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Unformatted text preview: CHAPTER 1 COVERAGE OF LEARNING OBJECTIVES LEARNING OBJECTIVES QUESTIONS EXERCISES PROBLEMS OTHER LO1: Explain how accounting information assists in making decisions. 1,2,3,4,5,23 49,51 LO2: Describe the compon- ents of the balance sheet. 6,7,22 26 49,50,51 LO3: Analyze business transactions and relate them to changes in the balance sheet. 8,9 27,28 32,33,34,35, 36,37 48,51 LO4: Prepare a balance sheet from transactions data. 29,30,31 38,39,40, 41,42 LO5: Compare the features of sole proprietorships, partnerships, and corporations. 10,11,12,13,24 LO6: Identify how the owners equity section in a corporate balance sheet differs from that in a sole proprietorship or a partnership. 14,15 43,44,45 LO7: Explain the regulation of financial reporting, including differences between U.S. GAAP and IFRS. 16,17 LO8: Describe auditing and how it enhances the value of financial information. 18,19,25 46 LO9: Evaluate the role of ethics in the accounting process. 20 47 Chapter 1 Accounting: The Language of Business 1 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. 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.amount, again keeping the balance sheet equation in balance....
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This note was uploaded on 05/05/2011 for the course MSANDE 240 taught by Professor Stanston during the Spring '11 term at Stanford.
- Spring '11