SM_CH01 cond - CHAPTER 1 1-1 Accounting is a process of...

CHAPTER 1
1-1 Accounting is a process of identifying, recording, summarizing
and reporting economic information to decision makers.
1-2 No. Accounting is about real information about real companies.
In learning accounting it is helpful to see accounting reports from
various companies. This helps put the rules and techniques of
accounting into an understandable framework and provides
familiarity with the diversity of practice.
1-3 Examples of decisions that are likely to be influenced by financial
statements include choosing where to expand or reduce
operations, lending money, investing ownership capital, and
rewarding mangers.
1-4 Users of financial statements include managers, lenders,
suppliers, owners, income tax authorities, and government
regulators.
1-5 The major distinction between financial accounting and
management accounting is their use by two classes of decision
makers. Management accounting is concerned mainly with how
accounting can serve internal decision makers such as the chief
executive officer and other executives. Financial accounting is
concerned with supplying information to external users.
1-6 The balance sheet equation is Assets = Liabilities + Owners’
equity. It is the fundamental framework of accounting. The left
side lists the resources of the organization, and the right side lists
the claims against those resources.
1-7 No. Every transaction should leave the balance sheet equation in
balance. Accounting is often called “double-entry” because
accountants must enter at least two numbers for each transaction
to keep the equation in balance.
Chapter 1 Accounting: The Language of Business 1

1-8 This is true. When a company buys inventory for cash, one asset
is traded for another, and neither total assets nor total liabilities
change. Thus, the balance sheet equation stays in balance. When
a company buys inventory on credit, both inventory and accounts
payable increase. Thus, both total assets and total liabilities
increase by the same amount, again keeping the balance sheet
equation in balance.
1-9 The evidence for a note payable includes a promissory note, but
the evidence for an account payable does not.
1-10 Ownership shares in most large corporations are easily traded in
the stock markets, corporate owners have limited liability, and the
owners of sole proprietorships or partnerships are usually also
managers in the company while most corporations hire
professional managers.
1-11 Limited liability means that corporate owners are not personally
liable for the debts of the corporation. Creditors' claims can be
satisfied only by the assets of the particular corporation.
1-12 The corporation is the most prominent type of entity and
corporations do by far the largest volume of business.