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Solutions Manual
Accounting:
Concepts and Applications
ELEVENTH
EDITION
W.Steve Albrecht Earl K. Stice James D. Stice Monte R. Swain
For By All Chapters Solutions Manual Supplement files download link at the end of this file. 1 / 4
CHAPTER 1
DISCUSSION QUESTIONS
1.The three functions of an accounting system are to (1) analyze transactions, (2) handle routine bookkeeping tasks, and (3) structure information so it can be used to evaluate the performance and health of a business.
2.The objective of decision making is to de- termine an appropriate course of action.The essential elements in the decision-making
process generally include the following:
probl em identification, accumulation and analysis of facts, consideration of alternative courses of action, formulation of a judgment, and action. Accounting assists in this proc- ess by providing and interpreting ma ny of the facts (the financial data) to be consid- ered in making decisio ns.
3.Many personal decisions involve the use of accounting data. Some examples of student- related decisions follo
w:
a.Whether to borrow money from a uni- versity or from a bank for tuition assis- tance.b.Whether to buy or lease a car.c.Whether to rent or to buy a house while going to school.d.Whether to invest $200 on an elaborate dinne r date.e.Whether to put a new set of tires on the car for a spring vacation trip.f.Whether to invest summer earnings in certificates of deposit or in the stock market.g.Whether to trade in the 10-speed bicycle on a new 21-speed model.h.Whether to buy a season ski pass or pay as you go.i.Whether to eat at the cafeteria or at home.j.Whether to pay cash for a new stereo or to purchase it on a time contract.k.Whether to purchase a laptop computer for schoolwork.l.Whether to go to a private or a state school, given different tuition and other cost structures.m.Whether to live in the dormitory or commute to school.Obviously, this list is not exhaustive. Fur- thermore, selecting from among these alter- natives—like making most decisions— involves many factors besides accounting considerations.
4.The term “business” refers to the general process of producing or distributing goods or providing services. It also may refer to an entity that has been organized to earn a profit.
5.Accounting is considered the “language of business” because it provides the means of accumulating, measuring, and recording the successes and failures of business opera- tions. Accounting also provides a mecha- nism for communicating the financial result s of businesses to the decision makers (e.g., investors, creditors, managers, government, labor unions, etc.).
6.Internal and external users of accounting information have similar needs in that both groups are required to make financial deci- sions. Managers (internal users) are re- quired to make many day -to-day decisions in running their organizations; they generally need more detailed and more timely infor- mation. The information supplied to manag- ers can be in any form that fits the sp ecific questions and circumstances facing the manager. Investors and creditors, the pri- mary external users, need summarized data to assist in making investing and lending de- cisions. The information supplied to external users should follow generally accepted ac- counting principles (GAAP) so that the in- formation is consistent and comparable and, therefore, more useful for decision making.
7.Generally accepted accounting principles (GAAP) are accounting standards recog- nized by the accounting profession and the business community. These standards must be followed when preparing financial state- ments for external users. Only when con- cepts and principles prove useful over time are they incorporated into GAAP.1 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2 / 4
2Chapter 1 Currently, the Financial Accounting Stan- dards Board (FASB) issues Statements of Financial Accounting Standards (SFAS) and Interpretations of SFAS after extensive re- view and discussion with groups involved in preparing and using external reports.The purpose of GAAP is to ensure consis- tent application of accounting principles in preparing external financial reports. Thus, GAAP allows comparability among firms and provides users of external reports with the foundation for sound decision making.
8.Financial reports are prepared primarily for external users, mainly investors and credi- tors. It is important that the financi al reports of different companies be based on the same set of generally accepted accounting principles (GAAP) so that the results are comparable. Thus, investors can choose from among several companies the ones in which they wish to invest, and lenders can select those entities that they feel are credit- worthy. If there were no general guideli nes upon which financial reports were based, the reports of companies would likely be so dif- ferent that comparisons and meaningful analysis of company results would be im- possibl e.
9.The Securities and Exchange Commi ssion (SEC) holds legal authority to set accounting standards. The SEC, however, delegates its authority to the Financial Accounting Stan- dards Board (FASB). The SEC can, at any time, take over the accounting standard- setting process.The Internal Revenue Service (IRS) moni- tors businesses to see if they are in compli- ance with its rules and regulations, which may or may not coincide with generally ac- cepted accounting principles (GAAP).
10.When different countries have diff erent accounting standards, the ability to compare financial statements across countries be- comes extremely difficult.Some countries prohibit certain accounting procedures, while other countries allow a wide variety of ac- counting alternatives. As a potential inves- tor, these differences make the comparabil- ity of results increasingly difficult. As the president of a multinational company, you would have difficulty comparing your com- pany’s performance to the performance of foreign competitors who report using differ- ent accounting standards.
11.Accountants are responsible to the p ublic and the companies that they work for to en- sure that financial statements are in accor- dance with GAAP and are reported in an unbiased manner. Thus, accountants must maintain the reputation of being ethical to meet their professional responsibilities.
12.No. Although the role of accountants may change in the future, the need for judgment, which is provided by accountants, will not decrease. While technology has aided ac- countants in the every day bookkeeping tasks, computers cannot analyze and inter- pret financial information as an accountant can. In the future, accountants could be re- quired to perform all the financial tasks for a business. These include tax preparation, auditing, and financial planning.
13.Accounting is necessary to make wise fi- nancial decisi ons. Almost without exception, everyone will be faced with some type of decision requiring financial analysis. Ac- counting provides the needed tools to make sound decisions. Furthermore, in selecting investments, working within the busi ness environment, and budgeting for a house- hold, accounting concept s can prove very useful.© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3 / 4
Chapter 1 3
EXERCISES
Note: Because Chapter 1 is fairly general and is intended to be a brief introduc- tion to important accounting concepts, these exercises can be used most effec- tively to initiate class discussion.E 1–1 (LO1) The Role and Importance of Accounting Every organization, regardless of its size or purpose, should have a means of monitoring its activities and measuring how well it is accomplishing its objec- tives. Accounting provides such a mechanism by helping organizations to deter- mine the optimal use of resources and to analyze the costs and benefits of deci- sion alternatives. Accounting helps a retailer make such decisions as which lines of clothing to carry and what prices to charge. Numerous other examples are possible.E 1–2 (LO1) Bookkeeping Is Everywhere Bookkeeping is “the preservation of a systematic, quantitative record of an activ- ity.” As such, bookkeeping is applied in many settings, not just in maintaining fi-
nancial records. This point is illustrated with the following examples:
a.Your college English class. Even though most English professors claim that the only numbers they ever look at are on the bottoms of the pages of the books they read, they must use numbers to record performance on assign- ments and papers in order to fairly assign final grades.b.The National Basketball Association. The NBA—and sports in general—is a record keeper’s delight. Official statisticians record every turnover, every as- sist, every foul, every three-point attempt, etc. In addition, with teams always struggling to sign key players and still remain under the “salary cap,” the most valuable player in the franchise is often the accountant.c.A hospital emergency room. Most emergency rooms have a status board where the status of the patient in each room is posted. This ensures that everyone can easily see where the high-risk patients are so that they can be given priority treatment. In addition, when you receive your bill from the emergency room, you realize that someone has been doing a lot of book- keeping.d.Jury selection for a major murder trial. Juror pools typically come from lists of registered voters. That list must be maintained, a random selection must be made, and the potential jurors must be tracked as they report for jury duty. The rival lawyer teams also study all potential jurors and rank them as to how sympathetic each might be to the team’s legal arguments.© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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