Test Bank for Accounting Principles 14th Edition by Jerry J. Weygandt, Paul D. Kimmel

Test Bank for Accounting Principles 14th Edition Jerry J.
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Weygandt, Paul D. Kimmel, Jill E. Mitchell
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,Test Bank for Accounting Principles, 14th Edition by Jerry J. Weygandt, Paul
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D.Kimmel
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CHAPTER 1 x c




ACCOUNTING IN ACTION xc xc




CHAPTER LEARNING OBJECTIVES xc xc




1. Identify the activities and users associated with accounting. Accounting is an
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information system that identifies, records, and communicates the economic
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events of an organization to interested users. The major users and uses of
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accounting are as follows: (a) Management uses accounting information to plan,
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organize, and run the business. (b) Investors (owners) decide whether to buy,
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hold, or sell their financial interests on the basis of accounting data. (c)Creditors
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(suppliers and bankers) evaluate the risks of granting credit or lending money
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onthe basis of
x c accounting information. Other groups that use accounting
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information are taxing authorities, regulatory agencies, customers, and labor unions.
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2. Explain the building blocks of accounting: ethics, principles, and assumptions. Ethics
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are the
xc standards of conduct by which actions are judged as right or wrong.
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Effective financialreporting depends on sound ethical behavior.
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Generally accepted accounting principles are a common set of standards used by
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accountants. The primary accounting standard-setting body in the United States is
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the Financial Accounting
xc xc Standards Board. xc x c xc




3. State the accounting equation, and define its components. The basic accounting
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xc equation is: xc x c Assets = Liabilities + Owner's Equity
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Assets are resources a business owns. Liabilities
x c x c xc xc x c x c x c x c are x c creditorship x c claims x c on x c total
assets.
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Owner's equity is the ownership claim on total assets.
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x c The expanded accounting equation is:
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Assets Liabilities + Owner's Capital xc xc xc xc Owner's Drawings + xc xc


xc Revenues Expenses xc
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Investments by owners (assets the owner puts into the business) are recorded
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in a category called owner’s capital. Owner’s drawings are the withdrawal of assets
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by the owner for personal use. Revenues are the gross increase in owner’s equity from
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business activities for the purpose of
xc earning income. Expenses are the costs of
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assets consumed or services used in the process of
xc xc earning revenue. Owner’s xc xc xc x c xc xc xc x c x c xc


equity is increased by an owner’s investmentsand by revenues from
x c x c x c business x c x c x c x c xc xc xc x c


operations. Owner’s equity is decreased by an owner’s withdrawals of assets
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and by expenses.
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4. Analyze the effects of business transactions on the accounting equation. Each
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business transaction must have a dual effect on the accounting equation. For
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example, if an individual
x c asset increases, there must be a corresponding (1)
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decrease in another asset, or (2) increase in a
xc xc specific liability, or (3) increase in
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owner's equity.
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5. Describe the four financial statements and how they are prepared. An income
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statement presents the revenues and expenses, and resulting net income or net
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loss for a specific period of time. An owner's equity statement summarizes
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the changes in owner's equity for a specific period of time. A balance sheet
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reports the assets, liabilities, and owner's equity at a specific date. A statement
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of cash flows summarizes information about the cash inflows (receipts)
xc xc xc xcand outflows xc xc xc xc xc xc x c xc


(payments) for a specific period of time.
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,
, 1 - xc Test Bank for Accounting Principles, Fourteenth
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2
xc Edition
xc


a6. x c Explain the career opportunities in accounting. Accounting offers many different jobs
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xc in fields
xc such as public and private accounting, governmental, and forensic
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x c accounting. Accounting is a popular major because there are many different types of
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xc jobs, with unlimited potential for career advancement.
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