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Chapter 01 Fundamentals of Accounting

This document summarizes key concepts from Chapter 1 of an accounting textbook. It includes exercises that define and differentiate between financial accounting, management accounting, and financial reporting. It also distinguishes the objectives and information needs of external investors versus internal managers. Additional exercises provide examples of management accounting information that supports decision-making, such as whether to develop new products or enter new markets. The chapter emphasizes that accounting information is used to make economic decisions and requires integrity and trust in those who prepare the information. Accountants must use professional judgment in determining things like how to record unusual transactions and whether specific situations require disclosure.

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Noy Ramos
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60 views

Chapter 01 Fundamentals of Accounting

This document summarizes key concepts from Chapter 1 of an accounting textbook. It includes exercises that define and differentiate between financial accounting, management accounting, and financial reporting. It also distinguishes the objectives and information needs of external investors versus internal managers. Additional exercises provide examples of management accounting information that supports decision-making, such as whether to develop new products or enter new markets. The chapter emphasizes that accounting information is used to make economic decisions and requires integrity and trust in those who prepare the information. Accountants must use professional judgment in determining things like how to record unusual transactions and whether specific situations require disclosure.

Uploaded by

Noy Ramos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Chapter 1

Introduction: Accounting and Its Environment


Exercises
Exercise 1
i

Financial accounting

Management accounting

Financial reporting

Financial statements

General purpose assumption

Integrity

Internal control

Public accounting

Bookkeeping

Exercise 2
a. As an investor in a company, your primary objective would be the return of
your investment in the future, as well as a return on your funds used by the
company during the period of investment. You would need information that
allowed you to assess the probability of those events occurring in the future.
You might also have certain nonfinancial objectives.
b. As a manager of the company, your objective would be to have information
that allows you to better manage the companyto make the best decisions
possible to enhance the value of the company.
c.

While there is information that would be equally important for investors and
managers, much of the information needed by the two groups is different. That
is why we study both financial accounting (information for external users) and
managerial accounting (information for internal users).

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Exercise 3
a. The primary purposes of managerial accounting, in hierarchical order (i.e.,
from general to specific) are as follows:
1. Information useful to help the enterprise achieve its goals, objectives,
and mission.
2. Information that is useful in assessing both the past performance and
future directions of the enterprise and information from external and
internal sources.
3. Information about decision-making authority, for decision-making
support, and for evaluating and rewarding decision-making performance.
b. The first is the most general and deals with managements responsibility in the
broadest senseto achieve the enterprises goals, objectives, and mission.
The second is more specific and talks about past performance and future
directions. The third is most specific and deals with information for a specific
purposeevaluating and rewarding decision-making performance.
c.

Examples of the kinds of decisions that are supported by management


accounting information are:

Whether to manufacture a new product.


Whether to move into a new geographic area.
How to more efficiently manage the enterprises resources.
How to reduce the costs of producing a product in order to be more
competitive.
What supplier can best meet the enterprises production scheduling.
How to better allocate resources internally to achieve the enterprises
objectives.

Exercise 4
a. People use accounting information to make economic decisions. If the
economy is to function efficiently, these decision makers must have
confidence in the information they are provided, and not think that perhaps
the information is being used to deceive them. In large part, decision makers
confidence in accounting stems from their confidence and trust in the people
who prepare this information.

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b. Accountants must rely upon their professional judgment in such matters as


determining (three required) (1) how to record an unusual transaction that is
not discussed in accounting literature, (2) whether or not a specific situation
requires disclosure, (3) what information will be most useful to specific
decision makers, (4) how an accounting system should be designed to
operate most efficiently, (5) the audit procedures necessary in a given
situation, (6) what constitutes a fair presentation, (7) whether specific
actions are ethical and are in keeping with the accountants responsibilities to
serve the publics interests.

Multiple Choice Questions


1.
2.
3.
4.
5.

c
a
c
b
a

6.
7.
8.
9.
10.

c
d
b
a
d

11. b
12. c

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