Test Bank for Survey of Accounting, 7th Edition by Thomas Edmonds.pdf

,ACCESS Test Bank for Survey of Accounting 7th Edition Edmonds
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SOLUTIONS TO QUESTIONS - CHAPTER 1 n n n n n




1. Stakeholders are the parties that use accounting information.
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Stakeholders with a direct interest include owners, managers, creditor
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s, suppliers, and employees. These individuals are directly affected by
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what happens to the business.
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Stakeholders with an indirect interest include financial analysts, brok
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ers, attorneys, government regulators, and news reporters. These ind
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ividuals use information in the financial reports to advise and influenc
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e their clients.
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Students may give many different answers under the above categorie
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s depending on their level of experience in business.
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All students are direct users of accounting information related to tuitio
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n and fees, financial aid, and account balances.
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2. Accounting provides information that is useful in making decisions
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by all participants in the market for resource goods and services, b
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oth profit- n


oriented and nonprofit oriented. Because accounting’s role is so im
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portant, it is often called the language of business.
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3. The primary mechanism used to allocate resources in the U.S. is c
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ompetition for resources in the open market. n n n n n n




4. A market is a group of people or organizations that come together f
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or the purpose of exchanging items of value.
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5. The market for business resources involves three distinct particip
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ants: consumers, conversion agents, and resource owners. See Exh
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ibit 1- n


1 that illustrates how market trilogy is involved in resource alloca
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tion.




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Surveyn7en–nChaptern1n –nSolutionsnManual

6. Financial Resource: money n n




Physical Resource: natural resources (i.e. land, forests, mine ore, petrol
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eum, etc.), buildings, machinery and equipment, furniture and fixtures
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Labor Resource: includes both intellectual and physical labor; i.e. emplo
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yees

7. Investors expect a distribution of the business’s profits as a return o
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n their financial investment (capital allocation).
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Creditors lend financial resources to businesses and receive interest as
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a return or profit on the loan.
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8. Financial accounting provides information that is useful to external r
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esource providers. n




Managerial accounting provides information that is useful to managers
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in operating an organization (i.e., internal users).
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9. Not-for-
profit or nonprofit entities provide goods or services to consumers f
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or humanitarian or special reasons rather than to earn a profit for ow
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ners. For example, certain not-for-
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profit entities allocate resources to provide for research of diseases
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or social/environmental welfare; others allocate resources to promo
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te the arts and provide education.
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10. The U.S. rules of accounting information measurement are called
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generally accepted accounting principles (GAAP).n n n n




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, ACCESS Test Bank for Survey of Accounting 7th Edition Edmonds
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Surveyn7en–nChaptern1n –nSolutionsnManual

11. Careers in public accounting consist of providing services to the gen
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eral public from a public accounting firm. These services include audi
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ting, tax, and consulting services. Careers in private accounting usua
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lly consist of working for a specific company (which would be a client
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of the public accounting firm) providing a wide variety of services to
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the company including recording transactions, preparing financial st
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atements, internal auditing, and others. n n n n




12. The three elements of the accounting equation are:
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1. Assets
2. Liabilities
3. Stockholders’ Equity n




Accounts are specific items or subclassifications of the elements.
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Examples of accounts include cash, land, and accounts payable.
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13. Assets, the economic resources of a business, are used to produce e
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arnings.

14. The assets of a business belong to that business entity and there
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may be claims on the assets. Claims on the assets belong to res
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ource providers. n




15. Creditors are individuals and/or institutions that have provided good
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s or services to the business which are not yet paid for, or loaned mo
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ney to the business. These parties have first claim to the assets of th
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e business, and the owners have a residual interest in the assets.
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16. The term “liabilities” is used to describe creditors' claims on the
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assets of a business. n n n




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