Complete Solution Manual Financial Accounting Tools
for Business Decision Making 10th Edition Kimmel
Weygandt Mitchell
Owners vs. Managers - ANSWER -The owners of a company can be millions.
-They are not in the company on a daily basis
-The managers run the company
-Risk: *info asymmetry* the managers know more about the company than its
owners which makes it dangerous for the managers to take the company's money
and run
Financial reporting - ANSWER The communication of an entity's financial
information to its external users
Who uses financial statements? - ANSWER 1. Investors: to check if it is beneficial
to invest in the company
2. Lenders: to check if the company can give them back the money they lend to it
3. Suppliers: to check if the company can pay them for supplying it with
goods/services
4. Employees: to check the current financial situation of the company torequest raise
in salary or to ensure that they will keep their job an dthe company is not going to
shut down
5. Customers: to check that the company is going to continue its operations so that it
can cover their needs
6. Government: to impose taxes
Which are the most useful financial statements? - ANSWER 1. St. of financial
position - what the company owns and how it is funded
2. St of comprehensive income(PorL) - revenues expenses income
3. St of changes in equity - how equity changes over an accounting period
4. St of cash flows - how operating, investing and financing activities change the
company's equity
Expanded accounting equation - ANSWER Assets = Liabilities + Share capital +
Revenues - Expenses - Dividends
Accounting - ANSWER The art of interpreting, measuring and communicating the
results of a company's economic activities.
It gives decision makers useful information to help them make right economic
decisions
Financial accounting - ANSWER Information about the financial activities and
financial strength of a company
Qualitative characteristics of information - ANSWER
, Understandability - ANSWER Info should be understandable by people with
reasonable financial knowledge
Comparability - ANSWER Info should be comparable with info from previous years
or info from rival companies
Relevance - ANSWER Info should be relevant to the accounting period they belong
to
Objectivity - ANSWER Info should be neutral(unbiased), complete and free from
error
Accounting Principles - ANSWER
1. Economic entity assumption - ANSWER Owners are not the same as the
company
The company is a separate legal entity that a customer can sue
The owners' income is not the company's income
2. Monetary business assumption - ANSWER Everything in FS is in monetary
terms
3. Time period assumption - ANSWER FS are prepared for a distinct period in time
4. Historical cost - ANSWER Every asset should be in the BS at the cost of
purchase not at the current value
5. Full disclosure - ANSWER FS should present a fair and true view of the
company's financial situation
6. Going concern - ANSWER We assume that the company will continue to operate
as normally and it will not shut down in the future
7. Matching concept - ANSWER Income and expenses must be recognised in the
accounting period to which they relate
*Revenues are recognised when they are earned*, not when cash is received
*Expenses are recognised when they occur*, not when cash is paid
8. Realisation concept - ANSWER Revenues are recognised when a product is
sold, *regardless of when the money is actually received*
9. Materiality - ANSWER -Info is material if its omission or misstatement influences
any economic decision
-Materiality depends on the size and nature of the product (vehicle vs. sharpener)
-Postage and stationery are put into 'sundry expenses'
-The cost of small value items eg pencils and pens is treated as an expense when
they were purchased even if they last for a long period of time.
for Business Decision Making 10th Edition Kimmel
Weygandt Mitchell
Owners vs. Managers - ANSWER -The owners of a company can be millions.
-They are not in the company on a daily basis
-The managers run the company
-Risk: *info asymmetry* the managers know more about the company than its
owners which makes it dangerous for the managers to take the company's money
and run
Financial reporting - ANSWER The communication of an entity's financial
information to its external users
Who uses financial statements? - ANSWER 1. Investors: to check if it is beneficial
to invest in the company
2. Lenders: to check if the company can give them back the money they lend to it
3. Suppliers: to check if the company can pay them for supplying it with
goods/services
4. Employees: to check the current financial situation of the company torequest raise
in salary or to ensure that they will keep their job an dthe company is not going to
shut down
5. Customers: to check that the company is going to continue its operations so that it
can cover their needs
6. Government: to impose taxes
Which are the most useful financial statements? - ANSWER 1. St. of financial
position - what the company owns and how it is funded
2. St of comprehensive income(PorL) - revenues expenses income
3. St of changes in equity - how equity changes over an accounting period
4. St of cash flows - how operating, investing and financing activities change the
company's equity
Expanded accounting equation - ANSWER Assets = Liabilities + Share capital +
Revenues - Expenses - Dividends
Accounting - ANSWER The art of interpreting, measuring and communicating the
results of a company's economic activities.
It gives decision makers useful information to help them make right economic
decisions
Financial accounting - ANSWER Information about the financial activities and
financial strength of a company
Qualitative characteristics of information - ANSWER
, Understandability - ANSWER Info should be understandable by people with
reasonable financial knowledge
Comparability - ANSWER Info should be comparable with info from previous years
or info from rival companies
Relevance - ANSWER Info should be relevant to the accounting period they belong
to
Objectivity - ANSWER Info should be neutral(unbiased), complete and free from
error
Accounting Principles - ANSWER
1. Economic entity assumption - ANSWER Owners are not the same as the
company
The company is a separate legal entity that a customer can sue
The owners' income is not the company's income
2. Monetary business assumption - ANSWER Everything in FS is in monetary
terms
3. Time period assumption - ANSWER FS are prepared for a distinct period in time
4. Historical cost - ANSWER Every asset should be in the BS at the cost of
purchase not at the current value
5. Full disclosure - ANSWER FS should present a fair and true view of the
company's financial situation
6. Going concern - ANSWER We assume that the company will continue to operate
as normally and it will not shut down in the future
7. Matching concept - ANSWER Income and expenses must be recognised in the
accounting period to which they relate
*Revenues are recognised when they are earned*, not when cash is received
*Expenses are recognised when they occur*, not when cash is paid
8. Realisation concept - ANSWER Revenues are recognised when a product is
sold, *regardless of when the money is actually received*
9. Materiality - ANSWER -Info is material if its omission or misstatement influences
any economic decision
-Materiality depends on the size and nature of the product (vehicle vs. sharpener)
-Postage and stationery are put into 'sundry expenses'
-The cost of small value items eg pencils and pens is treated as an expense when
they were purchased even if they last for a long period of time.
