Questions and Answers
Why is accounting called the language of business?
The results of the accounting process - financial statements - communicate essential information about a business to concerned individuals and organizations.
What are financial statements?
Periodic reports that summarize the financial affairs of a business.
What are the names of three accounting job positions?
Clerk, bookkeeper, and accountant.
One requirement for becoming a CPA is to pass the:
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Which organization has the final say on financial accounting issues faced by publicly owned corporations?
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What type of information will the owner need to give to the bank to apply for a loan?
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What are generally accepted accounting principles?
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Why are generally accepted accounting principles needed?
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How are generally accepted accounting principles developed?
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An organization that has two or more owners who are legally responsible for the debts and taxes of the business is a:
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A nonprofit organization such as a public school is a:
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What are some of the advantages of the corporate form of business?
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What are three types of business entities?
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How is the ownership of a corporation different from that of a sole proprietorship?
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What is the purpose of accounting?
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What does the accounting process involve?
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What is the purpose of the auditor's report?
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What are the three major areas of accounting?
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What types of services do public accountants provide?
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What is tax planning?
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What are the major functions or activities performed by accountants in private industry?
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What are the three types of business entities, and how do they differ?
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Why is it important for business records to be separate from the records of the business's owner or owners?
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Study Notes
Accounting Overview
- Accounting is referred to as the "language of business" because it communicates essential financial information through financial statements.
- Financial statements are periodic reports summarizing a business's financial affairs, essential for stakeholders.
Accounting Careers
- Common job positions in accounting include clerk, bookkeeper, and accountant.
- A Certified Public Accountant (CPA) must pass the Uniform CPA Examination.
Regulatory Framework
- The Securities and Exchange Commission (SEC) has the final authority on financial accounting for publicly owned corporations.
- Generally Accepted Accounting Principles (GAAP) are standards that evolve with changes in the business environment to ensure fair representation of a firm’s financial information.
Importance of GAAP
- GAAP is crucial for consistency and reliability in financial reporting, helping convey a company’s operating results and financial position accurately.
- The Financial Accounting Standards Board (FASB) establishes GAAP by proposing statements and gathering feedback from stakeholders.
Business Structures
- A partnership is an organization with two or more owners who are personally liable for business debts and taxes.
- A nonprofit organization, such as a public school, is classified as a social entity.
- Corporations offer advantages over partnerships, such as limited liability for shareholders and perpetual existence.
Types of Business Entities
- Business entities include sole proprietorships (owned by one), partnerships (owned by multiple), and corporations (which can be owned by one or many).
- Corporations are separate legal entities with rights to own property and conduct business independently of their owners.
Purpose and Process of Accounting
- The primary purpose of accounting is to gather and communicate financial information regarding a business.
- The accounting process includes recording, classifying, summarizing, interpreting, and communicating financial data.
Audit and Oversight
- The auditor’s report provides an independent opinion that financial statements fairly represent business performance, adhering to GAAP.
- Key areas in accounting include public, managerial, and governmental accounting.
Public Accountant Services
- Public accountants offer auditing, tax, and management advisory services, while providing tax planning advice to optimize financial affairs legally.
Roles of Private Accountants
- Accountants in private industry establish accounting policies, direct accounting systems, prepare financial statements, provide financial advice, and handle tax documentation.
Importance of Record Separation
- Keeping business and personal records separate is vital for measuring business performance, known as the separate entity principle.
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Description
Test your knowledge with this self-review quiz on accounting concepts and terminology. Discover why accounting is referred to as the language of business and learn about financial statements that summarize a business's financial affairs.