Financial Accounting, IFRS 2nd Edition by Weygandt Test Bank |All Chapters Verified| Guide A+

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TEST BANK
Financial Accounting, IFRS 2nd Edition by Weygandt
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CHAPTER 1 ACCOUNTING IN ACTION
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CHAPTER LEARNING OBJECTIVES

1. Explain what accounting is. Accounting is an information system that identifies, records, and
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communicates the economic events of an organization to interested users.
2. Identify the users and uses of accounting. The major users and uses of accounting are as
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follows: (a) Management uses accounting information to plan, organize, and run the business.
(b) Investors (owners) decide whether to buy, hold, or sell their financial interests on the basis
of accounting data. (c) Creditors (suppliers and bankers) evaluate the risks of granting credit or
lending money on the basis of accounting information. Other groups that use accounting
information are taxing authorities, regulatory agencies, customers, labor unions, and economic
planners.
3. Understand why ethics is a fundamental business concept. Ethics are the standards of conduct
by which actions are judged as right or wrong. Effective financial reporting depends on sound
ethical behavior.
4. Explain accounting standards and the measurement principles. Accounting is based on
standards, such as International Financial Reporting Standards (IFRS). IFRS generally uses one
of two measurement principles, the historical cost principle or the fair value principle. Selection
of which principle to follow generally relates to trade-offs between relevance and faithful
representation.
5. Explain the monetary unit assumption and the economic entity assumption. The monetary

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unit assumption requires that companies include in the accounting records only transaction data
that can be expressed in terms of money. The economic entity assumption requires that the
activities of each economic entity be kept separate from the activities of its owners and other
economic entities.
6. State the accounting equation, and define its components. The basic accounting equation is:
Assets = Liabilities + Equity
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Assets are resources a business owns. Liabilities are creditors' claims on total assets. Equity is the
ownership claim on total assets.
The expanded accounting equation is:
Assets = Liabilities + Share Capital—Ordinary
+ Revenues – Expenses – Dividends
Share capital—ordinary is affected when the company issues new ordinary shares in
exchange for cash. Revenues are increases in assets resulting from income earning
activities. Expenses are the costs of assets consumed or services used in the process of
earning revenue. Dividends are payments the company makes to its shareholders.
7. Analyze the effects of business transactions on the accounting equation. Each business
transaction must have a dual effect on the accounting equation. For example, if an individual
asset increases, there must be a corresponding (1) decrease in another asset, or (2) increase in a
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specific liability, or (3) increase in equity.
8. Understand the four financial statements and how they are prepared. An income statement
presents the revenues and expenses, and resulting net income or loss, for a specific period of
time. A retained earnings statement summarizes the changes in retained earnings for a specific
period of time. A statement of financial position reports the assets, liabilities, and equity at a
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specific date. A statement of cash flows summarizes information about the cash inflows
(receipts) and outflows (payments) for a specific period of time.
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9. Explain the career opportunities in accounting. Accounting offers many different jobs in
fields such as public and private accounting, government, and forensic accounting.
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Accounting is a popular major because there are many different types of jobs, with unlimited
potential for career advancement.
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TRUE-FALSE STATEMENTS
1. Owners of business firms are the only people who need accounting information.
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Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA
BB: Critical Thinking AICPA FN: Reporting
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2. Transactions that can be measured in dollars and cents are recorded in the financial
information system.

Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB:
Critical Thinking AICPA FN: Reporting

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3. The hiring of a new company president is an economic event recorded by the financial
information system.

Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB:
Critical Thinking AICPA FN: Reporting

4. Management of a business enterprise is the major external user of information.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA
BB: Critical Thinking AICPA FN: Reporting
5. Accounting communicates financial information about a business enterprise to both internal
and external users.
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Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA
BB: Critical Thinking AICPA FN: Reporting

6. Accounting information is used only by external users with a financial interest in a business
enterprise.
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Ans: F LO2 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB:
Critical Thinking AICPA FN: Reporting

7. Financial statements are the major means of communicating accounting information to
interested parties.
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Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB:
Critical Thinking AICPA FN: Reporting
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8. Bookkeeping and accounting are one and the same because the bookkeeping function
includes the accounting process.
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Ans: F LO2 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA
BB: Critical Thinking AICPA FN: Reporting
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9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician.

Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA
BB: Critical Thinking AICPA FN: Reporting