TEST BANK For Accounting Principles, 14th Edition by Jerry J. Weygandt, Paul D. Kimmel, Verified Chapters 1 - 27, Complete Newest Version

, CHAPTER 1 x




ACCOUNTING IN ACTION x x




CHAPTER LEARNING OBJECTIVES x x




1. Identify the activities and users associated with accounting. Accounting is an information sys
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tem that identifies, records, and communicates the econo c events of an organization to interested
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users. The major users and uses of accounting are as follows: (a) Management uses accounting in
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formation to plan, organize, and run the business. (b) Investors (owners) decide whether to buy, ho
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ld, or sell their financial interests on the basis of accounting data. (c) Creditors (suppliers and bank
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ers) evaluate the risks of granting credit or lending money on the basis of accounting information.
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Other groups that use accounting information are taxing authorities, regulatory agencies, custom
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ers, and labor unions.
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2. Explain the building blocks of accounting: ethics, principles, and assumptions. Ethics are t
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he standards of conduct by which actions are judged as right or wrong. Effective financial reporting
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depends on sound ethical behavior.
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Generally accepted accounting principles are a common set of standards used by accountants. T
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he primary accounting standard-
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setting body in the United States is the 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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Assets = Liabilities + Owner's Equity x x x x x




Assets are resources a business owns. Liabilities are creditorship claims on total assets. Owner's e
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quity is the ownership claim on total assets.
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The expanded accounting equation is:
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Assets  Liabilities + Owner's Capital  Owner's Drawings + Revenues 
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Expenses
Investments by owners (assets the owner puts into the business) are recorded in a category called
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owner‘s capital. Owner‘s drawings are the withdrawal of assets by the owner for personal use. Rev
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enues are the gross increase in owner‘s equity from business activities for the purpose of earning i
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ncome. Expenses are the costs of assets consumed or services used in the process of earning rev
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enue. Owner‘s equity is increased by an owner‘s investments and by revenues from business ope
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rations. Owner‘s equity is decreased by 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 tra
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nsaction must have a dual effect on the accounting equation. For example, if an individual asset in
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creases, there must be a corresponding (1) decrease in another asset, or (2) increase in a specific l
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iability, or (3) increase in owner's equity.
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5. Describe the four financial statements and how they are prepared. An income statement pre
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sents the revenues and expenses, and resulting net income or net loss for a specific period of time
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. An owner's equity statement summarizes the changes in owner's equity for a specific period of ti
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me. A balance sheet reports the assets, liabilities, and owner's equity at a specific date. A stateme
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nt of cash flows summarizes information about the cash inflows (receipts) and outflows (payments
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) for a specific period of time.
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,
, 21A - 2 Test Bank for Accounting Principles, Fourteenth Edition
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a
6. Explain the career opportunities in accounting. Accounting offers many different jobs in fields s
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uch as public and private accounting, governmental, and forensic accounting. Accounting is a pop
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ular major because there are many different types of jobs, with unli ted potential for career advanc
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ement.
TRUE-FALSE STATEMENTS x




1. Owners of business firms are the only people who need accounting information.
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Ans:x F,x LO:x 1,x Bloom:x K,x Difficulty:x Easy,x Xn:x 1,x AACSB:x None,x AICPAx BB:x Governancex Perspective,x AICPAx FC:x Reporting,x AICPAx PC:x None,x IMA:x Re
porting



2. Transactions that can be measured in dollars and cents are recorded in the financial infor
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mation system. x




Ans:xT,xLO:x1,xBloom:xK,xDifficulty:xEasy,xXn:x1,xAACSB:xNone,xAICPAxBB:xGovernancexPerspective,xAICPAxFC:xMeasurementxAnalysisxandx Interpretation,xA
ICPAxPC:xNone,xIMA:xReporting



3. The hiring of a new company president is an econo c event recorded by the financial inform
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ation system. x




Ans:xF,xLO:x1,xBloom:xC,xDifficulty:xEasy,xXn:x1,xAACSB:xNone,xAICPAxBB:xGovernancexPerspective,xAICPAxFC:xMeasurementxAnalysisxandx Interpretation,xA
ICPAxPC:xNone,xIMA:xReporting

4. Management of a business enterprise is the major external user of information.
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Ans:xF,xLO:x1,xBloom:xK,xDifficulty:xEasy,xXn:x1,xAACSB:xNone,xAICPAxBB:xGovernancexPerspective,xAICPAxFC:xMeasurementxAnalysisxandx Interpretation,xA
ICPAxPC:xNone,xIMA:xReporting

5. Accounting communicates financial information about a business enterprise to both inter
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nal and external users.
x x x




Ans:xT,xLO:x1,xBloom:xK,xDifficulty:xEasy,xXn:x1,xAACSB:xNone,xAICPAxBB:xGovernancexPerspective,xAICPAxFC:xMeasurementxAnalysisxandx Interpretation,xA
ICPAxPC:xNone,xIMA:xReporting

6. Accounting information is used only by external users with a financial interest in a busi
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ness enterprise. x




Ans:xF,xLO:x1,xBloom:xC,xDifficulty:xEasy,xXn:x1,xAACSB:xNone,xAICPAxBB:xGovernancexPerspective,xAICPAxFC:xMeasurementxAnalysisxandx Interpretation,xA
ICPAxPC:xNone,xIMA:xReporting



7. Financial statements are the major means of communicating accounting information to int
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erested parties. x




Ans:xT,xLO:x1,xBloom:xK,xDifficulty:xEasy,xXn:x1,xAACSB:xNone,xAICPAxBB:xGovernancexPerspective,xAICPAxFC:xMeasurementxAnalysisxandx Interpretation,xA
ICPAxPC:xNone,xIMA:xReporting


8. Bookkeeping and accounting are one and the same because the bookkeeping function incl
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udes the accounting process.
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Ans:xF,xLO:x1,xBloom:xC,xDifficulty:xEasy,xXn:x1,xAACSB:xNone,xAICPAxBB:xGovernancexPerspective,xAICPAxFC:xMeasurementxAnalysisxandx Interpretation,xA
ICPAxPC:xNone,xIMA:xReporting