Chapter Opener: Thinking Critically
Fast Facts
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Managerial Implications: Thinking Critically
Discussion Questions
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CHAPTER 1
ACCOUNTING: THE LANGUAGE OF BUSINESS
Google’s mission is to organize the world’s information and make it universally accessible and useful.
“Googol” is the mathematical term for a 1 followed by 100 zeros. Google’s play on the term reflects
the company’s mission to organize the immense amount of information available on the web.
Google’s interface can be customized into more than 100 languages.
Note to instructor: These questions are designed to check students’ understanding of new terms, concepts,
and procedures presented in the chapter.
The purpose of the Public Company Accounting Oversight Board is to oversee the accounting
Sole proprietorship (owned by one person). Partnership (owned by two or more people). Corporation
(can be owned by one person or many).
SEC, AICPA, AAA.
The Public Company Accounting Reform and Investor Protection Act of 2002 was passed in response
to the wave of corporate accounting scandals starting with the demise of Enron Corporation in 2001,
the arrest of top executives at WorldCom and Adelphia Communications Corporations, and
ultimately, the demise of Arthur Andersen, an international public accounting firm.
Managers use financial information to make decisions about adding new products and services, offering
current products and services, and choosing vendors.
Public, managerial, and governmental.
Statements of Financial Accounting Standards.
Measure business performance; separate entity.
Advice on how to structure financial affairs in order to reduce taxes without violating tax laws.
Google’s culture is unlike any in corporate America—lava lamps and large rubber balls dot company
headquarters and the company’s chef used to cook for the Grateful Dead. Google Inc. puts employees
first when it comes to daily life in all of their offices.
Regulation of financial reporting by publicly owned corporations.
Owners and managers: evaluate operations. Suppliers: assess ability of a firm to pay debts. Banks:
ability to repay loans. Tax authorities: determine a tax base. Governmental agencies: legal
compliance. Employees: wage levels and profit-sharing plans.
A basic understanding of accounting would assist in the interpretation and analysis of financial statements
released by a company like Google and would therefore make the financial position of the company more
clear and a decision to purchase (or not purchase) its stock more straightforward.
CRITICAL THINKING PROBLEM 1.1
Sole proprietorship:
Advantage—Ned would be his own boss and could direct the business as he wants.
Partnership:
Corporation:
Student answers will vary. The student’s reasons for choosing one form of ownership over another
are more important than the specific choice made.
Disadvantages—A corporation is a more complicated form of ownership and is usually more
expensive to form. There is also more government regulation and, consequently, more paperwork
with a corporation.
Disadvantages—Ned would be responsible for the debts and taxes of the business and may be
limited in the amount of capital he could borrow to finance the business.
Advantage—Ned would have one or more partners to assist with business operations and to
contribute capital.
Disadvantages—Ned would have to share control of the business, as well as its profits. Ned could
be liable for the debts of the partnership.
Advantages—The business would be a separate entity. Capital would be easier to raise and
liability would be limited to the assets of the business.
SOLUTIONS TO BUSINESS CONNECTIONS
Managerial Focus:
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Ethical Dilemma:
Yes. Ethics and accounting are intertwined.
Financial Statement Analysis:
Analyze Online:
1. Economic entity because it is a business for profit.
2. Clothing, accessories, outerwear and footwear.
3. Investors, suppliers, and banks. To assist the users when making financial decisions.
4. 15 to 25 year-olds.
Teamwork:
Internet Connection:
As of June 2009, 168 statements have been issued. The statements are listed in reverse
chronological order.
Inaccurate accounting records and poor business decisions.
Yes. The firm’s financial records need to be separate from the owner’s personal financial records in
order to evaluate and measure the performance of the business.
Financial information is used to evaluate performance and make decisions about a business or a
nonprofit organization.
Balance Sheet, Income Statement and Cash Flow Statement should be required. Anticipated cost of
expansion and future income projections may also be requeted. Banks might also require a list of
your customers and vendors. There is no requirement to indicate to the bank problems you are
having with certain customers and vendors.
Analyze financial statements and review accounting procedures for internal controls.
The manager makes financial decisions based upon the financial information provided by the
accountant.
Every business needs an efficient accounting system which accumulates financial data, classifies
and summarizes the information. Without an accounting system, suppliers, lenders, investors, and
governmental tax authorities would not be able to accurately make decisions based on the financial
information of the company.
Part A True-False
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SOLUTIONS TO PRACTICE TEST
TRUE
TRUE