Business Decisions and Financial Accounting
ANSWERS TO QUESTIONS
Accounting is the process of analyzing, summarizing, and reporting the results of a
Financial accounting focuses on preparing and using the financial statements that
are made available to owners and external users such as customers and creditors
who are interested in reading them. Managerial accounting focuses on other
accounting reports that are not released to the general public, but instead are
prepared and used by the managers who run the company.
Financial reports are used by both internal and external groups and individuals. The
internal groups are comprised of the various managers of the business. The
external groups include investors, creditors, governmental agencies, other
interested parties, and the public at large.
The business itself, not the individual stockholders who own the business, is viewed
as owning the assets and owing the liabilities on its balance sheet. A business’s
balance sheet includes the assets, liabilities, and stockholders’ equity of only that
business and not the personal assets, liabilities, and equity of the stockholders.
The financial statements of a company show the results of the business activities of
only that company.
Operating – These activities are directly related to earning profits. They include
buying supplies, making products, serving customers, cleaning the premises,
advertising, renting a building, repairing equipment, and obtaining insurance
Investing – These activities involve buying and selling productive resources with
long lives, such as buildings, land, equipment, and tools.
Financing – Any borrowing from banks, repaying bank loans, receiving
contributions from stockholders, or paying dividends to stockholders are considered