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Questions and Answers
What is accounting?
What is accounting?
A process that identifies, records, and communicates the economic events of an organization to interested users for decision making purposes.
What are the three basic activities of accounting?
What are the three basic activities of accounting?
Who are considered internal users of accounting information?
Who are considered internal users of accounting information?
The three steps in the accounting process are identification, recording, and communication.
The three steps in the accounting process are identification, recording, and communication.
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Bookkeeping encompasses all steps in the accounting process.
Bookkeeping encompasses all steps in the accounting process.
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Accountants prepare but do not interpret financial reports.
Accountants prepare but do not interpret financial reports.
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The two most common types of external users are investors and company officers.
The two most common types of external users are investors and company officers.
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What is the Sarbanes-Oxley Act (SOX)?
What is the Sarbanes-Oxley Act (SOX)?
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What principle dictates that companies record assets at their cost?
What principle dictates that companies record assets at their cost?
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What does the Fair Value Principle state?
What does the Fair Value Principle state?
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Which assumption requires that transaction data be expressed in terms of money?
Which assumption requires that transaction data be expressed in terms of money?
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Name the three forms of business ownership.
Name the three forms of business ownership.
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Study Notes
Defining Accounting
- Accounting identifies, records, and communicates the economic events of an organization to interested users.
- This information is used for decision making.
Activities of Accounting
- Accounting involves three core activities: identifying, recording, and communicating economic events.
- Bookkeeping falls under the recording aspect of accounting.
Users of Accounting Information
- Internal Users: Managers who use accounting information to make decisions within the company.
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External Users: Individuals and groups outside the company who use information for various purposes:
- Investors: To assess a company's profitability and investment potential.
- Creditors: To evaluate a company's ability to repay loans.
- Suppliers: To assess if a company is a reliable customer.
- Customers: To gather insights into a company's operations and products.
- Regulatory Authorities: To ensure compliance with laws and regulations.
- General Public: To understand a company's impact on society.
Importance of Accounting Across Different Careers
- Accounting knowledge is beneficial across many fields. Examples:
- General Management: Understanding cash flow helps managers make strategic decisions.
- Marketing: Profitability is vital to marketing success.
- Finance: Finance professionals rely heavily on accounting for analysis.
- Real Estate: Real estate brokers use accounting to assess financial viability and tax implications.
Ethics in Accounting
- Recent financial scandals such as Enron, WorldCom, and HealthSouth have raised concerns about ethical practices in accounting.
- The Sarbanes-Oxley Act (SOX) was passed by Congress to promote higher ethical standards and strengthen financial reporting.
Accounting Standards
- International Accounting Standards Board (IASB): Develops International Financial Reporting Standards (IFRS).
- Financial Accounting Standards Board (FASB): Develops Generally Accepted Accounting Principles (GAAP) in the United States.
Measurement Principles
- Historical Cost Principle: Assets are recorded at their original purchase price.
- Fair Value Principle: Assets and liabilities are reported at their current market values.
Accounting Assumptions
- Monetary Unit Assumption: Only transactions measurable in money are included in accounting records.
- Economic Entity Assumption: A business is considered separate from its owners and other entities.
Forms of Business
- Sole Proprietorship: Owned and operated by one person.
- Partnership: Owned by two or more individuals.
- Corporation: A separate legal entity owned by shareholders.
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Description
This quiz covers the basic principles of accounting, including its definition, core activities, and the different users of accounting information. It explores how accounting identifies, records, and communicates economic events for decision-making purposes. Test your knowledge of internal and external users of financial data.
