MORT 204 Chapter 1

MATCHING (numbers to corresponding letters): 1. ) Owners 2. ) Managers 3. ) Creditors 4. ) Government agencies a) Whether the firm can pay its bills on time b) Detailed, up-to-date information to measure business performance (and plan for future operations) c) To determine taxes to be paid and whether other regulations are met d) The firm's current financial condition

1. ) Owners - D 2. ) Managers - B 3. ) Creditors - A 4. ) Government agencies - C

Name and describe six areas of specialization for a managerial accountant.

Accounting Information Systems—Accountants in this area design and implement manual and computerized accounting systems. Financial Accounting—Based on the accounting data prepared by the bookkeepers and accounting clerks, the accountant prepares various reports and financial statements. Cost Accounting—The cost of producing specific products or providing services must be measured. Further analysis is also done to determine whether the products and services are produced in the most cost-effective manner. Budgeting—In the budgeting process, accountants help management develop a financial plan for the future. Tax Accounting—A firm may have its own accountants to focus on tax planning, preparation of tax returns, and dealing with the Internal Revenue Service and other governmental agencies. Internal Auditing—The main functions of an internal auditor are to review the operating and accounting control procedures adopted by management and to see that accurate and timely information is provided.

What are the main functions of an accounting clerk?

An accounting clerk performs accounting tasks such as recording, sorting, and filing accounting information.

Identify career opportunities in accounting.

Career opportunities in accounting include work in public accounting, private accounting, and governmental and not-for-profit accounting.

Classify different types of businesses by activities.

Different types of businesses classified by activities are a service business, a merchandising business, and a manufacturing business.

Identify four user groups normally interested in financial information about a business.

Four user groups normally interested in financial information about a business are owners, managers, creditors, and government agencies.

What are generally accepted accounting principles (GAAP)?

Generally accepted accounting principles (GAAP) are the rules that businesses must follow when preparing financial statements.

Define GAAP and describe the process used by FASB to develop these principles.

Generally accepted accounting principles (GAAP) are the rules that businesses must follow when preparing financial statements. FASB takes the following steps to develop an accounting standard: 1. The issue is placed on the Board's agenda. 2. After researching the issue, a discussion memorandum is issued. 3. Public hearings are held. 4. An exposure draft is issued. 5. The statement of financial accounting standards is issued.

Describe the kind of information needed by the users listed: Owners (present and future) Managers Creditors (present and future) Government agencies

Owners (present and future) - firm's profitability and current financial condition Managers - detailed, up-to-date information about the business to measure performance Creditors (present and future) - firm's profitability, debt outstanding, and assets that could be used to secure debt Government agencies - firm's profitability, cash flows, and overall financial condition

What is the name of the organization that issues accounting standards followed by many firms in countries outside the United States?

The International Accounting Standards Board.

What is the purpose of the Sarbanes-Oxley Act?

The Sarbanes-Oxley Act (SOX) was passed by Congress to help improve reporting practices of public companies. One important provision prohibits accounting firms from providing audit and management advisory services to the same company.

Describe the purpose of accounting.

The purpose of accounting is to provide financial information about a business to individuals and organizations.

Describe the accounting process.

The six major steps of the accounting process are analyzing, recording, classifying, summarizing, reporting, and interpreting. ( ARC SRI )

Define three types of business ownership structures.

Three types of business ownership structures are the: - sole proprietorship - the partnership - and the corporation.

What is the purpose of accounting?

To gather and communicate financial information about a business.

Identify the three types of ownership structures and discuss the advantages and disadvantages of each.

a. A sole proprietorship is owned by one person. The owner assumes all risks for the business. The advantage is that the owner can make all of the business decisions. b. A partnership is owned by more than one person. Partners assume the risks for the business, and their assets may be taken to pay creditors. An advantage of a partnership is that owners share risks and decision making. A disadvantage is that partners may disagree about the best way to run the business. c. A corporation is owned by stockholders. The owners' risk is usually limited to their initial investment, but they typically have very little influence on business decisions.

Identify the six major steps of the accounting process and explain each step.

a. Analyzing is looking at events that have taken place and thinking about how these affect the business. b. Recording is entering financial information into the accounting system. c. Classifying is sorting and grouping like items together. d. Summarizing is the aggregation of many similar events to provide information that is easy to understand. e. Reporting is telling the results. f. Interpreting is deciding the importance of information in the various reports.

Name and describe four areas of specialization for a public accountant.

auditing, taxation, management advisory services, and forensic accounting. * Auditing—Auditing involves the application of standard review and testing procedures to be certain that proper accounting policies and practices have been followed. The purpose of the audit is to provide an independent opinion that the financial information about a business is fairly presented. * Taxation—The work of tax specialists includes offering advice on tax planning, preparing tax returns, and representing clients before governmental agencies, such as the Internal Revenue Service. * Management Advisory Services—Given the financial training and business experience of public accountants, many businesses seek their advice on a wide variety of managerial issues. * Forensic Accounting—Forensic accounting is a specialized field that combines fraud detection, fraud prevention, litigation support, expert witnessing, business valuations, and other investigative activities.

List the six major steps of the accounting process in order (1-6) and define each. (remember mnemonic)

mnemonic in order: ARC SRI Analyzing - gathering financial info about business and reporting info to users Recording - entering financial info about events affecting the company into system Classifying - sorting and grouping similar items together Summarizing - determining a result from cohesion of various items of info together Reporting - telling results of financial info Interpreting - deciding the meaning and importance of the info in reports