1-1
,TABLE OF CONTENTS
CHAPTER ONE
Financial Statements and Business Decisions
CHAPTER TWO
Investing and Financing Decisions and the Accounting System
CHAPTER THREE
Operating Decisions and the Accounting System
CHAPTER FOUR
Adjustments, Financial Statements, and the Closing Process
CHAPTER FIVE
Reporting and Interpreting Sales Revenue, Receivables, and Cash
CHAPTER SIX
Reporting and Interpreting Cost of Sales and Inventory
CHAPTER SEVEN
Reporting and Interpreting Long-Lived Assets
CHAPTER EIGHT
Reporting and Interpreting Current Liabilities
CHAPTER NINE
Reporting and Interpreting Non-current Liabilities
CHAPTER TEN
Reporting and Interpreting Shareholders' Equity
CHAPTER ELEVEN
Statement of Cash Flows
CHAPTER TWELVE
Communicating Accounting Information and Analyzing Financial Statements
CHAPTER THIRTEEN
Reporting and Interpreting Investments in Other Corporations
1-2
,CHAPTER ONE
FINANCIAL STATEMENTS AND BUSINESS DECISIONS
ANSWERS TO QUESTIONS z z
1. Accounting is a system that collects and processes (analyzes, measures, and record
z z z z z z z z z z z
s) financial information about an organization and reports that information to decision
z z z z z z z z z z z z
makers.
2. Financial accounting involves preparation of the four basic financial statements a
z z z z z z z z z z
ndrelated disclosures for external decision makers. Managerial accounting involv
z z z z z z z z
es the preparation of detailed plans, budgets, forecasts, and performance reports
z z z z z z z z z z z
for internal decision makers.
z z z
3. Financial reports are used by both internal and external groups and individuals. The int
z z z z z z z z z z z z z
ernal groups are comprised of the various managers of the entity. The external groups
z z z z z z z z z z z z z z
include the owners, investors, creditors, governmental agencies, other interested part
z z z z z z z z z
ies, and the public at large.
z z z z z
4. Investors purchase all or part of a business and hope to gain by receiving part of what t
z z z z z z z z z z z z z z z z z
he company earns and/or selling the company in the future at a higher price than they
z z z z z z z z z z z z z z z z
paid. Creditors lend money to a company for a specific length of time and hope to gain
z z z z z z z z z z z z z z z z z
by charging interest on the loan.
z z z z z
5. In a society each organization can be defined as a separate accounting entity. An acco
z z z z z z z z z z z z z z
unting entity is the organization for which financial data are to be collected. Typical acc
z z z z z z z z z z z z z z
ounting entities are a business, a church, a governmental unit, a university and other n
z z z z z z z z z z z z z z
onprofit organizations such as a hospital and a welfare organization. A business typica
z z z z z z z z z z z z
lly is defined and treated as a separate entity because the owners, creditors, investors
z z z z z z z z z z z z z
, and other interested parties need to evaluate its performance and its potential separa
z z z z z z z z z z z z z
tely from other entities and from its owners.
z z z z z z z
1-3
, 6. Name of Statement
z z Alternative Title
z
(a) Income Statement
z (a) Statement of Earnings; Statement of
z z z z z
Income; Statement of Operations
z z z
(b) Balance Sheet z (b) Statement of Financial Position
z z z z
(c) Audit Report
z (c) Report of Independent Accountants
z z z z
1-4
,TABLE OF CONTENTS
CHAPTER ONE
Financial Statements and Business Decisions
CHAPTER TWO
Investing and Financing Decisions and the Accounting System
CHAPTER THREE
Operating Decisions and the Accounting System
CHAPTER FOUR
Adjustments, Financial Statements, and the Closing Process
CHAPTER FIVE
Reporting and Interpreting Sales Revenue, Receivables, and Cash
CHAPTER SIX
Reporting and Interpreting Cost of Sales and Inventory
CHAPTER SEVEN
Reporting and Interpreting Long-Lived Assets
CHAPTER EIGHT
Reporting and Interpreting Current Liabilities
CHAPTER NINE
Reporting and Interpreting Non-current Liabilities
CHAPTER TEN
Reporting and Interpreting Shareholders' Equity
CHAPTER ELEVEN
Statement of Cash Flows
CHAPTER TWELVE
Communicating Accounting Information and Analyzing Financial Statements
CHAPTER THIRTEEN
Reporting and Interpreting Investments in Other Corporations
1-2
,CHAPTER ONE
FINANCIAL STATEMENTS AND BUSINESS DECISIONS
ANSWERS TO QUESTIONS z z
1. Accounting is a system that collects and processes (analyzes, measures, and record
z z z z z z z z z z z
s) financial information about an organization and reports that information to decision
z z z z z z z z z z z z
makers.
2. Financial accounting involves preparation of the four basic financial statements a
z z z z z z z z z z
ndrelated disclosures for external decision makers. Managerial accounting involv
z z z z z z z z
es the preparation of detailed plans, budgets, forecasts, and performance reports
z z z z z z z z z z z
for internal decision makers.
z z z
3. Financial reports are used by both internal and external groups and individuals. The int
z z z z z z z z z z z z z
ernal groups are comprised of the various managers of the entity. The external groups
z z z z z z z z z z z z z z
include the owners, investors, creditors, governmental agencies, other interested part
z z z z z z z z z
ies, and the public at large.
z z z z z
4. Investors purchase all or part of a business and hope to gain by receiving part of what t
z z z z z z z z z z z z z z z z z
he company earns and/or selling the company in the future at a higher price than they
z z z z z z z z z z z z z z z z
paid. Creditors lend money to a company for a specific length of time and hope to gain
z z z z z z z z z z z z z z z z z
by charging interest on the loan.
z z z z z
5. In a society each organization can be defined as a separate accounting entity. An acco
z z z z z z z z z z z z z z
unting entity is the organization for which financial data are to be collected. Typical acc
z z z z z z z z z z z z z z
ounting entities are a business, a church, a governmental unit, a university and other n
z z z z z z z z z z z z z z
onprofit organizations such as a hospital and a welfare organization. A business typica
z z z z z z z z z z z z
lly is defined and treated as a separate entity because the owners, creditors, investors
z z z z z z z z z z z z z
, and other interested parties need to evaluate its performance and its potential separa
z z z z z z z z z z z z z
tely from other entities and from its owners.
z z z z z z z
1-3
, 6. Name of Statement
z z Alternative Title
z
(a) Income Statement
z (a) Statement of Earnings; Statement of
z z z z z
Income; Statement of Operations
z z z
(b) Balance Sheet z (b) Statement of Financial Position
z z z z
(c) Audit Report
z (c) Report of Independent Accountants
z z z z
1-4
