ACCOUNTING: THE LANGUAGE OF BUSINESS

Chapter Opener: Thinking Critically

Fast Facts • • • •

Managerial Implications: Thinking Critically

Discussion Questions 1.

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CHAPTER 1

ACCOUNTING: THE LANGUAGE OF BUSINESS

Google’s mission is to organize the world’s information and make it universally accessible and useful.“Googol” is the mathematical term for a 1 followed by 100 zeros. Google’s play on the term reflects the company’s mission to organize the immense amount of information available on the web.Google’s interface can be customized into more than 100 languages.The purpose of the Public Company Accounting Oversight Board is to oversee the accounting profession through its investigative and enforcement powers and to discipline corrupt accountants and auditors.

SEC, AICPA, AAA.

The Public Company Accounting Reform and Investor Protection Act of 2002 was passed in response to the wave of corporate accounting scandals starting with the demise of Enron Corporation in 2001, the arrest of top executives at WorldCom and Adelphia Communications Corporations, and ultimately, the demise of Arthur Andersen, an international public accounting firm.Managers use financial information to make decisions about adding new products and services, offering current products and services, and choosing vendors.Statements of Financial Accounting Standards.Google’s culture is unlike any in corporate America—lava lamps and large rubber balls dot company headquarters and the company’s chef used to cook for the Grateful Dead. Google Inc. puts employees first when it comes to daily life in all of their offices.Owners and managers: evaluate operations. Suppliers: assess ability of a firm to pay debts. Banks: ability to repay loans. Tax authorities: determine a tax base. Governmental agencies: legal

compliance. Employees: wage levels and profit-sharing plans.

Auditing, tax, and management advisory services.Measure business performance; separate entity.Sole proprietorship (owned by one person). Partnership (owned by two or more people). Corporation (can be owned by one person or many).Public, managerial, and governmental.Advice on how to structure financial affairs in order to reduce taxes without violating tax laws.Establish accounting policies, direct the accounting system, prepare and interpret financial statements, provide financial advice, prepare tax forms.Note to instructor: These questions are designed to check students’ understanding of new terms, concepts, and procedures presented in the chapter.Regulation of financial reporting by publicly owned corporations.Stockholders, the IRS, SEC, banks, lenders and creditors are all examples of organizations that would be interested in how Google is performing.© 2015 McGraw-Hill Education. This is proprietary material soley for instructor use. Not authorized for sale or distribution in any manner.1- 1 College Accounting A Contemporary Approach 3e David Haddock John Ellis Price Michael Farina (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) All Chapters Solutions Manual Supplement files download link at the end of this file. 1 / 4

CRITICAL THINKING PROBLEM 1.1

Sole proprietorship:

Advantage—Heidi would be her own boss and could direct the business as she wants.

Partnership:

Corporation:

Student answers will vary. The student’s reasons for choosing one form of ownership over another are more important than the specific choice made. Generate a discussion on the proposed name of the business. Ask the students if they think the name is creative.Disadvantages—A corporation is a more complicated form of ownership and is usually more expensive to form. There is also more government regulation and, consequently, more paperwork with a corporation.Disadvantages—Heidi would be responsible for the debts and taxes of the business and may be limited in the amount of capital she could borrow to finance the business.Advantage—Heidi would have one or more partners to assist with business operations and to contribute capital.Disadvantages—Heidi would have to share control of the business, as well as its profits. Heidi could be liable for the debts of the partnership.Advantages—The business would be a separate entity. Capital would be easier to raise and liability would be limited to the assets of the business.© 2015 McGraw-Hill Education. This is proprietary material soley for instructor use. Not authorized for sale or distribution in any manner.

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SOLUTIONS TO BUSINESS CONNECTIONS

Managerial Focus:

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Ethical Dilemma:

Yes. Ethics and accounting are intertwined.

Financial Statement Analysis:

Analyze Online:

1.Clothing, accessories, outerwear and footwear.

2.Investors, suppliers, and banks. To assist the users when making financial decisions.

3.15 to 25 year-olds.

4.Economic entity because it is a business for profit.

Teamwork:

Internet Connection:

The bank will ask for information to assess the firm's finanacial position. Questions such as how much property does the firm own?; how much debt does the firm owe?; how much cash does the firm have?Anticipated cost of expansion and future income projections may also be requested. Banks might also require a list of your customers and vendors. There is no requirement to indicate to the bank problems you are having with certain customers and vendors.Yes. The firm’s financial records need to be separate from the owner’s personal financial records in order to evaluate and measure the performance of the business.The manager makes financial decisions based upon the financial information provided by the accountant.The number of Accounting Standards Update used will vary from year to year. Accounting Standards Update are cited as “ASU2016-1 (year) (standard number in chronological order).These standards are important to management because they enhance comparability of reporting practices.Questions asked might include: What is the profit or loss?, How much cash does the business have?, How much money do customers owe the business?.How much money is owed to suppliers?, What is the change in sales volume?, and what is the cost of merchandise sold?Financial information is used to evaluate performance and make decisions about a business or a nonprofit Keep your employees, creditors, and investors happy. Yes, financial information is a tool for making business decisions that will yield the above results.Inaccurate accounting records and poor business decisions.Every business needs an efficient accounting system which accumulates financial data, classifies and summarizes the information. Without an accounting system, suppliers, lenders, investors, and governmental tax authorities would not be able to accurately make decisions based on the financial information of the company.© 2015 McGraw-Hill Education. This is proprietary material soley for instructor use. Not authorized for sale or distribution in any manner.

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Part A True-False

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11.FALSE

12.FALSE

Part B Completion 1.language of business 2.international accounting 3.FBI 4.governmental accounting 5.AAA

6.AICPA

7.generally accepted accounting principles 8.SEC 9.IRS 10.stockholders or shareholders 11.shares of stock 12.partnerships 13.social entity 14.recording, classifying 15.financial statements

SOLUTIONS TO PRACTICE TEST

© 2015 McGraw-Hill Education. This is proprietary material soley for instructor use. Not authorized for sale or distribution in any manner.1-4

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