Questions and Answers of Accounting

Q: What do we mean when we say that accounting is a means rather than an end?
Q: Accounting is sometimes described as the language of business. What is meant by this description?
Q: What kinds of organizations, in addition to businesses, use accounting information?
Q: What is the primary distinction between financial accounting and managerial accounting?
Q: Describe the relatioliship among the accounting process, accounting information, decision makers, and economic activities.
Q: What are some examples of nonfinancial information that is often used by management in performing its duties?
Q: What is an accounting system and what is the primary objective of such t system?
Q: What do we mean when we say that an accounting system needs to be “cost-effective”?
Q: What are the- three basic functions of every accounting -system?
Q: Who designs and installs accounting systems?
Q: Generally describe and give several examples of external users of accounting information?
Q: What are the two primary -external groups to which financial accounting information is directed?
Q: What do we mean when we say that investors and creditors are interested in a company’s “cash flow prospects”?
Q: When you invest your savings in a company, what is the difference between the return on your investment and the return of your investment?
Q: Going from general to specific, what are the three primary objectives of financial accounting information?
Q: What are time three primary financial statements with which we communicate financial accounting- information?
Q: Do the terms financial reporting and financial statements mean the same thing? Explain
Q: Is externally reported financial information always precise and accurate?
Q: What do we mean when we say that financial accounting information is “general-purpose?
Q: How does management’s explanation enhance the usefulness of financial accounting information?
Q: What are several examples of internal, management-prepared information that ordinarily would not be communicated externally?
Q: What are some examples of internal users of accounting information?
Q: What is meant by a database warehousing approach for the creation of useful accounting information for internal management?
Q: What are the three primary ways enterprises use their management accounting information?
Q: Why does management accounting information need to be timely?
Q: Is management accounting information primarily historical or future oriented? How does that compare with financial accounting information?
Q: How does accounting information assist management in measuring efficiency and effectiveness?
Q: How is management accounting information a means to an end?
Q: Why is- it important for accounting information to have the quality of integrity?
Q: What is meant by generally accepted accounting principles, and how do these principles add to the integrity of financial accounting information?
Q: What is an internal control structure, and how does it add to the integrity of accounting information?
Q: What is an audit, and how does it add to the integrity of accounting information?
Q: Differentiate broadly between financial accounting and managerial accounting.
Q: Differentiate between “financial statements” and “financial reporting.”
Q: How does accounting help the capital allocation process?
Q: What are some of the major challenges facing the accounting profession?
Q: What are the major objectives of financial reporting?
Q: Of what value is a common set of standards in financial accounting and reporting?
Q: What is the likely limitation of “general-purpose financial statements”?
Q: In what way is the Securities and Exchange Commission concerned about and supportive of accounting principles and standards?
Q: What was the Committee on Accounting Procedure, and what were its accomplishments and failings?
Q: For what purposes did the AICPA in 1959 create the Accounting Principles Board?
Q: Distinguish among Accounting Research Bulletins, Opinions of the Accounting Principles Board, and Statements of the Financial Accounting Standards Board.
Q: If you had to explain or define “generally accepted accounting principles or standards,” what essential characteristics would you include in your explanation?
Q: In what ways was it felt that the statements issued by the Financial Accounting Standards Board would carry greater weight than the opinions issued by the Accounting Principles Board?
Q: How are FASB discussion memoranda and FASB exposure drafts related to FASB “statements”?
Q: Distinguish between FASB “statements of financial accounting standards” and FASB “statements of financial accounting concepts.”
Q: What is Rule 203 of the Code of Professional Conduct?
Q: Rank from the most authoritative to the least authoritative, the following three items: FASB Technical Bulletins, AICPA Practice Bulletins, and FASB Standards.
Q: The chairman of the FASB at one time noted that “the flow of standards can only be slowed if (1) producers focus less on quarterly earnings per share and tax benefits and more on quality products,
Q: What is the purpose of FASB Staff Positions?
Q: Explain the role of the Emerging Issues Task Force in establishing generally accepted accounting principles.
Q: What is the purpose of the Governmental Accounting Standards Board?
Q: What are some possible reasons why another organization, such as the Governmental Accounting Standards Board, should not issue financial reporting standards?
Q: What are the sources of pressure that change and influence the development of accounting principles and standards?
Q: Some individuals have indicated that the FASB must be cognizant of the economic consequences of its pronouncements. What is meant by “economic consequences”? What dangers exist if politics play
Q: If you were given complete authority in the matter, how would you propose that accounting principles or standards should be developed and enforced?
Q: One writer recently noted that 99.4 percent of all companies prepare statements that are in accordance with GAAP. Why then is there such concern about fraudulent financial reporting?
Q: What is the “expectations gap”? What is the profession doing to try to close this gap?
Q: The Sarbanes-Oxley Act was enacted to combat fraud and curb poor reporting practices. What are some key provisions of this legislation?
Q: A number of foreign countries have reporting standards that differ from those in the United States. What are some of the main reasons why reporting standards are often different among countries?
