Chapter 1: Accounting in Business

Question 1

External Users:

Answer 1

Do not directly run the organization and have limited access to its accounting information.
Examples: lenders, shareholders, external auditors, non-executive employees, labor union, regulators, voters, donors, suppliers, and customers.

Question 2

Internal Users:

Answer 2

Direct manage organization operations.
Examples are the CEO and other executives, research and development managers, purchasing managers, production managers, and other managerial-level employees.

Question 3

Private Accounting:

Answer 3

Accounting employees working for businesses.

Question 4

Public Accounting:

Answer 4

Offering audit, tax, and advisory services to others.

Question 5

Sole Proprietorship:

Answer 5

A separate business entity with one owner allowed.

Question 6

Partnership:

Answer 6

A separate business entity.

Question 7

Corporation:

Answer 7

A separate business and legal entity, limited owner liability, unlimited life, business profit is taxed separate from owner(s), one owner allowed.

Question 8

LLP:

Answer 8

A separate business entity and limited owner liability.

Question 9

Assets:

Answer 9

The resource:
1) Will result in a future financial benefit
2) Is owned by the business
3) Transaction/exchange to acquire the item has occurred

Question 10

Liabilities:

Answer 10

Present obligation to transfer an economic resource resulting from a past event that the entity has no practical ability to avoid.

Question 11

Equity (Net Assets):

Answer 11

Represents the residual interest of the owner(s) in the assets of the company after deducting liabilities.

Question 12

Profit:

Answer 12

An increase in equity due to an increase in assets or a decrease in liabilities, not a contribution from the owner.

Question 13

Expenses:

Answer 13

A decrease in equity due to a decrease in assets or an increase in liabilities, not a withdrawal from the owner.

Question 14

Revenue:

Answer 14

1) Earned. This means that the asset or service has been provided to the customer.
2) Expect to collect from the customer.
3) Able to quantify or measure the transaction in terms of value expected from the sale or service based on the terms of the contract with the customer.

Question 15

Accounting Equation:

Answer 15

Assets = Liabilities + Owner Capital - Owner Withdrawals + Revenues - Expenses

Question 16

Financial Statements:

Answer 16

Income Statement: Revenues - Expenses = Profit
Statement of Changes in Equity: Owner Investments + Profits - Owner Withdrawals = Equity
Balance Sheet: Assets = Liabilities + Equity