Deck 1: Accounting: Information for Decision Making

Question 1

Purposes of an accounting system include all of the following except:
a.nterpret and record the effects of business transactions.
b.lassify the effects of transactions to facilitate the preparation of reports.
c.ummarize and communicate information to decision makers.
d.ictate the specific types of business transactions that the enterprise may engage in.

Answer 1

Introduction to the Concept(s) to be used in the solution:
Main objectives of accounting system in order to evolve details pertaining to business activities of an entity are:
1. Decipher and then document the impact of business activities.
2. Systematically categorize the impact of activities that are alike in a way that allows ascertainment of different totals along with subtotals helpful to entity and utilized in reports related with the field of accounting.
3. Sum up and convey the details held within the accounting system to the users of such details for the purpose of making accurate decisions.
Main Solution:
First, analyze the situation with the help of above explanation of related concept(s) and then reach to a conclusion in the following manner:
Analysis:
As per the above discussed objectives of an accounting system, following can be deduced:
a. In order to evolve details pertaining to business activities of an entity, the very first aim of accounting system is 'to decipher and then document the impact of business activities' (refer point 1 in above explanation of concept).
Hence, it can be said with full certainty that 'point a' given in question is one of the purposes for an entity's accounting system.
b. In order to evolve details pertaining to business activities of an entity, the second goal of accounting system is 'to systematically categorize the impact of activities that are alike in a way that allows ascertainment of different totals along with subtotals helpful to entity and utilized in reports related with the field of accounting' (refer point 2 in above explanation of concept).
Hence, it can be said with firm conviction that 'point b' given in question is one of the purposes for an entity's accounting system.
c. In order to evolve details pertaining to business activities of an entity, the third objective of accounting system is 'to sum up and convey the details held within the accounting system to the users of such details for the purpose of making accurate decisions' (refer point 3 in above explanation of concept).
Hence, it can be said with firm certainty that 'point c' given in question is one of the purposes for an entity's accounting system.
d. Except the above discussed points ( point a, b and c ) on the basis of explanations provided in point 1, 2 and 3 respectively, there is no other basic purpose for an entity's accounting system. Therefore, it can be deduced with complete conviction that ' point d' given in the question is not one of the purposes for an entity's accounting system.
Conclusion:
On the basis of above analysis, it can be concluded without a trace of doubt that objectives of an entity's accounting system includes all the points given in the question except which is definitely not one of the purposes for an entity's accounting system.

Question 2

What is meant by generally accepted accounting principles, and how do these principles add to the integrity of financial accounting information

Answer 2

Accounting information that is communicated externally to investors, creditors, and other users, must be prepared in accordance with standards that are understood by both the preparers and users of that information. We call these standards generally accepted accounting principles, shortened to GAAP.
GAAP includes broad principles of measurement and presentation, as well as detailed rules that are used by professional accountants in preparing accounting information and reports.
These principles provide the general framework for determining what information is included in financial statements and how this information is to be prepared and presented.

Question 3

Accounting Organizations
Describe which professional organization(s) would most likely beofgreatest value toyou if your position involved each ofthe following independent roles:
a.ccounting educator.
b.anagement accountant.
c.ertified public accountant.

Answer 3

A. If you were an accounting educator you would most likely be of greatest value to American Accounting Association.
B. If you were a management accountant would most likely be of greatest value to Institute of Management Accountants and/or Institute of Internal Auditors.
C. If you were a Certified public accountant you would most likely be of greatest value to Securities and Exchange Commission, American institute of CPA's, and/or Public Company Accounting Oversight Board. Securities and Exchange Commission: A American institute of CPA's: G Institute of Management Accountants: C Financial Accounting Standards Board: H American Accounting Association: E Public Company Accounting Oversight Board: D International Accounting Standards Board: F

Question 4

Standards for the Preparation of Accounting Information
What are the two primary organizations intheU.S.hat are responsible for setting standards related to the preparation ofaccounting information

Question 5

Match the terms on the left with the descriptions on the right.ach description should be used only once.

Question 6

What is the Financial Accounting Standards Board (FASB), andwhat is its role in external financial reporting

Question 7

Users of Information
List four external users of accounting information:

Question 8

Codes of Ethics
Assume you have recently completed your college degree with a major in accounting and have accepted aposition on the accounting staff of a large corporation.our supervisor suggests that inpreparing for your first day onthe job, you become familiar with the basic principles included in the code ofethics ofthe Institute ofManagement Accountants.riefly explain what you learn as you study the code and how it might affect your behavior onyour new job.Use the IMA's Web site to obtain access to the IMA's Code ofEthics.)

Question 9

Which of the following is not a user of internal accounting information
a.tore manager.
b.hief executive officer.
c.reditor.
d.hief financial officer.

