ACC 100 Lecture Notes - Lecture 2: Double-Entry Bookkeeping System, Retained Earnings, Negative Equity

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29 Jan 2018

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Acc100: chapter 2-the accounting equation and transaction analysis. They provide a business"s financial performance, its current financial position, and its cash flows. External stakeholders use the financial statements to analyze a business and answer questions, which allow them to make decisions and meet their objectives: accounting system: An information system that collects, groups, and communicates a business"s financial position, including its financial health and profitability. The financial reporting elements are: assets. Due to past event (example: student loans: equity. It is the wealth due to the owners: owner"s capital, profit retained or retained earnings. Example: what is your equity: your value of your assets-liabilities = equity. There is 2 ways to earn revenue: business either provide a service or a good, already provided, already delivered. Example: a job that earns you income, the you what your revenue is. Used, consumed, or incurred to help generate revenue. Example: gas you used in your lawn mower, to mow your customers lawn.

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Can someone please summarize this from "the top 10 reasons to fix the FASB's conceptual framework"

9. Costs and Benefits

The FASB and IASB would do everyone a good turn by abandoning the timeworn notion that only statement preparers incur reporting costs and that only users reap the benefits. This chestnut isnât true and never has been.

The costs of reporting arenât borne by preparers but by their entitiesâ owners, who are also among the reportsâ pri- mary users. Furthermore, managers benefit greatly from better public information that enables capital markets to establish more efficient security prices that reflect real risks.

There are no reasonable grounds for believing that markets respond to todayâs inferior public information by bidding prices higher and accepting returns that are too low for their risk. In fact, the only rational response to incomplete and untrustworthy financial reports is lower security prices and higher capital costs.

The Boardsâ discussions must articulate the point that management policies intended to reduce preparation costs diminish information quality and thus lead to higher information-gathering and processing costs. The seem- ingly economical practice of reporting only the bare min- imum is actually much more costly than just reporting what management already knows (or ought to know).

If users want to know assetsâ market values not dis- closed by management, then all users must make deci- sions under uncertainty or elect to go through their own expensive estimation process. Adding to the total cost is the fact that the usersâ self-generated data has question- able reliability and limited capacity to reduce uncertainty. If so, they demand higher returns, which, in turn, increase the reporting companyâs cost of capital.

A decision to reduce accounting costs unavoidably caus- es total costs to go higher. Considered within the context that the highest objective of financial reporting is promot- ing economic productivity, itâs clear that overall savings can be achieved by mandating additional disclosures of useful information. (In fact, weâre confident that managers and owners can reap even greater savings by voluntarily disclos- ing useful information that isnât required.)

These points are controversial, but we encourage the Boards to expand their discussion to include all costs and benefits, not just the simplistic idea that managers bear all costs and gain no benefits while users gain all benefits and bear no costs. In fact, both sides incur costs and gain benefits; once that relationship is clear, constructive progress is sure to follow.

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1. Creditors' claims on the assets of a company are called: (Points : 2)

2. The primary objective of financial accounting is: (Points : 2)

To serve the decision-making needs of internal users

To provide financial statements to help external users analyze and interpret an organization's activities

To monitor and control company activitiesTo provide information on both the costs and benefits of managing products and services

To know what, when and how muchto produce

3. Assets created by selling goods and services on credit are: (Points : 2)

4. The debt ratio is used: (Points : 2)

To measure the amount of equity relative to the expenses

To reflect the risk associated with a company's debts

Only by banks when a business applies for a loan

To determine how much debt a firm should pay off

5. Net Income: (Points : 2)

Decreases equity

Represents the amount of assets owners put into a business

Equals assets minus liabilities

Is the excess of revenues over expenses

Represents the owners' claims against assets

6. Internal users of accounting information include: (Points : 2)

Shareholders

Customers

Creditors

Government regulators

Line Supervisor

7. Risk is: (Points : 2)

Net income divided by average total assets

The reward for investment

The uncertainty about the expected return that will be earned from an investment

Unrelated to expected return

8. An example of an operating activity is: (Points : 2)

Paying wages

Purchasing office equipment

Borrowing money from a bank

Selling stock

Paying off a loan

9. Which accounting assumption assumes that all accounting information is reported monthly or yearly? (Points : 2)

Business entity assumption

Monetary unit assumption

Value assumption

Cost assumption

Time period assumption

10. Distributions of assets by a business to its stockholders are called: (Points : 2)

QUESTION 1 The knowledge of financial accounting can assist people with decisions such as whether to extend credit to a business. True False 0.2 points Saved QUESTION 2 Employees of a company would not have a reason to use the information provided by financial accounting. True False 0.2 points Saved

