Accounting Chapter 1 Questions

1. Differentiate broadly between financial accounting and managerial accounting.
Financial accounting is the process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties.
Managerial accounting is the process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control , and evaluate a companys operations.
Financial accounting is for both internal and external parties and managerial accounting is for the managers to analyze financial reports to see where the company stand.

2. Differentiate between “financial statements” and “financial reporting.” Financial statements consist
The balance sheet
Income statement
The statement of cash flows
The statement of owners’ or stockholders’ equity
Financial reporting is the financial information a company provides to help users with capital allocation decisions about the company.

3.How does accounting help the capital allocation process?
Accounting help the capital allocation process because it promotes productivity, encourages innovation and provides an efficient and liquid market for buying and selling securities and obtaining and granting credit.

4.What is the objective of financial reporting?
To provide financial information about reporting entity that is useful to present and potential equity investors, lenders, and other creditors

5.Brefly explain the meaning of decision-usefulness in the context of financial reporting.
The meaning of decision-usefulness in the context of financial reporting is that in a financial report, investors find the information in the report useful for making decisions.

6. Of what value is a common set of standards in financial accounting and reporting?
Without a common set of standards companys would have to develop its own standards for readers which would be impossible because readers would have to familiarize theirselves with each company’s standards

7.What is the likely limitation of “general-purpose financial statements”?
The likely limitation of general-purpose financial statement is that users of financial accounting statements have both coninciding and conflicting needs for information of