Chapter 1 Introduction to Accounting

Chapter 1—Introduction to Accounting

TRUE/FALSE

1. The purpose of accounting is to provide financial information about a business to individuals and organizations.

ANS: T DIF: Easy OBJ: LO 1-1 MSC: AACSB Communication

2. Since financial information is communicated in accounting terms, accounting is said to be the "language of business."

3. Reviewing the events that have taken place and determining how this affects the business is called interpreting.

ANS: F DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication

4. A partnership is owned by stockholders or shareholders.

5. A business that makes a product to sell is called a manufacturing business.

6. Certified Public Accountant is a professional designation that a public accountant can earn by passing a written exam and completing a specific amount of work experience.

7. The six major steps of the accounting process are analyzing, recording, classifying, summarizing, reporting, and interpreting.

8. Generally accepted accounting principles are procedures and guidelines to be followed in the accounting/reporting process.

9. Accountants design accounting information systems and analyze and interpret information.

10. Writing or using one of the latest technological advances to enter a transaction in the accounting records is called summarizing.

1 2 Chapter 1—Introduction to Accounting

ANS: F DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication 11. The Financial Accounting Standards Board develops generally accepted accounting principles to provide some assurance that companies are reporting business activities in a similar manner.

12. Stockholders may have very little influence on business decisions.

13. Cost accounting is used to develop a financial plan for a company.

14. The principal accounting officer of a company is called a pubic accountant.

15. A CMA is a Certified Marketing Auditor.

MULTIPLE CHOICE

1. Stockholders own which type of business? a. proprietorship b. corporation c. partnership with more than ten partners d. partnership with only two partners ANS: B DIF: Easy OBJ: LO 1-4 MSC: AACSB Communication

2. A business that purchases a product from another business to sell to customers is called a a. service business. b. manufacturing business. c. merchandising business. d. nonprofit business. ANS: C DIF: Easy OBJ: LO 1-5 MSC: AACSB Communication

3. The person who reviews the operating and accounting control procedures adopted by management to make sure the controls are adequate may be referred to as a(n) a. bookkeeper. b. accountant. c. information processor. d. internal auditor. ANS: D DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication Chapter 1—Introduction to Accounting 3

4. Since financial information is communicated in accounting terms, accounting is said to be a. the language of business. b. public. c. private. d. nonprofit. ANS: A DIF: Easy OBJ: LO 1-1 MSC: AACSB Communication

5. A corporation is usually managed by a. stockholders. b. a professional manager. c. a proprietor. d. two or more partners. ANS: B DIF: Easy OBJ: LO 1-4 MSC: AACSB Communication

6. The person who records or enters information in accounting records may be referred to as a(n) a. budgeter. b. journalist. c. accounting clerk. d. scribe. ANS: C DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication

7. An internal auditor can achieve professional recognition in internal auditing by receiving which of the following certificates? a. GAAP b. CIA c. CMA d. CLU ANS: B DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication

8. The accounting function of classifying is a. thinking about how events affect the business. b. gathering similar events to provide information that is easy to understand. c. sorting and grouping similar items together. d. deciding the meaning and importance of the information in various reports. ANS: C DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication

9. Bringing together various items of information to determine or explain a result is a. summarizing. b. interpreting. c. recording. d. classifying. ANS: A DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication 4 Chapter 1—Introduction to Accounting

10. Examining a transaction or event to determine its fundamental significance to the business so that the relevant information may be properly processed is called a. recording. b. analyzing. c. classifying. d. interpreting. ANS: B DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication

11. Which of the following does NOT use nonprofit accounting guidelines and procedures? a. proprietorships b. hospitals c. educational institutions d. churches ANS: A DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication

12. Cost accountants provide a wide variety of services including a. designing and implementing accounting information systems. b. auditing reviews. c. performing general accounting services. d. analyzing the cost effectiveness of products and services that are produced. ANS: D DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication

13. Public accountants do NOT offer which of the following services? a. auditing b. tax preparation c. management consulting d. marketing analysis ANS: D DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication

COMPLETION

1. Looking at events that have taken place and thinking about how they affect a business is called ______.

ANS: analyzing

DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication

2. One who assumes all risks for the business and whose personal assets can be taken to pay creditors is called a(n) ______.

ANS: sole proprietor owner partner

DIF: Easy OBJ: LO 1-4 MSC: AACSB Communication Chapter 1—Introduction to Accounting 5

3. Rules developed to provide procedures and guidelines to be followed in the accounting and reporting process are called ______.