QUESTION 3 Financial accounting should be used for assessing the financial health of large organizations only. True False 0.2 points Saved

QUESTION 4 Financial accounting can be helpful for a job candidate who is assessing the financial future of a potential employer. True False 0.2 points Saved QUESTION 5 Lenders might use the information produced by financial accounting when making loan decisions. True False 0.2 points Saved

QUESTION 6 Credit analysts prefer not to use information provided by financial accounting, as it is not accurate. True False 0.2 points Saved

QUESTION 7 Financial accounting is helpful to investment advisors. True False 0.2 points Saved

QUESTION 8 Financial accounting is more useful than managerial accounting. True False 0.2 points Saved

QUESTION 9 The decision to buy or rent equipment is an example of a decision aided by managerial accounting. True False 0.2 points Saved

QUESTION 10 Which of the following statements is true of financial accounting? A. It is used by external parties to make investment decisions. B. It is used to make lease or purchase decisions. C. Managerial accounting is another name for financial accounting, D. It is primarily used to make internal decisions of a business. E. The effectiveness of advertising can be judged using financial accounting. 0.2 points Saved QUESTION 11 The charge for using money over time, often associated with long-term loans, is known as: A. interest. B. principal. C. distribution charge. D. cash dividend. E. preferred dividend. 0.2 points Saved QUESTION 12 Which of the following is a common feature of financial and managerial accounting? A. Both have same objectives B. Both are prepared according to U.S. GAAP C. Both are reported at year end in the annual report D. Both are analyzed by external users while making investment decisions E. Both are used by the management in making decisions 0.2 points Saved

QUESTION 13 Dividends are required to be paid to stockholders on an annual basis. True False 0.2 points Saved

QUESTION 14 An individual who owns one or more shares of stock in a corporation is an owner of that corporation. True False 0.2 points Saved

QUESTION 15 Corporations do not exist as separate legal entities apart from their owners. True False 0.2 points Save Answer

QUESTION 16 It is very difficult to buy or sell ownership shares of a corporation in a stock exchange. True False 0.2 points Saved

QUESTION 17 Stock markets match up investors who wish to buy shares with those who wish to sell them. True False 0.2 points Saved

QUESTION 18 Legal process by which owners of an organization apply to a state government to have it identified as an entity legally separate from its owners is called: A. stocking. B. filling. C. attributing. D. registration. E. incorporation. 0.2 points Saved

QUESTION 19 An advantage of ownership in a sole proprietorship over ownership in a corporation is: A. tax benefits. B. having a board of directors. C. the ability to raise capital through issuance of stock. D. separation of owner and business as legal entities. E. limited liability for debts. 0.2 points Saved

QUESTION 20 Who hires the management of a corporation? A. Stockholders B. Board of directors C. Creditors D. Government E. SEC 0.2 points Saved QUESTION 21 Inventory refers to the: A. excess amount paid for an asset over its fair value. B. intangible assets of a business. C. merchandise bought or manufactured for the purpose of selling. D. amount of net income reinvested by company for future operations. E. revenue generated from investment. 0.2 points Saved QUESTION 22 Investors use financial information to predict whether a: A. company will recruit more employees. B. company's stock price will increase C. company has invested in buildings. D. company will pay salaries. E. company's bond price will increase. 0.2 points Saved

QUESTION 23 Financial accounting can be compared to a portrait. True False 0.2 points Saved

QUESTION 24 Financial statements provide the form and structure for the conveyance of financial information that will create a likeness of the reporting organization. True False 0.2 points Saved

QUESTION 25 The information reported in financial statements must be exact for an investor to make any decision. True False 0.2 points Saved

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ACC 100 Lecture Notes - Lecture 2: Double-Entry Bookkeeping System, Retained Earnings, Negative Equity

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