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1. (p. 456) Accounting is actually an easy subject for most people to understand because almost everyone is
exposed to basic accounting concepts in their everyday life.
2. (p. 456) Although managers who work for large firms must know something about accounting, people who run
small businesses only need to know the basics of bookkeeping.
3. (p. 456) It is almost impossible to run a company effectively without the ability to read and understand basic
accounting reports and financial statements.
4. (p. 456) The ability to read and understand financial statements is no longer an important skill for managers.
5. (p. 456) Accounting provides information about the financial condition and operating performance of a firm.
6. (p. 456) The sole purpose of accounting is to help managers evaluate the financial condition of the firm so that
they may make better decisions.
7. (p. 456, figure 17.1) Inputs to the accounting system include sales documents.
8. (p. 456) Purchasing insurance, paying employees, and using supplies are all examples of financial transactions.
9. (p. 456–457) Accounting provides financial information that can be useful to the owners, creditors, suppliers,
employees, and competitors of an organization.
10. (p. 456, figure 17.1) After recording a business’s transactions, accountants usually classify the transactions into
groups with common characteristics.
11. (p. 456) Accountants do most of the work involved in recording financial events and transactions, but the
actual classifying and interpreting of this data is left to financial managers.
12. (p. 456–457) In an effort to maintain a competitive advantage, most firms do not share accounting information
with people outside of the firm.
13. (p. 457, figure 17.2) The U.S. government is a user of accounting information.
14. (p. 456) A business manager who keeps his/her customers satisfied can be successful without having a great
deal of knowledge about accounting practices.
15. (p. 456) Jeremy operates his own small business, but he doesn’t want to be bothered with accounting
information. He tells his friends, “All I need accounting for is to prepare my income tax return for my business.
I’ll hire someone to do that for me.” Jeremy’s attitude would be disastrous if he managed a large firm, but is a
reasonable view for a small business owner.
16. (p. 456) Good decisions are based on good information. That’s why an organization needs accounting—to
provide good information.
17. (p. 456, figure 17.1) Accounting involves both the recording and the interpreting of financial events.
18. (p. 456) A firm’s financial statements represent a health report regarding the condition of the firm.
19. (p. 457) Accounting has been called the language of business.
20. (p. 457) There are five key working areas in accounting: financial accounting, managerial accounting, auditing,
tax accounting, and governmental and not-for-profit accounting.
21. (p. 457) Accounting information is not relevant for nonprofit organizations.
22. (p. 457) Churches, schools, and charitable organizations all hire accountants.
23. (p. 457) The accounting profession is divided into two main fields: bookkeeping and auditing.
24. (p. 457) Budget preparation is one aspect of managerial accounting.
25. (p. 457) The work of a certified management accountant is intended to enable people outside of the
organization to make investment decisions.
26. (p. 457) Activities of managerial accountants include measuring and reporting the costs of production,
marketing and other functions within the organization.
27. (p. 457–458) Financial accounting and managerial accounting are similar in that they both provide information
intended primarily for people inside the organization.
28. (p. 457) Financial accounting involves activities such as preparing budgets and measuring production costs.
29. (p. 457) Financial accounting is used to provide information and analysis managers within the organization can
use to assist them in decision making.
30. (p. 457–458) Financial accountants prepare reports for owners, creditors, suppliers, and others outside of the
organization.
31. (p. 458) Information contained in a firm’s annual report largely represents work done by managerial
accountants.
32. (p. 458) A firm’s annual report is a yearly statement of the financial condition, progress, and expectations of the
organization during one year.
33. (p. 458) An individual who provides accounting services to individuals and businesses on a fee basis is referred
to as a private accountant.
34. (p. 458) All firms with more than four employees should have a full-time accountant.
35. (p. 458) GAAP refers to a set of standards concerning accounting principles that were established by the
Financial Accounting Standards Board.
36. (p. 458–459) A series of high-profile scandals in the early 2000s has put the accounting profession under intense
scrutiny.
37. (p. 459) The job of reviewing and evaluating the records used to prepare a company’s financial statements is
referred to as auditing.
38. (p. 459, Dealing with Change box) According to the “Dealing with Change” box in Chapter 17, a forensic accountant
investigates company records for evidence of fraud.
39. (p. 459–460) Independent audits are prepared by accountants within the organization to ensure that proper
accounting procedures are followed.
40. (p. 460) An independent audit is an evaluation and unbiased opinion about the accuracy of a company’s
financial statements.
41. (p. 460) In large companies, certified internal auditors are usually responsible for preparing tax returns and
developing tax strategies for businesses.
42. (p. 460) A tax accountant is responsible for preparing tax returns and developing tax strategies.
43. (p. 460) Recent accounting scandals have raised serious questions about the legitimacy of an accounting firm
performing both auditing and consulting work for the same company.
44. (p. 460) An accountant who has bachelor’s degree, two years of experience in internal auditing and who has
passed an exam by the Institute of Internal Auditors can become recognized as a certified internal auditor.
45. (p. 460) As the burden of taxes grows, the role of the auditor becomes increasingly important to the
organization.
46. (p. 460, figure 17.3) The Sarbanes-Oxley Act strengthens the protection for whistle-blowers who report wrongful
actions of company officers.
47. (p. 460, figure 17.3) The Sarbanes-Oxley Act prohibits accounting firms from providing certain non-auditing work
(such as consulting services) to companies they audit.
48. (p. 460) The Internal Revenue Service is responsible for establishing accounting standards used by accountants
working in government accounting.
49. (p. 460) Citizens and special interest groups often have interest in the information generated by government
accounting.
