Accounting Basics and Users 챕터1
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Questions and Answers

What type of accounting do internal users rely on for decision-making?

  • Managerial accounting (correct)
  • Financial accounting
  • Tax accounting
  • Cost accounting

    • External users of financial information include managers who operate the business.

    False

    Name one example of an external user of financial information.

    Investor

    The two most common types of external users are __________ and __________.

    <p>investors, creditors</p> Signup and view all the answers

    Which of the following is NOT an activity associated with the accounting process?

    <p>Investing</p> Signup and view all the answers

    Accountants only record financial transactions and do not analyze data.

    <p>False</p> Signup and view all the answers

    Match the following user types with their primary focus:

    <p>Internal Users = Use managerial accounting External Users = Use financial accounting Taxing Authorities = Compliance with tax laws Customers = Product warranties and support</p> Signup and view all the answers

    What is one of the building blocks of accounting mentioned?

    <p>Ethics</p> Signup and view all the answers

    Under the historical cost principle, companies are required to update asset values based on current market prices.

    <p>False</p> Signup and view all the answers

    Which of the following describes the accounting equation?

    <p>Assets = Liabilities + Equity</p> Signup and view all the answers

    Name two components of the basic accounting equation.

    <p>Assets and Liabilities</p> Signup and view all the answers

    ________ are gross increases in equity resulting from business activities.

    <p>Revenues</p> Signup and view all the answers

    What is the effect of expenses on equity?

    <p>Decrease</p> Signup and view all the answers

    Match the following terms with their respective definitions:

    <p>Assets = Resources a business owns Liabilities = Claims against assets Equity = Ownership claim on total assets Expenses = Costs consumed to earn revenue</p> Signup and view all the answers

    Dividends are considered an expense in accounting.

    <p>False</p> Signup and view all the answers

    What are the main purposes of an accounting information system?

    <p>To collect and process transaction data and communicate financial information.</p> Signup and view all the answers

    What happens to retained earnings when a dividend is paid?

    <p>It decreases.</p> Signup and view all the answers

    Dividends are considered expenses in accounting.

    <p>False</p> Signup and view all the answers

    What are the three components of the basic accounting equation?

    <p>Assets, Liabilities, Equity</p> Signup and view all the answers

    The _________ statement summarizes the changes in retained earnings for a specific period of time.

    <p>retained earnings</p> Signup and view all the answers

    Which financial statement presents revenues and expenses?

    <p>Income statement</p> Signup and view all the answers

    The two sides of the accounting equation must always be equal.

    <p>True</p> Signup and view all the answers

    How does the issuance of ordinary shares affect the accounting equation?

    <p>It increases equity.</p> Signup and view all the answers

    What type of shares do Ray and Barbara Neal receive for their investment in Softbyte SA?

    <p>Ordinary shares</p> Signup and view all the answers

    Purchasing equipment for cash results in an equal increase and decrease in total assets.

    <p>True</p> Signup and view all the answers

    Match the following financial statements with their descriptions:

    <p>Income Statement = Presents revenues and expenses Statement of Cash Flows = Summarizes cash inflows and outflows Statement of Financial Position = Reports assets, liabilities, and equity Retained Earnings Statement = Summarizes changes in retained earnings</p> Signup and view all the answers

    What amount did Softbyte SA pay for the computer equipment?

    <p>€7,000</p> Signup and view all the answers

    Softbyte SA's purchase of headsets on credit increases ________ and __________.

    <p>assets, liabilities</p> Signup and view all the answers

    Which transaction represents Softbyte SA's principal revenue-producing activity?

    <p>Services Performed for Cash</p> Signup and view all the answers

    The purchase of advertising on credit increases equity immediately.

    <p>False</p> Signup and view all the answers

    Match the transaction with its effect on the accounting equation:

    <p>Investment by Shareholders = Increase in assets and equity Purchase of Equipment for Cash = Increase in assets, decrease in cash Purchase of Supplies on Credit = Increase in assets and liabilities Services Performed for Cash = Increase in assets and equity</p> Signup and view all the answers

    What was the amount owed for the supplies purchased on credit?

