ACC 501 Questions with Complete Solutions
How do you efficiently allocate capital
Capital(savings)-Investment-Businesses(ideas, assets, and processes)- returns... all of this is in a
circle
in the middle: effective accounting institutions, regulations, and practices facilitate efficient
capital allocation
What is accounting
An information system to measures business activities, processed data into reports and financial
statements, and communicates results to decision makers
What is the objective of financial reporting
Provide (financial) information that is useful in making (equity) investment and lending
decisions
Financial information must
1. Be useful to evaluate past performance and predict future performance
2. Faithfully represent economic reality
What is the role of accounting
It attempts to reflect business economics in a manner that is useful to decision makers, financial
statements reflect measurements of firm position and performance, and accounting promotes
appropriate resource allocation by firms and capital markets
,What type of firms use accounting
For profit, not for profit, and government entities
Who uses accounting outside of the firm
owners(equity investors)/creditors, potential owners/potential creditors, government regulators
and policy makers, consultants, industry analysts, competitors, industry associations, other
"watch dog" groups, auditors, the general public
Who uses accounting inside the firm
Board of directors(representing owners & evaluating senior management), senior management,
profit center managers, cost center managers, anyone who manages a budget, anyone measured
by financial information, controlling function (ex. accountants)
Who is the primary audience for financial accounting information
Stockholders (investors in firm equity), potential stockholders, creditors, and potential creditors
Board of directors
Elected by stockholders, appoint corporate officers, and set key polices including: approve the
payment of dividends to stockholders and authorize management to repurchase of stock
3 types of accounting
Financial, Managerial, Tax
Financial Accounting
, For decision makers outside the entity
investors, creditors, government agencies, the public
Managerial Accounting
For managers inside the entity
budgets, forecasts, and analysis for internal decision making
Tax Accounting
To manage taxes and prepare returns
corporations and private practice serving clients
2 Accounting regulations
Generally Accepted Accounting Principles (GAAP) and International Financial Reporting
Standards (IFRS)
GAAP
Generally Accepted Accounting Principles. Holds accounting rules for the U.S. and is
formulated by the financial accounting standards board (FASB)
IFRS
International Financial Reporting Standards. Holds accounting rules for over 100 other countries
and is formulated by the international accounting standards board (IASB)
How do you efficiently allocate capital
Capital(savings)-Investment-Businesses(ideas, assets, and processes)- returns... all of this is in a
circle
in the middle: effective accounting institutions, regulations, and practices facilitate efficient
capital allocation
What is accounting
An information system to measures business activities, processed data into reports and financial
statements, and communicates results to decision makers
What is the objective of financial reporting
Provide (financial) information that is useful in making (equity) investment and lending
decisions
Financial information must
1. Be useful to evaluate past performance and predict future performance
2. Faithfully represent economic reality
What is the role of accounting
It attempts to reflect business economics in a manner that is useful to decision makers, financial
statements reflect measurements of firm position and performance, and accounting promotes
appropriate resource allocation by firms and capital markets
,What type of firms use accounting
For profit, not for profit, and government entities
Who uses accounting outside of the firm
owners(equity investors)/creditors, potential owners/potential creditors, government regulators
and policy makers, consultants, industry analysts, competitors, industry associations, other
"watch dog" groups, auditors, the general public
Who uses accounting inside the firm
Board of directors(representing owners & evaluating senior management), senior management,
profit center managers, cost center managers, anyone who manages a budget, anyone measured
by financial information, controlling function (ex. accountants)
Who is the primary audience for financial accounting information
Stockholders (investors in firm equity), potential stockholders, creditors, and potential creditors
Board of directors
Elected by stockholders, appoint corporate officers, and set key polices including: approve the
payment of dividends to stockholders and authorize management to repurchase of stock
3 types of accounting
Financial, Managerial, Tax
Financial Accounting
, For decision makers outside the entity
investors, creditors, government agencies, the public
Managerial Accounting
For managers inside the entity
budgets, forecasts, and analysis for internal decision making
Tax Accounting
To manage taxes and prepare returns
corporations and private practice serving clients
2 Accounting regulations
Generally Accepted Accounting Principles (GAAP) and International Financial Reporting
Standards (IFRS)
GAAP
Generally Accepted Accounting Principles. Holds accounting rules for the U.S. and is
formulated by the financial accounting standards board (FASB)
IFRS
International Financial Reporting Standards. Holds accounting rules for over 100 other countries
and is formulated by the international accounting standards board (IASB)
