Chapter 1

Question 1

What is the definition of accounting?

Answer 1

The language of business

Question 2

What is Accounting

Answer 2

The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties

Question 3

How do you summarize an accounting system?

Answer 3

Financial statements

Question 4

What three areas do most accountants practice?

Answer 4

Public, managerial, and governmental accounting

Question 5

What does a public accountant do?

Answer 5

Auditing, tax accounting, management advisory services

Question 6

What is auditing?

Answer 6

Review of financial statements to assess fairness and accepted accounting principles.

Question 7

What is tax accounting

Answer 7

Tax compliance and planning

Question 8

What are management advisory services?

Answer 8

Helping clients improve their information systems or business performance

Question 9

What is managerial accounting?

Answer 9

Establishing and managing accounting policies and systems. Preparing financial statements, interpreting financial information, providing financial advice to management, preparing tax forms, performing tax planning services, preparing internal reports for management

Question 10

What is governmental accounting?

Answer 10

Keeping financial records and preparing financial reports as part of the staff of federal, state, or local government.

Question 11

Who are the users of financial information

Answer 11

Owners, managers, suppliers, banks, tax authorities

Question 12

What are the three types of taxation?

Answer 12

Income tax, sales tax, property tax

Question 13

Who are the regulatory agencies

Answer 13

Federal Communications Commission (FCC), Security and Exchange Commission (SEC)

Question 14

What is the Sarbanes-Oxley Act

Answer 14

Act passed in 2002 in response to a wave of corporate accounting scandals like Enron

Question 15

What does the Sarbanes- Oxley Act do?

Answer 15

Significantly tightens regulation of financial reporting by publicly held companies and their accountants and auditors by creating a five member Company Accounting Oversight board with investigative and enforcement powers.

Question 16

Who are the five members of the Company Accounting Oversight Board?

Answer 16

2 CPAs, 3 who must NOT be CPAs and can not have ever been a CPA.

Question 17

Who are the three external parties who are also interested in a business’ financial information?

Answer 17

Customers, employees, and unions

Question 18

HOW OFTEN DOES A COMPANY HAVE TO BE AUDITED BY AN INDEPENDENT ACCOUNTING FIRM?

Answer 18

Annually

Question 18

What is the definition of accounting?

Answer 18

The language of business

Question 19

What are the three types of business entities

Answer 19

Sole proprietorship, partnership, corporations

Question 20

How is a corporation different from the other two types of business entities?

Answer 20

The business is a separate entity from the owner and has legal right to own property and do business in its own name. Ownership is through shares of stocks.

Question 21

What is the definition of accounting?

Answer 21

The language of business

Question 21

What are generally accepted accounting principles?

Answer 21

Accounting standards that are changed and refined in response to changes in the environment in which businesses operate

Question 22

Why are Generally Accepted Accounting Principles (GAAP) needed?

Answer 22

Generally Accepted Accounting Principles (GAAP) help to ensure that financial information fairly presents a firm’s operating results and financial position.

Question 23

Who develops the Generally Accepted Accounting Principles?

Answer 23

Financial Accounting Standards Board (FASB) through the Accounting Standards Codification

Question 23

True or False. Hamburgers are the best Labor Day food

Answer 23

True

Question 24

Who do public accountants work for?

Answer 24

Public accounting firms that provide accounting services to other companies. They provide auditing, tax accounting, and management advisory services.

Question 24

What is the FASB?

Answer 24

Financial Accounting Standards Board

Question 25

What is the purpose of an accounting system?

Answer 25

Accumulate data about a firms financial affairs, classify data in a meaningful way, and summarize it in periodic reports called financial statements.

Question 25

What does the FASB do?

Answer 25

Develops proposed statements and solicits feedback from interested individuals, groups, and companies. The FASB evaluates the opinions received and votes on the statement.

Question 26

What is a partnership?

Answer 26

An entity owned by two or more persons who are together and separately responsible for debts, taxes of the business

Question 27

What type of entity is a non-profit organization such as a public school?

Answer 27

A social entity

Question 28

What is the purpose of an auditor’s report?

Answer 28

To obtain an objective opinion of a professional accountant from outside the company that the statements fairly present the operating results and financial position of the business and that the information was prepared according to the GAAP.

Question 30

Why are Generally Accepted Accounting Principles (GAAP) needed?

Answer 30

Generally Accepted Accounting Principles (GAAP) help to ensure that financial information fairly presents a firm’s operating results and financial position.