Financial Accounting Book Part 1 Exam
Questions with Correct Answers
Accounting - Answer-an information system that measures, processes, and
communicates financial information about an economic entity. it focus on the needs of
decision makers who use financial information, whether those decision makers are
inside or outside a business or other economic entity. it provide a vital service by
supplying the information decision makers need to make "reasoned choices among
alternative uses of scarce resources in the conduct of business and economic activities.
1. they measures business activities by recording data about them for future use. 2. the
data are stored until needed and then processed to become useful information. 3. the
information is communicated through reports to decision makers.
economic entity - Answer-a unit that exists independently, such as a business, a
hospital, or a governmental body.
business - Answer-A economic unit that aims to sell goods and services to customers at
prices that will provide an adequate return to its owners. like Wal-Mart Corp.
comprehensive discount store, Reebok international Ltd. Athletic footwear and clothing,
Best Buy Co. Consumer electronics, personal computers; Wendy's International Inc.
Food service, Starbucks Corp. Coffee, and Southwest Airlines Co. Passenger airline.
For example Toyota may meet the goal of profitability by selling many cars at a price
that earns a profit, but if its customers do not pay for their cars quickly enough to enable
Toyota to pay its suppliers and employees, the company may fail to meet the goal of
liquidity. If a company is to survive and be successful, it must meet both goals.
Profitability - Answer-The ability to earn enough income to attract and hold investment
capital.
Liquidity - Answer-The ability to have enough cash to pay debts when they are due.
Operating activities - Answer-Selling goods and services to customers, employing
managers and workers, buying and producing goods and services, and paying taxes
through more than 3,500 Drugstores and Pharmacies.
Investing activities - Answer-Spending the capital a company receives in productive
ways that will help it achieve its objectives. These activities include buying land,
buildings, equipment, and other resources that are needed to operate the business and
selling them when they are no longer needed. Invests Funds in Furniture, fixtures and
equipment; Improvements to buildings, and computer equipment.
Financing activities - Answer-Obtaining adequate funds, or capital, to begin operations
and to continue operating. There activities include obtaining capital/Funds from
, creditors, such as banks and suppliers, and from owners. They also include repaying
creditors and paying a return to the owners.
Performance measures - Answer-It indicate whether managers are achieving their
business goals and whether the business activities are well managed. These
performance measures must align with the goals of the business. For example, CVS,
like all other companies, considers earned income to be a measure of profitability and
cash flow to be a measure of liquidity. it measure for operating activities might be the
ratio of expenses to the revenue of the business. it measure for financing activities
might be the ratio money owed by the company to the total resources that it controls.
Management accounting - Answer-it provides internal decision makers who are charged
with achieving the goals of profitability and liquidity with information about financing,
investing, and operating activities. Mabagers and employees who conduct the activities
of the business need information that tells them how they have done in the past and
what they can expect in the future. For example, The Gap, a retail clothing business,
needs an operating report on each outlet that tells how much was sold at that outlet and
what costs were incurred, and it needs a budget for each outlet that projects the sales
and costs for the next year.
Financial accounting - Answer-it generates reports and communicates them to external
decision makers so they can evaluate how well the business has achieved its goals.
These reports are called financial statements. CVS, whose stock is traded on the New
York Stock Exchange, send its financial statements to its owners (called stockholders),
its banks and other creditors, and government regulators.
Financial statements - Answer-it report directly on the goals of profitability and liquidity
and are used extensively both inside and outside a business to evaluate the business's
success. it important for every person involved with a business to understand it. they
are a central feature of accounting and a primary focus of this book.
Bookkeeping - Answer-mechanical and repetitive; it is the process of recording financial
transactions and keeping financial records. it is a small---but important---part of
accounting.
Computer - Answer-an electronic tool used to collect, organize, and communicate vast
amounts of information with great speed. they can perform both routine bookkeeping
chores and complex calculations. Accountants were among the earliest and most
enthusiastic users of computers, and today they use computers in all aspects of their
work. they make it possible to create a management information system to organize a
business's many information needs.
Management information system (MIS) - Answer-it consists of the interconnected
subsystems that provide the information needed to run a business. it is the most
important subsystem because it plays the key role of managing the flow of economic
data to all parts of a business and to interested parties outside the business.
