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F. The Basic Accounting Equation.
1. Assets = Liabilities + Owner’s Equity.
2. Equality of the equation must be preserved.
3. The expanded accounting equation is:
Assets = Liabilities + Owner’s Capital – Owner’s Drawings + Revenues –
Expenses.
G. Assets, Liabilities, and Owner’s Equity.
2. Liabilities are claims against assets. They are existing debts and obligations.
3. Owner’s equity is equal to total assets minus total liabilities; owner’s
b. Drawings are the withdrawal of cash or other assets from a proprie-
5. Expenses are the cost of assets consumed or services used in the process
of earning revenue.
H. Using the Accounting Equation.
1. External transactions are economic events between the company and
some outside enterprise.
Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Instructor’s Manual (For Instructor Use Only) 1-11
2. Internal transactions are economic events that occur entirely within one
company.
I. Financial Statements.
for a specific period of time.
specific date.
4. A statement of cash flows summarizes information about the cash inflows
(receipts) and outflows (payments) for a specific period of time.
*J. Accounting Career Opportunities.
1. Individuals in public accounting offer expert service to the general public
through the services they perform.
a. Auditing—A certified public accountant (CPA) examines company
financial statements and provides an opinion as to how accurately
the financial statements present the company’s results and financial
position.
b. Taxation—Tax specialists provide tax advice and planning, prepare
tax returns, and represent clients before governmental agencies.
c. Management Consulting—Management consultants assist in the
installation of basic accounting software and perform support services
for major marketing projects and merger and acquisition activities.
2. Private accountants are employees of a for-profit company and are involved
in a number of activities including cost accounting, tax planning and prepa-
ration, accounting information system design and support, and internal
auditing.
3. Governmental accounting opportunities include employment with the
Internal Revenue Service, Federal Bureau of Investigation, and the
Securities and Exchange Commission.
IFRS
A Look at IFRS
Multinational corporations. Today’s companies view the entire world as their market. For
example, Coca-Cola, Intel, and McDonald’s generate more than 50% of their sales outside the
United States, and many foreign companies, such as Toyota, Nestlé, and Sony, find their
largest market to be the United States.
Information technology. As communication barriers continue to topple through advances in
technology, companies and individuals in different countries and markets are becoming more
comfortable buying and selling goods and services from one another.
KEY POINTS
International standards are referred to as International Financial Reporting
Standards (IFRS), developed by the International Accounting Standards Board (IASB).
developed by the Financial Accounting Standards Board (FASB). The fact that there are
differences between what is in this textbook (which is based on U.S. standards) and
IFRS should not be surprising because the FASB and IASB have responded to different
user needs. In some countries, the primary users of financial statements are private
The internal control standards applicable to Sarbanes-Oxley (SOX) apply only to large
public companies listed on U.S. exchanges. There is a continuing debate as to whether
non-U.S. companies should have to comply with this extra layer of regulation. Debate
IFRS tends to be simpler in its accounting and disclosure requirements; some people
say it is more “principles-based.” GAAP is more detailed; some people say it is more
“rules-based.” This difference in approach has resulted in a debate about the merits of
“principles-based” versus “rules-based” standards.
across countries.
The conceptual framework that underlies IFRS is very similar to that used to develop
GAAP. The basic definitions provided in this textbook for the key elements of financial
statements, that is, assets, liabilities, equity, revenues (referred to as income), and
resources embodying economic benefits. Liabilities may be legally enforceable
via a contract or law, but need not be, i.e., they can arise due to normal business
practice or customs.
Equity. A residual interest in the assets of the entity after deducting all its liabilities.
LOOKING TO THE FUTURE
the most fundamental elements (assets, liabilities, equity, revenues, and expenses) may
actually change. However, whether the IASB adopts internal control provisions similar to those
in SOX remains to be seen.
20 MINUTE QUIZ
Circle the correct answer.
True/False
1. Accounting is the information system that identifies, records, and communicates the
economic events of an organization to interested users.
True False
True False
3. Internal users are those who manage the business.
True False
4. The Financial Accounting Standards Board is the primary accounting standard-setting
body in the United States.
True False
True False
6. The economic entity assumption requires that the activities of the entity be kept sepa-
True False
True False
8. An expense paid with cash would result in an equal decrease in liabilities and owner’s
equity.
True False
9. Liabilities represent the ownership claim on total assets.
True False
*10. Certified Public Accountants are only permitted to prepare audit reports and tax returns.
True False
Multiple Choice
1. All of the following are external users of accounting information except
a. labor unions.
b. taxing authorities.
c. regulatory agencies.
d. company officers.
2. Recording consists of
a. identifying and measuring economic events.
b. preparing and distributing accounting reports.
users.
3. The financial statement that summarizes information about the cash inflows and outflows
during a period is the
a. income statement.
b. owner’s equity statement.
c. balance sheet.
d. statement of cash flows.
a. Assets – Liabilities = Owner’s equity
b. Assets = Liabilities – Owner’s equity
c. Assets = Liabilities + Owner’s equity
d. Assets – Owner’s equity = Liabilities
*5. Accountants involved with cost accounting, budgeting, and internal auditing are part of
which broad category within the accounting profession?
a. Governmental accounting
b. Management consulting
c. Public accounting
d. Private accounting
ANSWERS TO QUIZ
True/False
Multiple Choice
BLOOM’S TAXONOMY T
