,
,Chapter 1 o
Financial Statements and Business Decisions
o o o o
ANSWERS TO QUESTIONS
o o
Accountingoisoaosystemothatocollectsoandoprocesseso(analyzes,omeasures,oandorecor
ds)ofinancialoinformationoaboutoanoorganizationoandoreportsothatoinformationotoodecis
ionomakers.
Financialoaccountingoinvolvesopreparationoofotheofourobasicofinancialostatementsoandor
elatedodisclosuresoforoexternalodecisionomakers.oManagerialoaccountingoinvolvesoth
eopreparationoofodetailedoplans,obudgets,oforecasts,oandoperformanceoreportsoforointe
rnalodecisionomakers.
Financialoreportsoareousedobyobothointernaloandoexternalogroupsoandoindividuals.oTheoi
nternalogroupsoareocomprisedoofotheovariousomanagersoofotheoentity.oTheoexternalogro
upsoincludeotheoowners,oinvestors,ocreditors,ogovernmentaloagencies,ootherointereste
doparties,oandotheopublicoatolarge.
Investorsopurchaseoallooropartoofoaobusinessoandohopeotoogainobyoreceivingopartoofow
hatotheocompanyoearnsoand/orosellingotheiroownershipointerestoinotheocompanyoinoth
eofutureoatoaohigheropriceothanotheyopaid.oCreditorsolendomoneyotooaocompanyoforoao
specificolengthoofotimeoandohopeotoogainobyochargingointerestoonotheoloan.
, Inoaosociety,oeachoorganizationocanobeodefinedoasoaoseparateoaccountingoentity.oAnoa
ccountingoentityoisotheoorganizationoforowhichofinancialodataoareotoobeocollected.oTypic
aloaccountingoentitiesoareoaobusiness,oaochurch,oaogovernmentalounit,oaouniversityoan
dootherononprofitoorganizationsosuchoasoaohospitaloandoaowelfareoorganization.oAobusi
nessotypicallyoisodefinedoandotreatedoasoaoseparateoentityobecauseotheoowners,ocredit
ors,oinvestors,oandootherointerestedopartiesoneedotooevaluateoitsoperformanceoandoitso
potentialoseparatelyofromootheroentitiesoandofromoitsoowners.
6. NameoofoStatement AlternativeoTitle
(a) IncomeoStatement (a)oStatementoofoEarnings;oStatementoof
Income;oStatementoofoOperations
(b) BalanceoSheet (b)oStatementoofoFinancialoPosition
(c) CashoFlowoStatement (c)oStatementoofoCashoFlows
Theoheadingoofoeachoofotheofourorequiredofinancialostatementsoshouldoincludeotheo
following:
Nameoofotheoentity
Nameoofotheostatement
Dateoofotheostatement,oorotheoperiodoofotime
Unitoofomeasure
(a)oTheopurposeoofotheoincomeostatementoisotoopresentoinformationoaboutotheoreven
ues,oexpenses,oandotheonetoincomeoofoanoentityoforoaospecifiedoperiodoofotime.
Theopurposeoofotheobalanceosheetoisotooreportotheofinancialopositionoofoanoentityo
atoaogivenodate,othatois,otooreportoinformationoaboutotheoassets,oliabilitiesoandost
ockholders’oequityoofotheoentityoasoofoaospecificodate.
Theopurposeoofotheostatementoofocashoflowsoisotoopresentoinformationoaboutotheo
flowoofocashointootheoentityo(sources),otheoflowoofocashooutoofotheoentityo(uses),oa
ndotheonetoincreaseoorodecreaseoinocashoduringotheoperiod.
Theostatementoofostockholders’oequityoreportsotheochangesoinoeachoofotheocom
pany’sostockholders’oequityoaccountsoduringotheoaccountingoperiod,oincludingoi
ssueoandorepurchaseoofostockoandotheowayothatonetoincomeoandodistributionoofo
dividendsoaffectedotheoretainedoearningsoofotheocompanyoduringothatoperiod.
Theoincomeostatementoandotheostatementoofocashoflowsoareodatedo―ForotheoYear
EndedoDecembero31‖obecauseotheyoreportotheoinflowsoandooutflowsooforesourceso
duringoaoperiodoofotime.oInocontrast,otheobalanceosheetoisodatedo―AtoDecembero31‖o
becauseoitorepresentsotheoresources,oobligations,oandostockholders’oequityoatoaosp
ecificodate.
