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TABLEOFCONTENTS l l
CHAPTER ONE ll
Financial Statements and Business Decisions
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CHAPTER TWO ll
Investing and Financing Decisions and the Accounting System
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CHAPTER THREE ll
Operating Decisions and the Accounting System
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CHAPTER FOUR ll
Adjustments, Financial Statements, and the Closing Process
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CHAPTER FIVE ll
Reporting and Interpreting Sales Revenue, Receivables, and Cash
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CHAPTER SIX ll
Reporting and Interpreting Cost of Sales and Inventory
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CHAPTER SEVEN ll
Reporting and Interpreting Long-Lived Assets
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CHAPTER EIGHT ll
Reporting and Interpreting Current Liabilities
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CHAPTER NINE ll
Reporting and Interpreting Non-current Liabilities
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CHAPTER TEN ll
Reporting and Interpreting Shareholders' Equity
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CHAPTER ELEVEN ll
Statement of Cash Flows
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CHAPTER TWELVE ll
Communicating Accounting Information and Analyzing Financial Statements
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CHAPTER THIRTEEN ll
Reporting and Interpreting Investments in Other Corporations
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CHAPTER ONE ll
Financial Statements and Business Decisions ll ll ll ll
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ANSWERS TO QUESTIONS ll ll
1. Accounting is a system that collects and processes (analyzes, measures, and records)
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financial information about an organization and reports that information to decision makers.
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2. Financial accounting involves preparation of the four basic financial statements and related
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disclosures for external decision makers. Managerial accounting involves the preparation
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of detailed plans, budgets, forecasts, and performance reports for internal decision makers.
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3. Financial reports are used by both internal and external groups and individuals. The internal
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groups are comprised of the various managers of the entity. The external groups include the
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owners, investors, creditors, governmental agencies, other interested parties, and the
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public at large.
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4. Investors purchase all or part of a business and hope to gain by receiving part of what the
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company earns and/or selling the company in the future at a higher price than they paid.
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Creditors lend money to a company for a specific length of time and hope to gain by
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charging interest on the loan.
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5. In a society each organization can be defined as a separate accounting entity. An accounting
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entity is the organization for which financial data are to be collected. Typical accounting
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entities are a business, a church, a governmental unit, a university and other nonprofit
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organizations such as a hospital and a welfare organization. A business typically is defined
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and treated as a separate entity because the owners, creditors, investors, and other
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interested parties need to evaluate its performance and its potential separately from other
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entities and from its owners.
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