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

, CHAPTER 1 m i




ACCOUNTING IN ACTION mi mi




CHAPTER LEARNING OBJECTIVES mi mi




1. Identify the activities and users associated with accounting. Accounting is an informat
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ion system that identifies, records, and communicates the economic events of an organizat
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ion to interested users. The major users and uses of accounting are as follows: (a) Manag
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ement uses accounting information to plan, organize, and run the business. (b) Investors (
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owners) decide whether to buy, hold, or sell their financial interests on the basis of account
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ing data. (c) Creditors (suppliers and bankers) evaluate the risks of granting credit or lend
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ing money on the basis of accounting information. Other groups that use accounting infor
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mation are taxing authorities, regulatory agencies, customers, and labor unions.
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2. Explain the building blocks of accounting: ethics, principles, and assumptions. Ethic
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s are the standards of conduct by which actions are judged as right or wrong. Effective fin
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ancial reporting depends on sound ethical behavior.
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Generally accepted accounting principles are a common set of standards used by account
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ants. The 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 equ
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ation is: mi



Assets = Liabilities + Owner's Equity
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Assets are resources a business owns. Liabilities are creditorship claims on total asset
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s. Owner's equity 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 catego
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ry called owner‘s capital. Owner‘s drawings are the withdrawal of assets by the owner for
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personal use. Revenues are the gross increase in owner‘s equity from business activities f
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or the purpose of earning income. Expenses are the costs of assets consumed or services
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used in the process of earning revenue. Owner‘s equity is increased by an owner‘s inves
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tments and by revenues from business operations. Owner‘s equity is decreased by an ow
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ner‘s withdrawals of assets and by expenses.
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4. Analyze the effects of business transactions on the accounting equation. Each busin
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ess transaction must have a dual effect on the accounting equation. For example, if an ind
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ividual asset increases, there must be a corresponding (1) decrease in another asset, or (
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2) increase in a 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 statem
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ent presents the revenues and expenses, and resulting net income or net loss for a specifi
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c period of time. An owner's equity statement summarizes the changes in owner's equity
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for a specific period of time. A balance sheet reports the assets, liabilities, and owner's eq
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uity at a specific date. A statement of cash flows summarizes information about the cash i
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nflows (receipts) and outflows (payments) for a specific period of time.
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,
, 21A - mi


2 Test Bank for Accounting Principles, Fourteenth Edition
a
6. 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. Acco
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unting is a popular major because there are many different types of jobs, with unlimited po
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tential for career advancement.
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TRUE-FALSE STATEMENTS mi



1. Owners of business firms are the only people who need accounting information.
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Ans:m i F,m i LO:m i 1,m i Bloom:m i K,m i Difficulty:m i Easy,m i Min:m i 1,m i AACSB:m i None,m i AICPAm i BB:m i Governancem i Perspective,m i AICPAm i FC:m i Reporting,m i AIC
PAm i PC:m i None,m i IMA:m i Reporting



2. Transactions that can be measured in dollars and cents are recorded in the
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financial information system.
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Ans:miT,miLO:mi1,miBloom:miK,miDifficulty:miEasy,miMin:mi1,miAACSB:miNone,miAICPAmiBB:miGovernancemiPerspective,miAICPAmiFC:miMeasurementmiAnalysismia
ndm i Interpretation,miAICPAmiPC:miNone,miIMA:miReporting



3. The hiring of a new company president is an economic event recorded by the f
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inancial information system.
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Ans:miF,miLO:mi1,miBloom:miC,miDifficulty:miEasy,miMin:mi1,miAACSB:miNone,miAICPAmiBB:miGovernancemiPerspective,miAICPAmiFC:miMeasurementmiAnalysismia
ndm i Interpretation,miAICPAmiPC:miNone,miIMA:miReporting

4. Management of a business enterprise is the major external user of information.
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Ans:miF,miLO:mi1,miBloom:miK,miDifficulty:miEasy,miMin:mi1,miAACSB:miNone,miAICPAmiBB:miGovernancemiPerspective,miAICPAmiFC:miMeasurementmiAnalysismia
ndm i Interpretation,miAICPAmiPC:miNone,miIMA:miReporting

5. Accounting communicates financial information about a business enterprise to
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both internal and external users.
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Ans:miT,miLO:mi1,miBloom:miK,miDifficulty:miEasy,miMin:mi1,miAACSB:miNone,miAICPAmiBB:miGovernancemiPerspective,miAICPAmiFC:miMeasurementmiAnalysismia
ndm i Interpretation,miAICPAmiPC:miNone,miIMA:miReporting

6. Accounting information is used only by external users with a financial int
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erest in a business enterprise.
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Ans:miF,miLO:mi1,miBloom:miC,miDifficulty:miEasy,miMin:mi1,miAACSB:miNone,miAICPAmiBB:miGovernancemiPerspective,miAICPAmiFC:miMeasurementmiAnalysismia
ndm i Interpretation,miAICPAmiPC:miNone,miIMA:miReporting



7. Financial statements are the major means of communicating accounting informati
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on to interested parties.
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Ans:miT,miLO:mi1,miBloom:miK,miDifficulty:miEasy,miMin:mi1,miAACSB:miNone,miAICPAmiBB:miGovernancemiPerspective,miAICPAmiFC:miMeasurementmiAnalysismia
ndm i Interpretation,miAICPAmiPC:miNone,miIMA:miReporting


8. Bookkeeping and accounting are one and the same because the bookkeeping fu
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nction includes the accounting process.
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Ans:miF,miLO:mi1,miBloom:miC,miDifficulty:miEasy,miMin:mi1,miAACSB:miNone,miAICPAmiBB:miGovernancemiPerspective,miAICPAmiFC:miMeasurementmiAnalysismia
ndm i Interpretation,miAICPAmiPC:miNone,miIMA:miReporting