Chapter 1
COMPLETION
Budgeting Summarizing Shareholders/ stockholders Accountants
Recording Merchandising GAAP Analyzing
Manufacturing Financial accounting Auditing Interpreting
1. Looking at events that have taken place and thinking about how they affect a business is
called ____________________.
Analyzing
2. Rules developed to provide procedures and guidelines to be followed in the accounting and
reporting process are called ____________________.
GAAP
3. A business that buys a product from another business to sell to customers is called a(n)
____________________
Merchandising business.
4. Entering financial information about events into the accounting system is called
____________________.
Recording
5. ____________________
Accountants design the accounting information system and focus on analyzing
and interpreting information
6. The owners of a corporation are called ____________________
Shareholders/ stockholders
7. ____________________
Summarizing is bringing the various items of information together to determine a
result.
8. ____________________
Budgeting is the process by which accountants help managers develop a
financial plan.
9. A business that makes a product to sell is called a(n) ____________________
Manufacturing business.
10. ____________________
Financial accounting includes preparing various reports and financial statements and
analyzing operating, investing, and financing decisions.
11. ____________________
Auditing involves the application of standard review and testing procedures to
be certain that proper accounting policies and practices have been followed.
12. ____________________
Interpreting is deciding the meaning and importance in various reports, which
may include ratio analysis to help explain how pieces of information relate to one another.
MATCHING
Match the terms with the definitions.
a. accountant
b. accounting
c. accounting clerk
d. analyzing
e. auditing
f. bookkeeper
g. budgeting
h. Certified Public Accountant
i. classifying
j. controller
k. corporation
l. cost accounting
m. financial accounting
n. generally accepted accounting principles
o. internal auditing
p. interpreting
q. manufacturing business
r. merchandising business
s. para-accountant
t. partnership
u. recording
v. reporting
w. service business
x. sole proprietorship
y. summarizing
z. tax accounting
1. Looking at events that have taken place and thinking about how they affect the business.
2. Records, sorts, and files accounting information.
3. A business that buys products to sell.
4. Reviewing the operating and accounting control procedures adopted by management to make sure the
controls are adequate and being followed; assuring that accurate and timely information is provided.
5. Deciding the meaning and importance of the information in various reports.
6. Procedures and guidelines developed by the Financial Accounting Standards Board to be followed in
the accounting and reporting process.
7. Includes preparing various reports and financial statements and analyzing operating, investing, and
financing decisions.
8. Determining the cost of producing specific products or providing services and analyzing for cost
effectiveness.
9. A type of ownership structure in which stockholders own the business. The owners' risk is usually
limited to their initial investment and they usually have very little influence on the business decisions.
10. Sorting and grouping similar items together rather than merely keeping a simple, diary-like record of
numerous events.
11. The process in which accountants help managers develop a financial plan.
12. Reviewing and testing to be certain that proper accounting policies and practices have been followed.
13. A system of gathering financial information about a business and reporting this information to users.
14. A type of ownership structure in which one person owns the business.
15. A business that provides a service.
16. Bringing various items of information together to determine a result.
17. Entering financial information about events affecting the company into the accounting system.
18. A type of ownership structure in which more than one person owns the business.
19. Telling the results of the financial information.
20. A business that makes products to sell.
21. Focusing on tax planning, preparing tax returns, and dealing with the Internal Revenue Service and
other governmental agencies.
22. Generally supervises the work of accounting clerks, helps with daily accounting work, and
summarizes accounting information.
EXERCISE
Accounting Principles
Business entity Full disclosure Materiality
Consistency Going concern Monetary unit
Cost Matching Recognition
Required: Identify whether each of the following situations represents a violation or a correct
application of GAAP, and which principle is relevant in each instance.
Violation of Historical cost
a. A small storage shed was purchased from a home supply store at a discount sale price of
$5,000 cash. The clerk recorded the asset at $6,000, which was the regular price.
b. One of the business partners of a small architect firm continually charges the processing of
his family vacation photos to the business firm. Violation of Business Entity
c. An owner of a small engineering business, operating as a proprietorship from his home
office, also paints and sells watercolour paintings in his spare time. He combines all the
transactions in one set of books. Violation of Business Entity
d. ABS Consulting received cash of $6,000 from a new customer for consulting services that
ABS is to provide over the next six months. The transaction was recorded as a credit to
[Link] of Revenue Recognition
e. Tyler Tires, purchased a shop tool for cash of $20 to replace the one that had broken earlier
that day. The tool would be useful for several years, but the transaction was recorded as a
debit to shop supplies expense instead of to shop equipment (asset). Correct of Materiality
f. Embassy Lighting, a small company operating in Canada, sold some merchandise to a Correct of
customer in California and deposited cash of $5,000 US. The bookkeeper recorded it as a Monetary
credit to revenue of $7,250 CAD, which was the Canadian equivalent currency at that time. unit
g. An owner of a small car repair shop purchased shop supplies for cash of $2,200, which will
be used over the next six months. The transaction was recorded as a debit to shop supplies
(asset) and will be expensed as they are used. Correct of Matching
h. At the end of each year, a business owner looks at his estimated net income for the year
and decides which depreciation method he will use in an effort to reduce his business
income taxes to the lowest amount possible. Violation of Consistency
i. XYZ is in deep financial trouble and recently was able to obtain some badly needed cash
from an investor who was interested in becoming an equity partner. However, a few days
ago, the investor unexpectedly changed the terms of his cash investment in XYZ company
from the proposed equity partnership to a long-term loan. XYZ does not disclose this to
their bank, who they recently applied to for an increase in their overdraft line-of-credit.
Violation of Full Disclosure