    <p>€1,600</p> Signup and view all the answers

    What do revenues exceeding expenses result in?

    <p>Net income</p> Signup and view all the answers

    The income statement includes transactions between shareholders and the business in measuring net income.

    <p>False</p> Signup and view all the answers

    What is the first line of the retained earnings statement?

    <p>Beginning retained earnings amount</p> Signup and view all the answers

    When expenses exceed revenues, it results in a ___

    <p>net loss</p> Signup and view all the answers

    Which statement is needed to determine the ending balance in retained earnings?

    <p>Retained Earnings Statement</p> Signup and view all the answers

    Retained earnings can only increase during a period.

    <p>False</p> Signup and view all the answers

    What is needed to prepare the statement of cash flows?

    <p>Cash shown on the statement of financial position</p> Signup and view all the answers

    Match the financial statements with their primary functions:

    <p>Income Statement = Shows net income or loss Retained Earnings Statement = Indicates changes in retained earnings Statement of Financial Position = Reports assets and liabilities Statement of Cash Flows = Details cash inflows and outflows</p> Signup and view all the answers

    Study Notes

    Accounting Activities & Users

    • Accounting consists of three core activities: identifying, recording, and communicating economic events.
    • Internal users utilize management accounting for decision-making, such as marketing, production, and finance managers.
    • External users rely on financial accounting, including investors and creditors, for their decision-making.

    Building Blocks of Accounting

    • Ethics in financial reporting is crucial for trust and transparency.
    • Accounting principles and assumptions provide a framework for creating consistent and comparable financial information.
    • The historical cost principle dictates that companies record assets at their cost and use that cost in subsequent periods.

    The Accounting Equation

    • The accounting equation is the foundation of accounting: Assets = Liabilities + Equity.
    • Assets are resources owned by a business.
    • Liabilities represent sources of financing from creditors, indicating existing debts and obligations.
    • Equity represents the ownership claim on the company's assets.

    Equity Components

    • Share capital is the amount paid by shareholders when purchasing shares.
    • Revenues are the gross increases in equity stemming from business activities aimed at generating income.
    • Expenses are the cost of assets consumed or services used in the process of earning revenue.
    • Dividends are distributions of cash or other assets to shareholders and are not considered expenses.

    Analyzing Business Transactions

    • The accounting information system collects and processes transaction data, communicating financial information to decision-makers.
    • Transaction analysis involves assessing the effects on the accounting equation and specific types of items within each component.
    • Share capital and Retained Earnings columns indicate the causes of changes in the shareholders' claim on assets.

    Financial Statements

    • The five primary financial statements are:
      • Income statement: Presents revenues and expenses, indicating net income or net loss for a specific period.
      • Retained earnings statement: Summarizes changes in retained earnings over a specific period.
      • Statement of financial position: Reports a company's assets, liabilities, and equity at a specific date.
      • Statement of cash flows: Summarizes the cash inflows (receipts) and outflows (payments) for a specific period.
      • Comprehensive income statement: Outlines other comprehensive income items not included in net income calculations.

    Income Statement

    • The income statement presents revenues first, followed by expenses, ending with net income (or net loss).
    • Net income occurs when revenues exceed expenses, while a net loss occurs when expenses exceed revenues.
    • Investment and dividend transactions between shareholders and the business are not included in net income calculations.

    Retained Earnings Statement

    • This statement highlights the reasons for changes in retained earnings during a period.
    • If a net loss occurs, it is deducted along with dividends in the retained earnings statement.
    • The statement begins with the beginning retained earnings amount.

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    Description

    This quiz covers the core activities of accounting, the different types of users such as internal and external, and the key principles that govern financial reporting. You'll also explore the fundamental accounting equation and its components. Test your knowledge of accounting essentials!

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