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1111111111

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CHAPTER 1

ANSWERS TO QUESTIONS

1. Yes, this is correct. Virtually every organization and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not-for-profit organizations must use accounting information to operate effectively.

3. (a) Internal users are those who plan, organize, and run the business and therefore are officers and other decision makers. (b) To assist management, managerial accounting provides internal reports. Examples include financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash needs for the next year.

5. No, this is incorrect. Bookkeeping usually involves only the recording of economic events and therefore is just one part of the entire accounting process. Accounting, on the other hand, involves the entire process of identifying, recording, and communicating economic events.

7. The monetary unit assumption requires that only transaction data that can be expressed in terms of money be included in the accounting records. This assumption enables accounting to quantify (measure) economic events.

9. The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and (3) corporation.

11. The basic accounting equation is Assets = Liabilities + Owner’s Equity.

13. The liabilities are: (b) Accounts payable and (g) Salaries and wages payable.

15. Business transactions are the economic events of the enterprise recorded by accountants because they affect the basic accounting equation. (a) The death of the owner of the company is not a business transaction as it does not affect the basic accounting equation. (b) Supplies purchased on account is a business transaction as it affects the basic accounting equation. (c) An employee being fired is

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