ANS: generally accepted accounting principles GAAP

4. The ______oversees the entire accounting process and is the principal accounting officer of the company.

ANS: controller

5. A business that buys a product from another business to sell to customers is called a(n) ______business.

ANS: merchandising

6. Entering financial information about events into the accounting system is called ______.

ANS: recording

7. ______design the accounting information system and focus on analyzing and interpreting information.

ANS: Accountants

8. The owners of a corporation are called ______.

ANS: stockholders shareholders

9. ______is bringing the various items of information together to determine a result.

ANS: Summarizing

DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication 6 Chapter 1—Introduction to Accounting

10. ______is the process by which accountants help managers develop a financial plan.

ANS: Budgeting

11. A business that makes a product to sell is called a(n) ______business.

ANS: manufacturing

12. ______includes preparing various reports and financial statements and analyzing operating, investing, and financing decisions.

ANS: Financial accounting

13. ______involves the application of standard review and testing procedures to be certain that proper accounting policies and practices have been followed.

ANS: Auditing

14. A(n) ______is owned by two or more people who assume the risks for the business and whose assets may be taken to pay creditors.

ANS: partnership

15. ______is deciding the meaning and importance in various reports, which may include ratio analysis to help explain how pieces of information relate to one another.

ANS: Interpreting

MATCHING

Match the terms with the definitions. a. accountant b. accounting c. accounting clerk d. analyzing e. auditing Chapter 1—Introduction to Accounting 7

f. bookkeeper 8 Chapter 1—Introduction to Accounting

g. budgeting h. Certified Public Accountant i. classifying j. controller k. corporation l. cost accounting m. financial accounting n. generally accepted accounting principles o. internal auditing p. interpreting q. manufacturing business r. merchandising business s. para-accountant t. partnership u. recording v. reporting w. service business x. sole proprietorship y. summarizing z. tax accounting 1. Looking at events that have taken place and thinking about how they affect the business. 2. Records, sorts, and files accounting information. 3. A business that buys products to sell. 4. Reviewing the operating and accounting control procedures adopted by management to make sure the controls are adequate and being followed; assuring that accurate and timely information is provided. 5. Deciding the meaning and importance of the information in various reports. 6. Procedures and guidelines developed by the Financial Accounting Standards Board to be followed in the accounting and reporting process. 7. Includes preparing various reports and financial statements and analyzing operating, investing, and financing decisions. 8. Determining the cost of producing specific products or providing services and analyzing for cost effectiveness. 9. A type of ownership structure in which stockholders own the business. The owners' risk is usually limited to their initial investment and they usually have very little influence on the business decisions. 10. Sorting and grouping similar items together rather than merely keeping a simple, diary-like record of numerous events. 11. The process in which accountants help managers develop a financial plan. 12. Reviewing and testing to be certain that proper accounting policies and practices have been followed. 13. A system of gathering financial information about a business and reporting this information to users. 14. A type of ownership structure in which one person owns the business. 15. A business that provides a service. 16. Bringing various items of information together to determine a result. 17. Entering financial information about events affecting the company into the accounting system. 18. A type of ownership structure in which more than one person owns the business. 19. Telling the results of the financial information. 20. A business that makes products to sell. Chapter 1—Introduction to Accounting 9

21. Focusing on tax planning, preparing tax returns, and dealing with the Internal Revenue Service and other governmental agencies. 22. Generally supervises the work of accounting clerks, helps with daily accounting work, and summarizes accounting information.

1. ANS: D DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication 2. ANS: C DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication 3. ANS: R DIF: Easy OBJ: LO 1-5 MSC: AACSB Communication 4. ANS: O DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication 5. ANS: P DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication 6. ANS: N DIF: Easy OBJ: LO 1-3 MSC: AACSB Communication 7. ANS: M DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication 8. ANS: L DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication 9. ANS: K DIF: Easy OBJ: LO 1-4 MSC: AACSB Communication 10. ANS: I DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication 11. ANS: G DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication 12. ANS: E DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication 13. ANS: B DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication 14. ANS: X DIF: Easy OBJ: LO 1-4 MSC: AACSB Communication 15. ANS: W DIF: Easy OBJ: LO 1-5 MSC: AACSB Communication 16. ANS: Y DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication 17. ANS: U DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication 18. ANS: T DIF: Easy OBJ: LO 1-4 MSC: AACSB Communication 19. ANS: V DIF: Easy OBJ: LO 1-2 MSC: AACSB Communication 20. ANS: Q DIF: Easy OBJ: LO 1-5 MSC: AACSB Communication 21. ANS: Z DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication 22. ANS: F DIF: Easy OBJ: LO 1-6 MSC: AACSB Communication