,Chapter 1 o
Financial Statements and Business Decisions
o o o o
ANSWERS TO QUESTIONS
o o
Accountingoisoaosystemothatocollectsoandoprocesseso(analyzes,omeasures,oandorecor
ds)ofinancialoinformationoaboutoanoorganizationoandoreportsothatoinformationotoodecis
ionomakers.
Financialoaccountingoinvolvesopreparationoofotheofourobasicofinancialostatementsoandor
elatedodisclosuresoforoexternalodecisionomakers.oManagerialoaccountingoinvolvesoth
eopreparationoofodetailedoplans,obudgets,oforecasts,oandoperformanceoreportsoforointe
rnalodecisionomakers.
Financialoreportsoareousedobyobothointernaloandoexternalogroupsoandoindividuals.oTheoi
nternalogroupsoareocomprisedoofotheovariousomanagersoofotheoentity.oTheoexternalogro
upsoincludeotheoowners,oinvestors,ocreditors,ogovernmentaloagencies,ootherointereste
doparties,oandotheopublicoatolarge.
Investorsopurchaseoallooropartoofoaobusinessoandohopeotoogainobyoreceivingopartoofow
hatotheocompanyoearnsoand/orosellingotheiroownershipointerestoinotheocompanyoinoth
eofutureoatoaohigheropriceothanotheyopaid.oCreditorsolendomoneyotooaocompanyoforoao
specificolengthoofotimeoandohopeotoogainobyochargingointerestoonotheoloan.
, Inoaosociety,oeachoorganizationocanobeodefinedoasoaoseparateoaccountingoentity.oAnoa
ccountingoentityoisotheoorganizationoforowhichofinancialodataoareotoobeocollected.oTypic
aloaccountingoentitiesoareoaobusiness,oaochurch,oaogovernmentalounit,oaouniversityoan
dootherononprofitoorganizationsosuchoasoaohospitaloandoaowelfareoorganization.oAobusi
nessotypicallyoisodefinedoandotreatedoasoaoseparateoentityobecauseotheoowners,ocredit
ors,oinvestors,oandootherointerestedopartiesoneedotooevaluateoitsoperformanceoandoitso
potentialoseparatelyofromootheroentitiesoandofromoitsoowners.
6. NameoofoStatement AlternativeoTitle
(a) IncomeoStatement (a)oStatementoofoEarnings;oStatementoof
Income;oStatementoofoOperations
(b) BalanceoSheet (b)oStatementoofoFinancialoPosition
(c) CashoFlowoStatement (c)oStatementoofoCashoFlows
Theoheadingoofoeachoofotheofourorequiredofinancialostatementsoshouldoincludeotheo
following:
Nameoofotheoentity
Nameoofotheostatement
Dateoofotheostatement,oorotheoperiodoofotime
Unitoofomeasure
(a)oTheopurposeoofotheoincomeostatementoisotoopresentoinformationoaboutotheoreven
ues,oexpenses,oandotheonetoincomeoofoanoentityoforoaospecifiedoperiodoofotime.
Theopurposeoofotheobalanceosheetoisotooreportotheofinancialopositionoofoanoentityo
atoaogivenodate,othatois,otooreportoinformationoaboutotheoassets,oliabilitiesoandost
ockholders’oequityoofotheoentityoasoofoaospecificodate.
Theopurposeoofotheostatementoofocashoflowsoisotoopresentoinformationoaboutotheo
flowoofocashointootheoentityo(sources),otheoflowoofocashooutoofotheoentityo(uses),oa
ndotheonetoincreaseoorodecreaseoinocashoduringotheoperiod.
Theostatementoofostockholders’oequityoreportsotheochangesoinoeachoofotheocom
pany’sostockholders’oequityoaccountsoduringotheoaccountingoperiod,oincludingoi
ssueoandorepurchaseoofostockoandotheowayothatonetoincomeoandodistributionoofo
dividendsoaffectedotheoretainedoearningsoofotheocompanyoduringothatoperiod.
Theoincomeostatementoandotheostatementoofocashoflowsoareodatedo―ForotheoYear
EndedoDecembero31‖obecauseotheyoreportotheoinflowsoandooutflowsooforesourceso
duringoaoperiodoofotime.oInocontrast,otheobalanceosheetoisodatedo―AtoDecembero31‖o
becauseoitorepresentsotheoresources,oobligations,oandostockholders’oequityoatoaosp
ecificodate.