50. (p. 457) Accounting is not important for nonprofit organizations since financial data is generally not critical to
their success.
51. (p. 457) Accounting, as the language of business, is solely concerned with providing information useful to
managers of profit-seeking firms.
52. (p. 458) As a certified public accountant, you would be working primarily in the area of managerial
accounting.
53. (p. 458) Jamal is an accountant employed full-time by Acctex, Inc. Jamal is an example of a public
accountant.
54. (p. 457) Managers who are concerned about keeping costs under control are likely to be very interested in the
information and advice provided by their company’s managerial accountants.
55. (p. 458) As a certified public accountant (CPA), Kay might become involved in helping clients select
appropriate computer hardware and software.
56. (p. 458) Because each business is unique, the accounting profession recognizes that the accounting principles
followed by one company may need to be completely different from the accounting principles followed by
another firm.
57. (p. 460) Deron has a bachelor’s degree in accounting and additional training in tax law. He is responsible for
preparing tax returns and developing tax strategies for his employer, Lightning Freight Service, and has done so
for the last seven years. Deron is a certified government accountant.
58. (p. 459–460) The accountants within the organization can prepare an audit of Allcity Insurance Company.
59. (p. 460–461) Since the Financial Accounting Standards Board only sets standards for accountants in the private
sector, government accountants have no generally accepted procedures that they must follow.
60. (p. 460) Martha is a member of a conservative political group that wants to identify and publicize examples of
wasteful government spending. The type of accounting information Martha and her group will follow most
closely will be provided by certified public accountants.
61. (p. 461) Accounting and bookkeeping are terms used for essentially the same activity in an organization.
62. (p. 461) Bookkeeping is part of the accounting cycle, but accounting goes far beyond the activities involved in
bookkeeping.
63. (p. 461) A major part of a bookkeeper’s job is to interpret financial data and suggest strategies for improving
the firm.
64. (p. 461, figure 17.4) A bookkeeper’s first task is to record the firm’s transactions in a journal.
65. (p. 461) The books where accounting data are first entered are called ledgers.
66. (p. 462) Double-entry bookkeeping requires that every transaction be recorded in two places.
67. (p. 462) Double-entry bookkeeping can help identify a recording error made by a bookkeeper.
68. (p. 461) A journal is where the initial record of a day’s transactions is entered.
69. (p. 462) The accounting book that provides all the information about a single account in one place is called the
ledger.
70. (p. 462) At present, accounting software packages have proven to be too complex and expensive to be useful
for owners of small businesses.
71. (p. 461, figure 17.4) The accounting cycle is a six-step procedure that results in the preparation and analysis of
major financial statements.
72. (p. 461, figure 17.4) Posting is a step in the accounting cycle that involves transferring information from the
journal into the appropriate accounts in a ledger.
73. (p. 461, figure 17.4) There are two major financial statements prepared at the completion of the accounting cycle:
the journal and the ledger.
74. (p. 461, figure 17.4) The first step in the accounting cycle is posting information regarding business transactions
into the ledgers.
75. (p. 461) The accounting cycle usually involves the work of both the bookkeeper and the accountant.
76. (p. 462) The purpose of a trial balance is to prepare a practice balance sheet.
77. (p. 461, figure 17.4) One of the statements prepared in the accounting cycle is the statement of cash flows.
78. (p. 462–463) Most businesses use computers to simplify the mechanical aspects involved in accounting.
79. (p. 462) Accounting software for small businesses has become so sophisticated that most small business
owners will never need to consult with an actual accountant.
80. (p. 462) Accounting software has proven to be especially helpful for small business owners.
81. (p. 461) Carol has worked as a bookkeeper for a small clothing store for almost three years. Her old boss
recently retired and a new manager took over. The new manager frequently asks her for information and advice
about how to interpret the information she records. Carol’s experience as a bookkeeper means she is qualified to
provide this type of advice.
82. (p. 462) One advantage of the double-entry method of bookkeeping is that it can help identify mistakes made
in recording financial transactions.
83. (p. 461-462, figure 17.4) Computerized accounting programs have eliminated the need to prepare a trial balance.
84. (p. 462) Felicia is a public accountant. She has been asked to prepare the financial statements for McNick’s
Auto Body Shop. She is at the stage of the accounting cycle where she wants to summarize all of the data in the
accounting ledgers to see whether the figures appear to be correct and balanced. Felicia will need to prepare a
statement of cash flows in order to complete this stage of the cycle.
85. (p. 461, figure 17.4) Miko is the head of the accounting department at Microflush. She and her subordinates
recently completed a trial balance. They are now likely to be working on the balance sheet, the income
statement and the statement of cash flows.
86. (p. 463) In addition to the mechanical tasks of recording and classifying accounting information, the best
accounting software programs currently available for small businesses have the ability to make financial
decisions, thus eliminating the need for owners of small businesses to consult with accountants.
87. (p. 462) Juliet has found that her small business needs a better way to maintain accounting records and analyze
business opportunities than its current manual system. These days, any off-the-shelf accounting package
88. (p. 463) The key financial statements are the balance sheet, the income statement, and the statement of cash
flows.
89. (p. 463) The income statement reports the difference between a firm’s assets and its liabilities as of a certain
date.
90. (p. 463) A firm’s balance sheet reports its financial condition on a specific date.
91. (p. 463) The balance sheet reports revenues and selling costs for a period of time.
92. (p. 463) An income statement reports what a company owns and owes on a certain day.
93. (p. 464) Assets are reported on the balance sheet.
94. (p. 464) Liabilities are reported on the income statement.