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

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


CHAPTER 1 y t




ACCOUNTING IN ACTION yt yt




CHAPTER LEARNING OBJECTIVES ty ty




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
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of an organization to interested users. The major users and uses of accounting
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are as follows: (a) Management uses accounting information to plan, organize, and
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run the business. (b) Investors (owners) decide whether to buy, hold, or sell their
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financial interests on the basis of accounting data. (c)Creditors (suppliers and bankers)
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evaluate the risks of granting credit or lending money onthe basis of accounting
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information. Other groups that use accounting information are taxing authorities,
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y regulatory agencies, customers, and labor unions.
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2. Explain the building blocks of accounting: ethics, principles, and assumptions. Ethics
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are the standards of conduct by which actions are judged as right or wrong. Effective
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financialreporting 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
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3. State the accounting equation, and define its components. The basic accounting equation
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yt is: y t Assets = Liabilities + Owner's Equity yt yt yt yt yt




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




Investments by owners (assets the owner puts into the business) are recorded in
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a category called owner’s capital. Owner’s drawings are the withdrawal of assets by the
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owner for personal use. Revenues are the gross increase in owner’s equity from business
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activities for the purpose of
yt earning income. Expenses are the costs of assets
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consumed or services used in the process of
yt earning revenue. Owner’s equity is
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increased by an owner’s investmentsand by revenues from
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Owner’s equity is decreased by an owner’s withdrawals of assets and by
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y expenses.
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4. Analyze the effects of business transactions on the accounting equation. Each business
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y transaction must have a dual effect on the accounting equation. For example, if
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an individual asset increases, there must be a corresponding (1) decrease in another
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asset, or (2) increase in a
yt specific liability, or (3) increase in owner's equity.
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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
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loss for a specific period of time. An owner's equity statement summarizes the
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changes in owner's equity for a specific period of time. A balance sheet reports
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the assets, liabilities, and owner's equity at a specific date. A statement of cash flows
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summarizes information about the cash inflows (receipts) and outflows (payments) for a
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specific period of time.
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,
, 1-2 Test Bank for Accounting Principles, Fourteenth Edition

a6. yt 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
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unlimited potential for career advancement.
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