASB is not a government agency, it lacks the legal power
to enforce the accounting standards it sets.
Generally Accepted Accounting Principles (GAAP) - ANS-a set of accounting standards
that is used in the preparation of financial statements
Which of the following is NOT true of the Financial Accounting Standards Board
(FASB)? - ANS-It is a government agency
Generally accepted accounting principles are - ANS-Developed by accounting rule
makers
The initials GAAP stand for - ANS-Generally Accepted Accounting Principles
The current standard-setting board for accounting in the private sector is the - ANS-
Financial Accounting Standards Board (FASB)
Securities and Exchange Commission (SEC) - ANS-Congress created the Securities
and Exchange Commission (SEC) to regulate U.S. stock exchanges.The SEC is not
charged with protecting investors from losing money; instead, it seeks to create a fair
information environment in which investors can buy and sell stocks without fear that
companies are hiding or manipulating financial data.
,What is corporate governance? - ANS-Corporate Governance is the set of principles
and practices that a corporation uses to regulate the relationship between the
shareholders and the professional managers hired by the board of directors.
The label "CPA" has two different uses - ANS-for individuals who are CPAs and for CPA
firms.CPA firms are also hired to perform independent audits of a company's financial
statements. The important role of an independent audit in ensuring the reliability of
financial statements is discussed in our "Overview of the Financial Statements."not all
CPAs work as accountants; they work in law firms or for the CIA and as business
consultants, corporate managers, and even accounting professors.
Certified Public Accountant (CPA) - ANS-A person who has taken a minimum number of
college-level accounting classes, has passed the dreaded CPA exam, and has met
other requirements set by his or her state.
American Institute of Certified Public Accountants (AICPA) - ANS-the professional
organizations of certified public accountants in the United States. Like other
professional organizations (e.g., the American Medical Association and the American
Bar Association), the AICPA provides continuing educational service to its members
and also acts as a political voice to lobby on behalf of its membership. The AICPA is
responsible for preparing and grading the CPA examination in addition to maintaining
the integrity of the accounting profession through its Code of Professional Conduct.
Section 101 of the Sarbanes-Oxley Act created the Public Company Accounting
Oversight Board (PCAOB). - ANS-Public Company Accounting Oversight Board
(PCAOB)a private, non-profit organization, but it effectively serves as an arm of the
SEC in registering, inspecting, and disciplining the auditors of all publicly traded
companies. The SEC appoints the chairperson and members of the PCAOB. Like the
FASB, the PCAOB is funded by registration fees paid by all publicly traded companies
in the United States.
Internal Revenue Service (IRS) - ANS-The branch of the U.S. Treasury Department in
charge of collecting taxes
International Accounting Standards Board (IASB) - ANS-An international accounting
standard-setting body responsible for the convergence of accounting standards
worldwide.was formed in 1973 to develop worldwide accounting standards.In 2001, the
IASB restructured itself as an independent body with closer links to national standard-
setting bodies. At that time the IASB adopted its current name and dropped its original
name, the International Accounting Standards Committee (IASC).
International Accounting Standards Committee (IASC) - ANS-International Accounting
Standards Board (IASB)
International Financial Reporting Standards (IFRS) - ANS-Accounting standards, issued
by the IASB, that have been adopted by many countries outside of the United States.
, Which of the following is the government agency that stipulates the rules and
regulations that govern the collection of taxes in the United States? - ANS-Internal
Revenue Service
The organization that develops worldwide accounting standards is the - ANS-
International Accounting Standards Board (IASB)
Standards established by the International Accounting Standards Board are referred to
as - ANS-International Financial Reporting Standards
Which of the following is NOT a service typically provided by large public accounting
firms? - ANS-Making management decisions
Which of the following organizations has specific legal authority to establish accounting
standards for publicly held companies? - ANS-Securities and Exchange Commission
(SEC)
Which of the following is NOT a reason for the integration of worldwide accounting
standards? - ANS-the theoretical necessity of a common set of accounting standards
The International Accounting Standards Board (IASB) is charged with developing
worldwide accounting practices? - ANS-True
With the current state of information technology, investors outside a company are now
allowed access to a company's internal database of financial information and do their
own customized analysis of a firm's performance. - ANS-False - While the technology
may be available, companies are still not allowing outsiders access to their internal
accounting records.
