Ch1 - Language of Business

Question 1

Two sub-classes of accounting

Answer 1

1. Financial accounting

2. Managerial accounting

Question 2

Two key missions of accounting

Answer 2

1. Facilitate value creation by supporting decision-making.

2. Measure and report the amount of value created.

Question 3

Definition of accounting

Answer 3

Accounting is an information system that measures (valuation), processes (records transactions), and communicates (reports) financial information about an enterprise.

Question 4

List the financial statements

Answer 4

Balance sheet (also Statement of financial position)
Income statement (also Profit and loss account or P&L)
Statement of cash flows
Statement of changes in equity
Notes to financial statements

Question 5

Who are internal users of financial statements?

Answer 5

Management

Employees

Question 6

List some of the external users of financial statements

Answer 6

Investors (shareholders, potential investors, investment analysts)
Creditors (suppliers and lenders, including banks)
Government (tax authorities, regulatory agencies)
Customers
Competitors
General public