Albrecht Ch 1 SM 2PP.docx

Albrecht Ch 1 SM 2PP.docx

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AlbrechtCh1SM2PP

CHAPTER1

DISCUSSIONQUESTIONS

1.Thethreefunctionsofanaccountingsystemareto

（1）analyzetransactions,

（2）handleroutinebookkeepingtasks,and（3）structureinformationsoitcanbeusedtoevaluatetheperformanceandhealthofabusiness.

2.Theobjectiveofdecisionmakingistodetermineanappropriatecourseofaction.Theessentialelementsinthedecision-makingprocessgenerallyincludethefollowing:

problemidentification,accumulationandanalysisoffacts,considerationofalternativecoursesofaction,formulationofajudgment,andaction.Accountingassistsinthisprocessbyprovidingandinterpretingmanyofthefacts（thefinancialdata）tobeconsideredinmakingdecisions.

3.Manypersonaldecisionsinvolvetheuseofaccountingdata.Someexamplesof

student-relateddecisionsfollow:

a.Whethertoborrowmoneyfromauniversityorfromabankfortuitionassistance.

b.Whethertobuyorleaseacar.

c.Whethertorentortobuyahousewhilegoingtoschool.

d.Whethertoinvest$200onanelaboratedinnerdate.

e.Whethertoputanewsetoftiresonthecarforaspringvacationtrip.

f.Whethertoinvestsummerearningsincertificatesofdepositorinthestockmarket.

g.Whethertotradeinthe10-speedbicycleonanew21-speedmodel.

h.Whethertobuyaseasonskipassorpayasyougo.

i.Whethertoeatatthecafeteriaorathome.

j.Whethertopaycashforanewstereoortopurchaseitonatimecontract.

k.Whethertopurchasealaptopcomputerforschoolwork.

l.Whethertogotoaprivateorastateschool,givendifferenttuitionandothercoststructures.

m.Whethertoliveinthedormitoryorcommutetoschool.

Obviously,thislistisnotexhaustive.Furthermore,selectingfromamongthesealternatives—likemakingmostdecisions—involvesmanyfactorsbesidesaccountingconsiderations.

4.Thetermbusinessreferstothegeneralprocessofproducingordistributinggoodsorprovidingservices.Italsomayrefertoanentitythathasbeenorganizedtoearnaprofit.

5.Accountingisconsideredthe“languageofbusiness”becauseitprovidesthemeansofaccumulating,measuring,andrecordingthesuccessesandfailuresofbusinessoperations.Accountingalsoprovidesamechanismforcommunicatingthefinancialresultsofbusinessestothedecisionmakers（e.g.,investors,creditors,managers,government,laborunions,etc.）.

6.Internalandexternalusersofaccountinginformationhavesimilarneedsinthatbothgroupsarerequiredtomakefinancialdecisions.Managers（internalusers）arerequiredtomakemanyday-to-daydecisionsinrunningtheirorganizations;theygenerallyneedmoredetailedandmoretimelyinformation.Theinformationsuppliedtomanagerscanbeinanyformthatfitsthespecificquestionsandcircumstancesfacingthemanager.Investorsandcreditors,theprimaryexternalusers,needsummarizeddatatoassistinmakinginvestingandlendingdecisions.Theinformationsuppliedtoexternalusersshouldfollowgenerallyacceptedaccountingprinciples（GAAP）sothattheinformationisconsistentandcomparableand,therefore,moreusefulfordecisionmaking.

7.Generallyacceptedaccountingprinciples（GAAP）areaccountingstandardsrecognizedbytheaccountingprofessionandthebusinesscommunity.Thesestandardsmustbefollowedwhenpreparingfinancialstatementsforexternalusers.OnlywhenconceptsandprinciplesproveusefulovertimearetheyincorporatedintoGAAP.

Currently,theFinancialAccountingStandardsBoard（FASB）issuesStatementsofFinancialAccountingStandards（SFAS）andInterpretationsofSFASafterextensivereviewanddiscussionwithgroupsinvolvedinpreparingandusingexternalreports.

ThepurposeofGAAPistoensureconsistentapplicationofaccountingprinciplesinpreparingexternalfinancialreports.Thus,GAAPallowscomparabilityamongfirmsandprovidesusersofexternalreportswiththefoundationforsounddecisionmaking.

8.Financialreportsarepreparedprimarilyforexternalusers,mainlyinvestorsandcreditors.Itisimportantthatthefinancialreportsofdifferentcompaniesbebasedonthesamesetofgenerallyacceptedaccountingprinciples（GAAP）sothattheresultsarecomparable.Thus,investorscanchoosefromamongseveralcompaniestheonesinwhichtheywishtoinvest,andlenderscanselectthoseentitiesthattheyfeelarecreditworthy.Iftherewerenogeneralguidelinesuponwhichfinancialreportswerebased,thereportsofcompanieswouldlikelybesodifferentthatcomparisonsandmeaningfulanalysisofcompanyresultswouldbeimpossible.

9.TheSecuritiesandExchangeCommission（SEC）holdslegalauthoritytosetaccountingstandards.TheSEC,however,delegatesitsauthoritytotheFinancialAccountingStandardsBoard（FASB）.TheSECcan,atanytime,takeovertheaccounting

standard-settingprocess.