Increased federal oversight of the audit process resulted from the passage of the
following act of Congress - - ANS-Sarbanes-Oxley Act
1.7 Review of Key Points - ANS-Accounting is the recording of the day-to-day financial
activities of a company and the organization of that information into summary reports
used to evaluate the company's financial status.
The focus of financial accounting is the three primary financial statements: the balance
sheet, the income statement, and the statement of cash flows.
Among the users of financial accounting information are lenders, investors, company
management, suppliers, customers, employees, competitors, government agencies,
politicians, and the press.
The practice of accounting involves adherence to the established accounting rules as
well as the use of judgment. U.S. accounting rules are established by the FASB.
In addition to the FASB, other important accounting-related organizations are the SEC,
the AICPA, the PCAOB, the IRS, and the IASB.
C213 Exam-Graded A
Bookkeeping - ANS-is the preservation of a systematic, quantitative record of an activity
Accounting - ANS-A system of providing "quantitative information, primarily financial in
nature, about economic entities that is intended to be useful in making economic
decisions."
The key features of this definition are the following:
Numbers: Accounting is quantitative. This is a strength because numbers can be easily
tabulated and summarized. It is a weakness because some important business events,
such as a toxic waste spill and the associated lawsuits and countersuits, cannot be
easily described by one or two numbers.
A financial dimension: The status and performance of a business is affected by and
reflected in many dimensions—financial, personal relationships, community and
environmental impact, and public image. Accounting focuses on just the financial
dimension.
Usefulness: The practice of accounting is supported by a long tradition of theory; U.S.
accounting rules in fact have a theoretical conceptual framework, and some people
actually make a living as accounting theorists. However, in spite of its theoretical
beauty, accounting exists only because it is useful.
Future decisions based on past information: Although accounting is the structured
reporting of what has already occurred, this past information can only be useful if it
impacts decisions about the future.
financial accounting - ANS-which is the name given to accounting information provided
for and used by external users.
Managerial accounting - ANS-the name given to accounting systems designed for
internal users
financial statements - ANS-The three primary financial information documents: the
balance sheet, income statement, and statement of cash flows.
balance sheet - ANS-reports the resources of a company (the assets), the company's
obligations (the liabilities), and the owners' equity, which represents how much money
has been invested in the company by its owners.
,income statement - ANS-This document reports the amount of net income earned by a
company during a period, with annual and quarterly income statements being the most
common.
statement of cash flows - ANS-This document reports the amount of cash collected and
paid out by a company in the following three types of activities: operating, investing, and
financing.
The emphasis in financial accounting is on which of the following external user groups?
- ANS-Investors and creditors
The primary internal group that uses accounting information is - ANS-Management
Internal reports are generally used by - ANS-Management
Which of the following is NOT an external user of financial information? - ANS-
Management
accounting standards are set by the? - ANS-Financial Accounting Standards Board
(FASB). The FASB is based in Norwalk, Connecticut; its seven full-time members are
selected from a variety of backgrounds—professional accounting, business,
government, and academia. FASB is not a government agency, it lacks the legal power
to enforce the accounting standards it sets.
Generally Accepted Accounting Principles (GAAP) - ANS-a set of accounting standards
that is used in the preparation of financial statements
Which of the following is NOT true of the Financial Accounting Standards Board
(FASB)? - ANS-It is a government agency
Generally accepted accounting principles are - ANS-Developed by accounting rule
makers
The initials GAAP stand for - ANS-Generally Accepted Accounting Principles
The current standard-setting board for accounting in the private sector is the - ANS-
Financial Accounting Standards Board (FASB)
Securities and Exchange Commission (SEC) - ANS-Congress created the Securities
and Exchange Commission (SEC) to regulate U.S. stock exchanges.The SEC is not
charged with protecting investors from losing money; instead, it seeks to create a fair
information environment in which investors can buy and sell stocks without fear that
companies are hiding or manipulating financial data.
