Topic 1 Part 1

Question 1

What is the core purpose of accounting?

Answer 1

To record and summarize financial activity into reports that support decision-making about a business’s financial health.

Question 2

What distinguishes financial accounting from managerial accounting?

Answer 2

Financial accounting serves external users with general-purpose information; managerial accounting serves internal users with custom reports.

Question 3

What are the two core functions of an accounting system?

Answer 3

(1) Bookkeeping and (2) Structuring data for evaluation of business performance.

Question 4

How does accounting help evaluate performance?

Answer 4

By organizing data into summary reports (financial statements) that show a company’s financial status.

Question 5

What are the three primary financial statements?

Answer 5

Balance Sheet, Income Statement, Statement of Cash Flows

Question 6

What does the balance sheet show?

Answer 6

A company’s assets, liabilities, and owners’ equity at a specific point in time.

Question 7

What does the income statement show?

Answer 7

Revenues – Expenses = Net Income over a period of time.

Question 8

What does the statement of cash flows show?

Answer 8

Cash inflows and outflows from Operating, Investing, and Financing activities.

Question 9

Who uses financial accounting information?

Answer 9

Lenders, investors, management, employees, suppliers, customers, competitors, government, politicians, press.

Question 10

What are the key accounting standard-setting organizations?

Answer 10

FASB, SEC, PCAOB, AICPA, IRS, IASB

Question 11

What are the two items revealed on the balance sheet?

Answer 11

Debt (Liabilities) and Ownership (Equity)