Exam (elaborations)

Test Bank for Accounting Principles 13th Edition

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Science

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University Of Toronto (U Of T )

Test Bank for Accounting Principles 13th Edition 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 ar...

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Test Bank for
Accounting
Principles
13th Edition
Weygandt

,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.
Generally accepted accounting principles are a common set of standards used by
accountants.
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 + Owner's Equity
Assets are resources owned by a business. Liabilities are creditorship claims on total assets.
Owner's equity is the ownership claim on total assets.
The expanded accounting equation is:
Assets  Liabilities + Owner's Capital  Owner's Drawings + Revenues 
Expenses
Owner's Capital is assets the owner puts into the business. Owner's drawings are the Assets
the owner withdraws for personal use. Revenues are increases in assets resulting from
income-earning activities. Expenses are the costs of assets consumed of services used in the
process of earning revenue.
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 owner's equity.
5. Describe the four financial statements and how they are prepared. An income statement
presents the revenues and expenses, and resulting net income or net loss for a specific
period of time. An owner's equity statement summarizes the changes in owner's equity for a
specific period of time. A balance sheet reports the assets, liabilities, and owner's 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
6. Explain the career opportunities in accounting. Accounting offers many different jobs in
fields such as public and private accounting, governmental, and forensic accounting.
Accounting is a popular major because there are many different types of jobs, with unlimited
potential for career advancement.

, Accounting in Action 1-3

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: None AICPA FC: Reporting

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: None AICPA FC: Measurement

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: None AICPA FC: Measurement

4. Management of a business enterprise is the major external user of information.
Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: None AICPA FC: Measurement

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: None AICPA FC: Measurement

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: None AICPA FC: Measurement

7. Financial statements are the major means of communicating accounting information to
interested parties.
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

8. Bookkeeping and accounting are one and the same because the bookkeeping function
includes the accounting process.
Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

10. The study of accounting is not useful for a business career unless your career objective is
to become an accountant.
Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

11. A working knowledge of accounting is not relevant to a lawyer or an architect.
Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

12. A partnership must have more than one owner.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

13. 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: None AICPA FC: Measurement

14. 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: None AICPA FC: Measurement

, 15. Accountants rely on a fundamental business concept—ethical behavior—in reporting
financial information.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

16. 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: None AICPA FC: Measurement

17. The Financial Accounting Standards Board is a part of the Securities and Exchange
Commission.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

18. The Securities and Exchange Commission oversees U.S. financial markets and
accounting standard-setting bodies.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

19. The cost and fair market value of an asset are the same at the time of acquisition and in
all subsequent periods.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

20. 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: None AICPA FC: Measurement

21. In order to possess future service potential, an asset must have physical substance.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

22. 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: None AICPA FC: Measurement

23. The basic accounting equation states that Assets = Liabilities.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

24. Accountants record both internal and external transactions.
Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

25. Internal transactions do not affect the basic accounting equation because they are
economic events that occur entirely within one company.
Ans: F LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

26. The purchase of store equipment for cash reduces assets and owner's equity by an equal
amount.
Ans: F LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

27. The purchase of office equipment on credit increases total assets and total liabilities.
Ans: T LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

28. The primary purpose of the statement of cash flows is to provide information about the
cash receipts and cash payments of a company during a period.
Ans: T LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: None AICPA FC: Measurement

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Test Bank for Accounting Principles 13th Edition

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