Horngren’s Financial and Managerial Accounting, 6e (Miller-Nobles)
Chapter 1 Accounting and the Business Environment
1.1 Learning Objective 1-1
1) Accounting is the information system that measures business activities, processes the information into
reports, and communicates the results to decision makers.
2) Critical thinking and judgment skills are not necessary for accountants because technology has made
the activities routine.
3) Accounting starts with economic activities that accountants review and evaluate using critical thinking
and judgment to create useful information that helps individuals make good decisions.
4) Accounting is referred to as the language of business because it is the method of communicating
business information to decision makers.
5) Managerial accounting focuses on providing information for external decision makers.
6) Investors primarily use managerial accounting information for decision-making purposes.
7) A creditor is a person who owes money to the business.
8) Income tax is calculated using accounting information.
9) Financial accounting focuses on information for decision makers outside of the business, such as
creditors and taxing authorities.
10) Business owners use accounting information to set goals, evaluate progress toward those goals, and
make adjustments when needed.
11) Outside investors ordinarily use financial accounting information to decide whether or not to invest
in a business.
12) A creditor is any person who has an ownership interest in a business.
13) Managerial accounting focuses on information needed by lenders, customers, and the federal
government.
14) Any person or business to whom a business owes money is called the business‘s creditor.
15) Decision makers are looking for an international accounting language because the most significant
change in the business world in the last decade has been the huge increase in international commerce.
16) Managerial accounting provides information to ________.
A) internal decision makers
B) outside investors and lenders
C) creditors
D) taxing authorities
17) The field of accounting that focuses on providing information for external decision makers is
________.
A) managerial accounting
B) financial accounting
C) cost accounting
D) nonmonetary accounting
18) The field of accounting that focuses on providing information for internal decision makers is
________.
A) managerial accounting
B) financial accounting
C) nonmonetary accounting
D) governmental accounting
19) Which of the following users would rely on managerial accounting information for decision-making
purposes?
A) potential investors
B) creditors
C) customers
D) company managers
20) Which of the following is a decision made by an internal user?
A) Should we lend money to the business?
B) How much money should the business budget for production?
C) Should I invest in the business?
D) All of the above are correct.
21) For each user of accounting information, identify if the user would use financial accounting (FA) or
managerial accounting (MA).
Accounting Information User
FA or MA
Business manager
Creditor
Stockholder
Human resources director
Internal Revenue Service
Accounting Information User
FA or MA
Business manager
MA
Creditor
FA
Stockholder
FA
Human resources director
MA
Internal Revenue Service
FA
Diff: 1
LO: 1-1
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Decision Makers: The Users of Accounting Information
22) For each of the following decisions, identify if it applies to a financial accounting (FA) or a managerial
accounting (MA) decision maker. Your answer should be either FA or MA. Include only one choice for
each accounting decision.
Accounting Decision
Decision Maker (FA or MA)
Should the business expand to a
new location?
Is the business profitable?
How do actual costs compare to
budgeted costs?
Should I invest in the business?
Is the business profitable?
How do actual costs compare to
budgeted costs?
Should I invest in the business?
25) Certified Public Accountants are licensed professional accountants who serve the general public.
26) ________ are professional accountants who serve the general public, not one particular company.
A) Certified public accountants
B) Financial managers
C) Internal auditors
D) Controllers
9
Match the accounting position to the job description.
A) Performs reviews of companies to ensure compliance to rules and regulations
B) Compiles financial statements, interacts with auditors, oversees regulatory reporting
C) Specializes in accounting and financial management knowledge
D) Serves the general public
27) Controller
Diff: 1
LO: 1-1
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Concept
H2: Accounting Matters
28) Certified Management Accountant
Diff: 1
LO: 1-1
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Concept
H2: Accounting Matters
29) Certified Public Accountant
Diff: 1
LO: 1-1
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Concept
H2: Accounting Matters
30) Auditor
Diff: 1
LO: 1-1
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Concept
H2: Accounting Matters
1.2 Learning Objective 1-2
1) The Financial Accounting Standards Board is a U.S. governmental agency that oversees the creation
and governance of accounting standards.
2) The SEC is a governmental agency that oversees world-wide financial markets and organizations that
set accounting standards.
3) Which of the following organizations is responsible for the creation and governance of accounting
standards in the United States?
A) Financial Accounting Standards Board
B) Institute of Management Accountants
C) American Institute of Certified Public Accountants
D) Securities and Exchange Commission
4) The Financial Accounting Standards Board (FASB) works with the following groups. Which of these
groups was congressionally created?
A) Institute of Management Accountants
B) Public Company Accounting Oversight Board
C) International Accounting Standards Board
D) American Institute of CPAs