TheInternalRevenueService（IRS）monitorsbusinessestoseeiftheyareincompliancewithitsrulesandregulations,whichmayormaynotcoincidewithgenerallyacceptedaccountingprinciples（GAAP）.

10.Whendifferentcountrieshavedifferentaccountingstandards,theabilitytocomparefinancialstatementsacrosscountriesbecomesextremelydifficult.Somecountriesprohibitcertainaccountingprocedures,whileothercountriesallowawidevarietyofaccountingalternatives.Asapotentialinvestor,thesedifferencesmakethecomparabilityofresultsincreasinglydifficult.Asthepresidentofamultinationalcompany,youwouldhavedifficultycomparingyourcompany’sperformancetotheperformanceofforeigncompetitors’reportingusingdifferentaccountingstandards.

11.AccountantsareresponsibletothepublicandthecompaniesthattheyworkfortoensurethatfinancialstatementsareinaccordancewithGAAPandarereportedinanunbiasedmanner.Thus,accountantsmustmaintainthereputationofbeingethicaltomeettheirprofessionalresponsibilities.

12.No.Althoughtheroleofaccountantsmaychangeinthefuture,theneedforjudgment,whichisprovidedbyaccountants,willnotdecrease.Whiletechnologyhasaidedaccountantsintheeverydaybookkeepingtasks,computerscannotanalyzeandinterpretfinancialinformationasanaccountantcan.Inthefuture,accountantscouldberequiredtoperformallthefinancialtasksforabusiness.Theseincludetaxpreparation,auditing,andfinancialplanning.

13.Accountingisnecessarytomakewisefinancialdecisions.Almostwithoutexception,everyonewillbefacedwithsometypeofdecisionrequiringfinancialanalysis.Accountingprovidestheneededtoolstomakesounddecisions.Furthermore,inselectinginvestments,workingwithinthebusinessenvironment,andbudgetingforahousehold,accountingconceptscanproveveryuseful.

EXERCISES

Note:

BecauseChapter1isfairlygeneralandisintendedtobeabriefintroductiontoimportantaccountingconcepts,theseexercisescanbeusedmosteffectivelytoinitiateclassdiscussion.

E1–1（LO1）TheRoleandImportanceofAccounting

Everyorganization,regardlessofitssizeorpurpose,shouldhaveameansofmonitoringitsactivitiesandmeasuringhowwellitisaccomplishingitsobjectives.Accountingprovidessuchamechanismbyhelpingorganizationstodeterminetheoptimaluseofresourcesandtoanalyzethecostsandbenefitsofdecisionalternatives.Accountinghelpsaretailermakesuchdecisionsastowhichlinesofclothingtocarryandwhatpricestocharge.Numerousotherexamplesarepossible.

E1–2（LO1）BookkeepingIsEverywhere

Bookkeepingis“thepreservationofasystematic,quantitativerecordofanactivity.”Assuch,bookkeepingisappliedinmanysettings,notjustinmaintainingfinancialrecords.Thispointisillustratedwiththefollowingexamples:

a.YourcollegeEnglishclass.EventhoughmostEnglishprofessorsclaimthattheonlynumberstheyeverlookatareonthebottomsofthepagesofthebookstheyread,theymustusenumberstorecordperformanceonassignmentsandpapersinordertofairlyassignfinalgrades.

b.TheNationalBasketballAssociation.TheNBA—andsportsingeneral—isarecordkeeper’sdelight.Officialstatisticiansrecordeveryturnover,everyassist,everyfoul,everythree-pointattempt,etc.Inaddition,withteamsalwaysstrugglingtosignkeyplayersandstillremainunderthe“salarycap,”themostvaluableplayerinthefranchiseisoftentheaccountant.

c.Ahospitalemergencyroom.Mostemergencyroomshaveastatusboardwherethestatusofthepatientineachroomisposted.Thisensuresthateveryonecaneasilyseewherethehigh-riskpatientsaresothattheycanbegivenprioritytreatment.Inaddition,whenyoureceiveyourbillfromtheemergencyroom,yourealizethatsomeonehasbeendoingalotofbookkeeping.

d.Juryselectionforamajormurdertrial.Jurorpoolstypicallycomefromlistsofregisteredvoters.Thatlistmustbemaintained,arandomselectionmustbemade,andthepotentialjurorsmustbetrackedastheyreportforjuryduty.Therivallawyerteamsalsostudyallpotentialjurorsandrankthemastohowsympatheticeachmightbetotheteam’slegalarguments.

E1–2（LO1）（Concluded）

e.Fourcollegeroommatesonaweekendskiingtrip.Evenamongfriends,billsmustbesettledup.Noteverybillcanbeequallysplitatthetimeofpayment—conveniencestorecashiersdon’tlikefourpeoplecomingin,eachpayingforone-fourthofatankofgas.So,someonemusttrackwhopaysforwhatduringtheskiingtripsothatafairsettlementcanbereachedattheendofthetrip.

E1–3（LO1）AccountingInformationandDecisionMaking

ThefollowingitemsofinformationaretypicalofthosethatwouldhelpindecidingwhichtypesofcomputertosellandindeterminingtheprofitabilityofAutomatedSystems,Inc.: