Exam (elaborations) NBST 515

How do public accountants differ from management accountants? - ANSWER management accountants work within a single company while public accountants work broader. What do public accountants do? - ANSWER Public accountants provide services such as tax planning and preparation, external auditing, and business consulting on topics such as employee compensation and benefits to clients on a fee basis. What do management accountants do? - ANSWER work within a single company, recording, and analyzing the financial information for their employer. They may do a variety of tasks including budgeting and cost and asset management. Who are the key users of the accounting information? - ANSWER Owners of businesses, Banks and other lenders, Employees, Suppliers, Government agencies (IRS and SEC) As a stake holder why is accounting information important to owners of businesses? - ANSWER They want to know whether their firms are generating an adequate return on their investment. As a stake holder why is accounting information important to banks and lenders? - ANSWER They want to know whether the organization will be able to repay its debts. As a stake holder why is accounting information important to Employees? - ANSWER They are interested in the financial performance of their company because it has an impact on their job security, pay, and pension plans. As a stake holder why is accounting information important to Suppliers? - ANSWER They want to be sure that the firm can pay for any supplies they provide on credit. As a stake holder why is accounting information important to the IRS and SEC, - ANSWER They require information from financial statements to ensure that the firm is meeting tax and reporting requirements. State the "accounting equation" - ANSWER Assets = Liabilities + Owners' Equity What are "assets' in the accounting equation - ANSWER the resources owned by a firm. These include the firm's cash, accounts receivable, inventory, machinery and equipment, buildings, land, and perhaps even intangible assets such as patents, copyrights and goodwill. What are "liabilities" in the accounting equation - ANSWER Liabilities are the claims that outsiders have against the firm's assets. They represent what the firm owes to outsiders. What is "owners equity" in the accounting equation - ANSWER Owners' Equity represents the claims of owners against the firm's assets. These are viewed as residual claims, since the claims of creditors come before those of owners. For a corporation the key elements of owners' equity would include common stock and retained earnings. Logic behind accounting equation - ANSWER based on the fact that firms must finance the purchase of their assets, and owners and non-owners are the only two sources of funding. The accounting equation tells us that the value of a firm's assets must equal the amount of financing provided by owners (as measured by owners' equity) plus the amount provided by creditors (as indicated by the firm's liabilities) to purchase those assets. How is the structure of the balance sheet related