Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities. Classify the following activities as part of the identifying (I), recording (R), or communicating (C) aspects of accounting.

____1. Analyzing and interpreting reports. ____5. Preparing financial statements.

____2. Presenting financial information. ____6. Seeing revenues generated from a service.

____3. Keeping a log of service costs. ____7. Observing employee tasks behind a product.

____4. Measuring the costs of a product. ____8. Registering cash sales of products sold.

Part A. Identify the following questions as most likely to be asked by an internal (I) or an external (E) user of accounting information.

____1.What are reasonable payroll benefits and wages?

___2. Should we make a five-year loan to that business?

___3. What are the costs of our product's ingredients?

___4. Do income levels justify the current stock price?

___5. Should we spend additional money for redesign of our product?

___6. Which firm reports the highest sales and income?

___7. What are the costs of our service to customers?

Part B. Identify the following users of accounting information as either an internal (I) or an external (E) user.

___1. Research and development director ___5. Distribution managers

___2. Human resources director ___6. Creditors

___3. Nonexecutive employee ___7. Production supervisors

___4. Shareholders ___8. Purchasing manager

Many accounting professionals work in one of the following three areas:

A. Financial accounting B. Managerial accounting C. Tax accounting

Identify the area of accounting that is most involved in each of the following responsibilities:

____1. Internal auditing ____5. Investigating violations of tax laws

____2. External auditing ____6. Planning transactions to minimize taxes

____3. Cost accounting ____7. Preparing external financial statements

____4. Budgeting ____8. Reviewing reports for SEC compliance

Match each of the numbered descriptions with the term or phrase it best reflects. Indicate your answer by writing the letter for the term or phrase in the blank provided.

A. Audit C. Ethics E. SEC G. Net income

B. GAAP D. Tax accounting F. Public accountants H. IASB

______1. An examination of an organization's accounting system and records that adds credibility to financial statements.

______2. Amount a business earns in excess of all expenses and costs associated with its sales and revenues.

______3. An accounting area that includes planning future transactions to minimize taxes paid.

______4. Accounting professionals who provide services to many clients.

______5. Principles that determine whether an action is right or wrong.

Assume the following role and describe a situation in which ethical considerations play an important part in guiding your decisions and actions:

a. You are an accounting professional with audit clients that are competitors in business.

b. You are an accounting professional preparing tax returns for clients.

c. You are a manager with responsibility for several employees.

d. You are a student in an introductory accounting course.

The following describe several different business organizations. Determine whether the description refers to a sole proprietorship (SP), partnership (P), or corporation (C).

______a. Micah Douglas and Nathan Logan own Financial Services, a financial services provider.

Neither Douglas nor Logan has personal responsibility for the debts of Financial Services.

______b. Riley and Kay own Speedy Packages, a courier service. Both are personally liable for the debts of the business.

______c. IBC Services does not have separate legal existence apart from the one person who owns it.

______d. Trent Company is owned by Trent Malone, who is personally liable for the company's debts.

______e. Ownership of Zander Company is divided into 1,000 shares of stock.

______f. Physio Products does not pay income taxes and has one owner.

______g. AJ Company pays its own income taxes and has two owners.

Match each of the descriptions with the principle or assumption it best reflects. Enter the letter for the appropriate principle or assumption in the blank space next to each description.

A. General accounting principle E. Specific accounting principle

B. Cost principle F. Matching (expense recognition) principle

C. Business entity assumption G. Going-concern assumption

D. Revenue recognition principle H. Full disclosure principle

______1. A company reports details behind financial statements that would impact user's decisions.

______2. Financial statements reflect the assumption that the business continues operating.

______3. A company records the expenses incurred to generate the revenues reported.

______4. Derived from long-used and generally accepted accounting practices.

______5. Every business is accounted for separately from its owner or owners.

______6. Revenue is recorded only when the earnings process is complete.

______7. Usually created by a pronouncement from an authoritative body.

______8. Information is based on actual costs incurred in transactions.