Q: How are financial accountants challenged in their work to make ethical decisions? Is technical mastery of GAAP not sufficient to the practice of financial accounting?
Q: Financial Accounting) Omar Morena has recently completed his first year of studying accounting. His instructor for next semester has indicated that the primary focus will be the area of financial
Q: (Objectives of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez,
Q: (Accounting Numbers and the Environment) Hardly a day goes by without an article appearing on the crises affecting many of our financial institutions in the United States. It is estimated that the
Q: (Need for GAAP) Some argue that having various organizations establish accounting principles is wasteful and inefficient. Rather than mandating accounting rules, each company could voluntarily
Q: (AICPA’s Role in Rule-Making) One of the major groups involved in the standard-setting process is the American Institute of Certified Public Accountants. Initially it was the primary organization
Q: (FASB Role in Rule-Making) A press release announcing the appointment of the trustees of the new Financial Accounting Foundation stated that the Financial Accounting Standards Board (to be appointed
Q: (Politicization of GAAP) Some accountants have said that politicization in the development and acceptance of generally accepted accounting principles (i.e., rule-making) is taking place. Some use the
Q: (Models for Setting GAAP) Presented below are three models for setting GAAP.1. The purely political approach, where national legislative action decrees GAAP.2. The private, professional approach,
Q: (GAAP Terminology) Wayne Rogers, an administrator at a major university, recently said, “I’ve got some CDs in my IRA, which I set up to beat the IRS.” As elsewhere, in the world of accounting
Q: (Accounting Organizations and Documents Issued) Presented below are a number of accounting organizations and types of documents they have issued. Match the appropriate document to the organization
Q: (Accounting Pronouncements) Standard-setting bodies have issued a number of authoritative pronouncements. A list is provided on the left, below, with a description of these pronouncements on
Q: (Rule-Making Issues) When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller,
Q: (Securities and Exchange Commission) The U.S. Securities and Exchange Commission (SEC) was created in 1934 and consists of five commissioners and a large professional staff. The SEC professional
Q: (Financial Reporting Pressures) Presented below is abbreviated testimony from Troy Normand in the WorldCom case. He was a manager in the corporate reporting department and is one of five individuals
Q: (Rule-Making Process) In 1973, the responsibility for developing and issuing rules on accounting practices was given to the Financial Accounting Foundation and, in particular, to an arm of the
Q: (GAAP and Economic Consequences) The following letter was sent to the SEC and the FASB by leaders of the business community.Dear Sirs:The FASB has been struggling with accounting for derivatives and
Q: Beverly Crusher, a new staff accountant, is confused because of the complexities involving accounting standard-setting. Specifically, she is confused by the number of bodies issuing financial
Q: The following comments were made at an Annual Conference of the Financial Executives Institute (FEI). There is an irreversible movement towards the harmonization of financial reporting throughout the
Q: As a newly enrolled accounting major, you are anxious to better understand accounting institutions and sources of accounting literature. As a first step, you decide to explore the FASB’s Statement
Q: What is a conceptual framework? Why is a conceptual framework necessary in financial accounting?
Q: What are the primary objectives of financial reporting as indicated in Statement of Financial Accounting Concepts No. 1?
Q: What is meant by the term “qualitative characteristics of accounting information”?
Q: Briefly describe the two primary qualities of useful accounting information.
Q: According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on the needs of the users of financial statements. Explain the level of
Q: What is the distinction between comparability and consistency?
Q: Why is it necessary to develop a definitional framework for the basic elements of accounting?
Q: Expenses, losses, and distributions to owners are all decreases in net assets. What are the distinctions among them?
Q: Revenues, gains, and investments by owners are all increases in net assets. What are the distinctions among them?
Q: What are the four basic assumptions that underlie the financial accounting structure?
Q: The life of a business is divided into specific time periods, usually a year, to measure results of operations for each such time period and to portray financial conditions at the end of each
Q: What is the basic accounting problem created by the monetary unit assumption when there is significant inflation? What appears to be the FASB position on a stable monetary unit?
Q: The chairman of the board of directors of the company for which you are chief accountant has told you that he has little use for accounting figures based on cost. He believes that replacement values
Q: When revenue is generally recognized? Why has that date been chosen as the point at which to recognize the revenue resulting from the entire producing and selling process?
Q: Magnus Eatery operates a catering service specializing in business luncheons for large corporations. Magnus requires customers to place their orders 2 weeks in advance of the scheduled events. Magnus
Q: What is the difference between realized and realizable? Give an example of where the concept of realizable is used to recognize revenue.
Q: What is the justification for the following deviations from recognizing revenue at the time of sale?(a) Installment sales method of recognizing revenue.(b) Recognition of revenue at completion of
Q: Jane Hull Company paid $135,000 for a machine in 2005. The Accumulated Depreciation account has a balance of $46,500 at the present time. The company could sell the machine today for $150,000. The
Q: Three expense recognition methods (associating cause and effect, systematic and rational allocation, and immediate recognition) were discussed in the text under the matching principle. Indicate the

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