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(ACCT102)Chap001.pdf
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Chapter 1

Accounting In Business

QUESTIONS
1. The purpose of accounting is to provide decision makers with relevant and reliable information to help them make better decisions. Examples include information for people making investments, loans, and business plans.
2. Service businesses include: Standard and Poors, Dun & Bradstreet, Merrill Lynch, Southwest Airlines, CitiCorp, Humana, Charles Schwab, and Prudential. Businesses offering products include Nike, Reebok, Gap, Apple Computer, Ford Motor Co., Philip Morris, FUBU, and Coca-Cola.
3. The licensing and monitoring process helps ensure that a high standard of professional service is available and delivered.
4. Technology and its ability to process vast amounts of data have increased the demand for individuals knowledgeable in accounting analysis and interpretation. Demand exists for people who can design accounting systems, supervise their operation, analyze complex transactions, and interpret reports. Demand also exists for people who can effectively use computers to prepare and analyze accounting reports. Technology will never substitute for qualified people with abilities to prepare, use, analyze, and interpret accounting information.
5. External users and their uses of accounting information include: (a) lenders for measuring the risk and return of loans; (b) shareholders for assessing the return and risk in acquiring shares; (c) directors for overseeing management; (d) employees for judging employment opportunities; and (e) analysts for assessing investment potential. Other users are auditors, consultants, officers, regulators, unions, suppliers, and appraisers.
6. Business owners (and managers) use accounting information to help answer questions such as: What resources does an organization own? What debts are owed? How much income is earned? Are expenses reasonable for the level of sales? Are customers accounts being promptly collected?
7. The internal role of accounting is to serve the organizations internal operating functions. It does this by providing useful information for internal users in completing their tasks more effectively and efficiently. By providing this information, accounting helps the organization reach its overall goals.
8. Individuals responsible for marketing activities are likely interested in information such as sales volume, advertising costs, promotion costs, salaries of sales personnel, and sales commissions.

9. Accounting professionals offer many services including auditing, management advice, tax planning, business valuation, and money management.
10. Accounting is described as a service activity because it serves decision makers by providing information to help them make better business decisions.
11. Government accounting professionals perform many of the same tasks as other accounting professionals. These include general accounting, budgeting, cost accounting, and financial reporting. They are also often involve