ACCOUNTING IN ACTION

© John Wiley & Sons, Inc. or the author, all rights reserved.Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)

CHAPTER 1

ACCOUNTING IN ACTION

CHAPTER LEARNING OBJECTIVES

1.Identify the activities and users associated with accounting. Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users. The major users and uses of accounting are as follows: (a) Management uses accounting information to plan, organize, and run the business. (b) Investors (owners) decide whether to buy, hold, or sell their financial interests on the basis of accounting data. (c) Creditors (suppliers and bankers) evaluate the risks of granting credit or lending money on the basis of accounting information. Other groups that use accounting information are taxing authorities, regulatory agencies, customers, and labor unions.

2.Explain the building blocks of accounting: ethics, principles, and assumptions. Ethics are the standards of conduct by which actions are judged as right or wrong. Effective financial reporting depends on sound ethical behavior.Accounting is based on standards, such as International Financial Reporting Standards (IFRS). IFRS generally uses one of two measurement principles, historical cost or current value basis. Two main assumptions are the monetary unit assumption and the economic entity assumption. The monetary unit assumption requires that companies include in the accounting records only transaction data that can be expressed in terms of money. The economic entity assumption requires that the activities of each economic entity be kept separate from the activities of its owner(s) and other economic entities.

3.State the accounting equation and define its components. The basic accounting equation is: Assets = Liabilities + Equity Assets are resources a business owns. Liabilities are creditors' claims on total assets. Equity is the ownership claim on total assets.

The expanded accounting equation is:

Assets = Liabilities + Share Capital—Ordinary

• Revenues – Expenses – Dividends

Share capital—ordinary is affected when the company issues new ordinary shares in exchange for cash. Revenues are the gross increase in equity resulting from business activities for the purpose of earning income. Expenses are the costs of assets consumed or services used in the process of earning revenue. Dividends are payments the company makes to its shareholders.Financial Accounting with International Financial Reporting Standards (IFRS), 5e Jerry Weygandt, Paul Kimmel (Test Bank All Chapters, 100% Original Verified, A+ Grade) 1 / 4

© John Wiley & Sons, Inc. or the author, all rights reserved.Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)

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4.Analyze the effects of business transactions on the accounting equation. Each business transaction must have a dual effect on the accounting equation. For example, if an individual asset increases, there must be a corresponding (1) decrease in another asset, or (2) increase in a specific liability, or (3) increase in equity.

5.Describe the five financial statements and how they are prepared. An income statement presents the revenues and expenses, and resulting net income or loss, for a specific period of time. A retained earnings statement summarizes the changes in retained earnings for a specific period of time. A statement of financial position reports the assets, liabilities, and equity at a specific date. A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time. A comprehensive income statement adds or subtracts any other comprehensive income to net income to arrive at comprehensive income.a

• Explain the career opportunities in accounting. Accounting offers many different jobs in fields such

as public and private accounting, government, and forensic accounting. Accounting is a popular major because there are many different types of jobs, with unlimited potential for career advancement.

TRUE-FALSE STATEMENTS

1.Owners of business firms are the only people who need accounting information.Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping 2.Transactions that can be measured in dollars and cents are recorded in the financial information system.Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping 3.The hiring of a new company president is an economic event recorded by the financial information system.Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping 4.Management of a business enterprise is the major external user of information.Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: Knowledge AICPA AC: Reporting AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Reporting 5.Accounting communicates financial information about a business enterprise to both internal and external users.Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Reporting AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Reporting 6.Accounting information is used only by external users with a financial interest in a business enterprise.Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Reporting AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Reporting 2 / 4

Accounting in Action

© John Wiley & Sons, Inc. or the author, all rights reserved.Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)

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• Financial statements are the major means of communicating accounting information to

interested parties.

Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Reporting AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Reporting

• Bookkeeping and accounting are essentially the same because the bookkeeping function

includes the accounting process.

Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping

• The origins of accounting are attributed to Luca Pacioli, a famous mathematician.

Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: None AICPA PC: None AICPA BC: None IMA: None

• The State Administration of Taxation in the People's Republic of China is an example of an

internal user of accounting information.

Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Reporting AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Reporting

• The German Confederation of Trade Unions is an example of an external user of accounting

information.

Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Reporting AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Reporting

• Identifying is the process of keeping a chronological diary of events measured in dollars and

cents.

Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping

• Management consulting includes examining the financial statements of companies and

expressing an opinion as to the fairness of their presentation.

Ans: F LO1 BT: K Difficulty; Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Reporting AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Reporting

• Accountants do not have to worry about issues of ethics.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Ethics AICPA AC: None AICPA PC: Professional Behavior AICPA BC: IMA: Professional Ethics

& Values: Professional Ethical Behavior

• The monetary unit assumption requires that all dollar amounts be rounded to the nearest

dollar.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping

• Accountants rely on a fundamental business concept—ethical behavior—in reporting financial

information.

Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Ethics AICPA AC: None AICPA PC: Professional Behavior AICPA BC: None IMA: Professional

Ethics & Values: Professional Ethical Behavior

• The primary accounting standard-setting body in the United States is the International

Accounting Standards Board.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: None AICPA PC: None AICPA BC: Governance Perspective IMA: None 3 / 4

© John Wiley & Sons, Inc. or the author, all rights reserved.Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)

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• The Financial Accounting Standards Board is a part of the International Accounting Standards

Board.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: None AICPA PC: None AICPA BC: Governance Perspective IMA: None

• The two primary accounting standard-setting bodies are the International Accounting

Standards Board and the Financial Accounting Standards Board.

Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: None AICPA PC: None AICPA BC: Governance Perspective IMA: None

• Most companies in the United States follow standards issued by the IASB.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Reporting AICPA PC: None AICPA BC: Governance Perspective IMA:

Reporting & Control: Financial Reporting

• International Financial Reporting Standards are determined by the IASB.

Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: None AICPA PC: None AICPA BC: Governance Perspective IMA: None

• Generally Accepted Accounting Principles and International Financial Reporting Standards are

similar in many respects.

Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: None AICPA PC: None AICPA BC: Governance Perspective IMA: None

• IFRS follows one measurement principle known as the historical cost principle.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping

• Even though a partnership is not a separate legal entity, for accounting purposes the

partnership affairs should be kept separate from the personal activities of the owners.

Ans: T LO2 BT: C Difficulty; Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping

• The economic entity assumption requires that the activities of an entity be kept separate and

distinct from the activities of its owner and all other economic entities.

Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping

• The monetary unit assumption states that transactions that can be measured in terms of money

should be recorded in the accounting records.

Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping

• To possess future service potential, an asset must have physical substance.

Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping

• Owners' claims to total business assets take precedence over the claims of creditors

because owners invest assets in the business and are liable for losses.

Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping

• The basic accounting equation states that Assets = Liabilities.

Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Knowledge AICPA AC: Measurement Analysis and Interpretation AICPA PC: None AICPA BC: None IMA: Reporting & Control: Financial Recordkeeping

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