Card Set Information
Ch. 1 Review Questions
What is the purpose of Accounting?
To provide financial information about the current operations and financial condition of a business to individuals, agencies, and organizations.
Identify four user groups normally interested in financial information about a business.
Owners (present and future), Managers (may or may not own business), Creditors (present and future), Government agencies (national, state and local).
Identify the six major steps of the accounting process.
Analyzing, Recording, Classifying, Summarizing, Reporting, Interpreting.
Describe the steps followed by the Financial Accounting Standards Board when developing and accounting standard.
When an accounting issue is identified, the following steps are followed
1. The issue is placed on FASB's agenda. (Lets everyone know the board plans to develop a standard)
2. After researching an issue, FASB issues a discussion memorandum. (This identifies the pros and cons)
3. The Board will often hold public hearings around the country to gather additional views. (Interested parties are invited to express their opinions)
4. The Board issues and exposure draft. (This explains the rules the FASB believes firms should follow)
5. The Board issues a final statement of financial accounting standards (SFAS).
Identify the three types of ownership structures and discuss the advantages and disadvantages of each.
Sole Proprietorship (One owner
: makes all the decisions/ assumes all risk).
Partnership (Two or more partners
: Partners share risks/ may disagree on how to run business).
: have limited risk/ may have little influence on decisions).
Identify three types of businesses according to activities.
Service, Merchandising, Manufacturing.
What are the main functions of an accounting clerk?
Record, sort and file accounting information. Specialize in cash, payroll, accounts receivable, accounts payable, inventory, or purchases.
Name three areas of specialization for a public accountant.
Auditing, Taxation, Management advisory services.
Name six areas of specialization for a managerial accountant.
Accounting information systems, financial accounting, cost accounting, budgeting, tax accounting, internal auditing.
Describe the kind of information needed by the users listed:
Company's profitability and current financial condition.
Detailed measures of business performance.
Company's profitability, debt outstanding, and assets that could be used to secure debt.
Company's profitability, cash flows, and overall financial condition.