Question 10

Purpose of an Audit
Audits of financial statements are an important part of the accounting process to ensure integrity infinancial reporting.
a.hat is the purpose of anaudit
b.s anexternal user of accounting information, what meaning would you attach to an audit that concludes that the financial statements are fairly presented inconformity with generally accepted accounting principles
c.ould your interest in investing in this same company beaffected by anauditor's report that concludedthe financial statements were not fairlypresented Why or why not

Question 11

Reliability of Financial Statements
Inthe mid-2000s, Fannie Mae was insevere financial difficulty and desperately needed additional capital for the company to survive.hat factors prevented Fannie Mae from simply providing potential lenders with misleading financial statements to make the company look like a risk-free investment

Question 12

What are the three primary financial statements with which we communicate financial accounting information

Question 13

Professional Certifications in Accounting
List three professional certifications offered inaccounting and the organizations that offer them.

Question 14

What is the Securities and Exchange Commission (SEC), and what is its role in external financial reporting

Question 15

Accounting is sometimes described as the language of business.hat is meant by this description

Question 16

Generally Accepted Accounting Principles
Generally accepted accounting principles play an important role infinancial reporting.
a.hat ismeant by the phrase generally accepted accounting principles
b.hat are the major sources ofthese principles
c.s there a single comprehensive list ofgenerally accepted accounting principles Explain.
d.hat types ofaccounting reports are prepared inconformity with generally accepted accounting principles

Question 17

What is the definition of internal control, and what are the five components of COSO's internal control framework

Question 18

Audits of Financial Statements
The annual financial statements of all large, publicly owned corporations are audited.
a.hat is anaudit offinancial statements
b.ho performs audits
c.hat is the purposeofanaudit

Question 19

You as a User of Accounting Information
Identify several ways inwhich you currently use accounting information in your life asa student.Also identify several situations in which, while you are still a student, you might be required tosupply financial information about yourself to others.

Question 20

External users of financial accounting information include all of the following except:
a.nvestors.
b.abor unions.
c.ine managers.
d.eneral public.

Question 21

Match the organizations on the left with the functions on the right.ach function should be used only once.

Question 22

What is the role of the Public Company Accounting Over­sight Board in the audit of financial statements

Question 23

Which of the following does not describe accounting
a.anguage of business.
b.s an end rather than a means to an end.
c.seful for decision making.
d.sed by business, government, nonprofit organizations, and individuals.

Question 24

FASB Conceptual Framework
The FASB's conceptual framework sets forth the Board's views onwhich topics

Question 25

Characteristics of internal accounting information include all of the following except:
a.t is audited by a CPA.
b.t must be timely.
c.t is oriented toward the future.
d.t measures efficiency and effectiveness.

Question 26

Ethics andProfessionalJudgment Ethical conduct and professional judgment each play important roles inthe accounting process.
a.n general terms, explain why it is important to society that people who prepare accounting information actinanethical manner,
b.dentify at least three areas in which accountants must exercise professional judgment, rather than merely relying onwritten rules.

Question 27

Match the terms on the left with the descriptions on the right.ach description should be used only once.

Question 28

Accessing Information on the Internet
The Internet is a good place to getinformation that is useful to you in your study of accounting.
For example, you canfind information about accounting firms, standard setters, and regulators.
Instructions
a.he largest U.S.ccounting firms are referred to as the Big 4-Deloitte, Ernst Young, KPMG, and PricewaterhouseCoopers.ind the Internet sites of these four firms and learn what you can about the types of services provided by the firm.
b.he Public Company Accounting Oversight Board (PCAOB) was created bythe SarbanesOxley Act tooversee auditors ofpublic companies.ind the PCAOB's Internet site and learn what you can about the PCAOB's four major activities.
c.he Financial Accounting Standards Board (FASB) isthe designated accounting standard setter in the U.S.ind the FASB's Internet site and identify the FASB's board members including a brief description oftheir backgrounds.
d.he International Accounting Standards Board (IASB) is the body that issues InternationalFinancial Reporting Standards.ind the IASB's Internet site and identify the IASB's board members including a brief description ofthe backgrounds of five board members.
Internet sites are time and date sensitive.t is the purpose of these exercises to have you explore the Internet.ou may need to use the Yahoo! search engine http://www.yahoo.com (or another favorite search engine) to find a company's current Web address.

Question 29

Match the terms on the left with the descriptions on the right.ach description should be used only once.

Question 30

What is the International Accounting Standards Board (IASB),andwhatareits objectives

Question 31

Objectives of Financial Accounting
Divide into groups asinstructed byyour professor and discuss the following:
a.ow does the description of accounting asthe "language ofbusiness" relate to accounting as being useful for investors and creditors
b.xplain how the decisions you would make might differ if you were an external investor ora member ofanenterprise's management team.

Question 32

Is externally reported financial information always precise and accurate

Question 33

What is an audit, and how does it add to the integrity of accounting information

Question 34

Careers in Accounting
Four accounting majors, Maria Acosta, Kenzo Nakao, Helen Martin, and AnthonyMandella, recently graduated from Central University and began professional accounting careers.costa entered public accounting, Nakao became a management accountant, Martin joined a governmental agency, and Mandella (who had completed a graduate program) became an accounting faculty member.
Assume that eachofthe four graduates was successful inhis or her chosen career.dentify the types ofaccounting a ctivities in which each of these graduates might find themselves specializing several years after graduation.