,What is corporate governance? - ANS-Corporate Governance is the set of principles
and practices that a corporation uses to regulate the relationship between the
shareholders and the professional managers hired by the board of directors.
The label "CPA" has two different uses - ANS-for individuals who are CPAs and for CPA
firms.CPA firms are also hired to perform independent audits of a company's financial
statements. The important role of an independent audit in ensuring the reliability of
financial statements is discussed in our "Overview of the Financial Statements."not all
CPAs work as accountants; they work in law firms or for the CIA and as business
consultants, corporate managers, and even accounting professors.
Certified Public Accountant (CPA) - ANS-A person who has taken a minimum number of
college-level accounting classes, has passed the dreaded CPA exam, and has met
other requirements set by his or her state.
American Institute of Certified Public Accountants (AICPA) - ANS-the professional
organizations of certified public accountants in the United States. Like other
professional organizations (e.g., the American Medical Association and the American
Bar Association), the AICPA provides continuing educational service to its members
and also acts as a political voice to lobby on behalf of its membership. The AICPA is
responsible for preparing and grading the CPA examination in addition to maintaining
the integrity of the accounting profession through its Code of Professional Conduct.
Section 101 of the Sarbanes-Oxley Act created the Public Company Accounting
Oversight Board (PCAOB). - ANS-Public Company Accounting Oversight Board
(PCAOB)a private, non-profit organization, but it effectively serves as an arm of the
SEC in registering, inspecting, and disciplining the auditors of all publicly traded
companies. The SEC appoints the chairperson and members of the PCAOB. Like the
FASB, the PCAOB is funded by registration fees paid by all publicly traded companies
in the United States.
Internal Revenue Service (IRS) - ANS-The branch of the U.S. Treasury Department in
charge of collecting taxes
International Accounting Standards Board (IASB) - ANS-An international accounting
standard-setting body responsible for the convergence of accounting standards
worldwide.was formed in 1973 to develop worldwide accounting standards.In 2001, the
IASB restructured itself as an independent body with closer links to national standard-
setting bodies. At that time the IASB adopted its current name and dropped its original
name, the International Accounting Standards Committee (IASC).
International Accounting Standards Committee (IASC) - ANS-International Accounting
Standards Board (IASB)
International Financial Reporting Standards (IFRS) - ANS-Accounting standards, issued
by the IASB, that have been adopted by many countries outside of the United States.
, Which of the following is the government agency that stipulates the rules and
regulations that govern the collection of taxes in the United States? - ANS-Internal
Revenue Service
The organization that develops worldwide accounting standards is the - ANS-
International Accounting Standards Board (IASB)
Standards established by the International Accounting Standards Board are referred to
as - ANS-International Financial Reporting Standards
Which of the following is NOT a service typically provided by large public accounting
firms? - ANS-Making management decisions
Which of the following organizations has specific legal authority to establish accounting
standards for publicly held companies? - ANS-Securities and Exchange Commission
(SEC)
Which of the following is NOT a reason for the integration of worldwide accounting
standards? - ANS-the theoretical necessity of a common set of accounting standards
The International Accounting Standards Board (IASB) is charged with developing
worldwide accounting practices? - ANS-True
With the current state of information technology, investors outside a company are now
allowed access to a company's internal database of financial information and do their
own customized analysis of a firm's performance. - ANS-False - While the technology
may be available, companies are still not allowing outsiders access to their internal
accounting records.
Increased federal oversight of the audit process resulted from the passage of the
following act of Congress - - ANS-Sarbanes-Oxley Act
1.7 Review of Key Points - ANS-Accounting is the recording of the day-to-day financial
activities of a company and the organization of that information into summary reports
used to evaluate the company's financial status.
The focus of financial accounting is the three primary financial statements: the balance
sheet, the income statement, and the statement of cash flows.
Among the users of financial accounting information are lenders, investors, company
management, suppliers, customers, employees, competitors, government agencies,
politicians, and the press.
The practice of accounting involves adherence to the established accounting rules as
well as the use of judgment. U.S. accounting rules are established by the FASB.
In addition to the FASB, other important accounting-related organizations are the SEC,
the AICPA, the PCAOB, the IRS, and the IASB.