Question 35

When you invest your savings in a company, what is the difference between the return on your investment and the return of your investment

Question 36

Accounting Orqanizatlons
Describe the roles of the following organizations in establishing generally accepted accounting principles:
a.he FASB b.he AICPA c.he SEC
From which ofthese organizations can you most easily obtain financial information about publicly owned companies

Question 37

Financial and Management Accounting
The major focus ofaccounting information is tofacilitate decision making.
a.s aninvestor ina company, what would beyour primary objective
b.s a manager ofa company, what would beyour primary objective
c.sthe same accounting information likely to be equally useful toyou inthese two different roles

Question 38

Locate the Home Depot, Inc. 2012 financial statements in Appendix A of this text.riefly peruse the financial statements and answer the following questions:
a.ame the titles of each of Home Depot 's financial statements that provide specific information about economic resources, claims to resources, and changes in resources and claims.
b.ame three other sections from Home Depot 's 2012 financial statements that might be useful to a potential investor or creditor.
Due to the introductory nature of this chapter and the conceptual nature of its contents, no items labeled Problems are included.n all future chapters, you will find two problem sets, A and B, that generally include computations, are more complex, and generally require more time to complete than the Exercises.

Question 39

Boeing Company is the largest manufacturer of commercial aircraft in the United States and is a major employer in Seattle, Washington.xplain why each of the following individuals or organizations would be interested in financial information about the company.
a.alifornia Public Employees Retirement System , one of the world's largest pension funds.
b.hina Airlines , a rapidly growing airline serving the Pacific Rim.
c.enry James, a real estate investor considering building apartments in the Seattle area.
d.oeing 's management.
e.nternational Association of Machinists and Aerospace Workers , a labor union representing many Boeing employees.

Question 40

Objectives of financial reporting to external investors and creditors include preparing information about all of the following except:
a.nformation used to determine which products to produce.
b.nformation about economic resources, claims to those resources, and changes in both resources and claims.
c.nformation that is useful in assessing the amount, timing, and uncertainty of future cash flows.
d.nformation that is useful in making investment and credit decisions.

Question 41

Which of the following are important factors in ensuring the integrity of accounting information
a.nstitutional factors, such as standards for preparing information.
b.rofessional organizations, such as the American Institute of CPAs.
c.ompetence, judgment, and ethical behavior of individual accountants.
d.ll of the above.

Question 42

To understand and use accounting information in making economic decisions, you must understand:
a.he nature of economic activities that accounting information describes.
b.he assumptions and measurement techniques involved in developing accounting information.
c.hich information is relevant for a particular type of decision that is being made.
d.ll of the above.

Question 43

Public Company Accounting Oversight Board (PCAOB)
Use theWeb to find the home page of thePCAOB.hat are the four primary activities of the PCAOB

Question 44

Personal Benefits of Accounting Skills
List three accounting-related skills that are useful to many people intheir personal lives.

Question 45

Inexact or ApproximateMeasures
Why does accounting rely oninexact orapproximate measures

Question 46

Is internal accounting information primarily historical or future-oriented How does that compare with financial accounting information

Question 47

What is meant by the professional designations CPA, CMA, and CIA, and how do these designations add to the integrity of accounting information

Question 48

Accounting Systems
You are employed bya business consulting firm as an information systems specialist.ou have justbegun an assignment with a startup company and are discussing with the owner-her need foran
accounting system.ow would you respond to the following questions from the owner
a.hat is the meaning ofthe term accounting system
b.hat is the purpose ofan accounting system and what are its basic functions
c.ho isresponsible for designing and implementing anaccounting system

Question 49

You recently invested $15,000 of your savings in a security issued by a large company.he security agreement pays you 8 percent per year and has a maturity three years from the day you purchased it.hat is the total cash flow you expect to receive from this investment, separated into the return on your investment and the return of your investment

Question 50

Management Accounting Information
Internal accounting information is used primarily forinternal decision making byanenterprise's management.
a.hat are the three primary purposes ofinternal accounting information
b.hich ofthese is the most general and which is the most specific
c.ive several examples of the kinds ofdecisions that internal accounting information supports.

Question 51

Going from general to specific, what are the three primary objectives of financial accounting information

Question 52

Financial accounting information is characterized by all of the following except:
a.t is historical in nature.
b.t sometimes results from inexact and approximate measures.
c.t is factual, so it does not require judgment to prepare.
d.t is enhanced by management's explanation.

Question 53

The code of conduct of the American Institute of Certified Public Accountants includes requirements in which of the following areas
a.he Public Interest.
b.bjectivity.
c.ndependence.
d.ll of the above.

Question 54

What Is Financial Reporting
A major focus ofthis course is the process offinancial reporting..
a.hat ismeant by the term financial reporting
b.hat are the principal accounting reports involved inthe financial reporting process Ingeneral.terms, what is the purpose ofthese reports
c.o all business entities engage infinancial reporting Explain.
d.ow does societybenefit from the financial reporting process

Question 55

Committee of Sponsoring Organizations (COSO)
Who are the sponsoring organizations of COSO, and what isCOSO best known for doing

Question 56

Why was the Sarbanes-Oxley legislation passed in 2002, and what are its implications for the accounting profession