 Hello! In this presentation, we will work multiple choice questions going through multiple choice questions related to key accounting terms and accounting equation related information. These will be a format that will be similar to many test questions for this type of subject. Starting with, first question. Primary financial accounting objectives are a. Provide financial information for internal users b. Provide financial information for external users c. Control company activities d. Provide cost-benefit analysis and e. Explain whether a business is profitable. Note that this is the type of question when we're thinking about the primary financial accounting objectives where we may consider there being more than one correct answer. We're basically looking for the most correct answer in that case. In this case, we're going to say that the most correct answer will be for external users. It's going to come up a lot. This is a common question. Who are the financial accounting? Who are the financial statements for? Primarily, they're for external users. Those outside the company. Those being the creditors. Those being the investors. Those being people like the IRS. We're geared towards those external users mainly because those are the people that are more dependent on the financial statements. So all the regulations that we put together usually are in keeping them in mind. Those external users. Those being the needs. The people that have a greater need for those type of regulations. So all the rules we think about really are for the external users. Note that, however, we'll be using a lot of the same information when running internal reports. So you may have thought that A, provide financial information for internal users was correct. And that's common because note we will be using the same information. But the internal users are not required to follow the rule. All the external accepted accounting principles, although they may do so in order to start off with those reports. But they're not really required to the internal users can manipulate the reports in whatever way they want. The financial statements, the financial accounting is really geared towards putting that information together in such a format that is standardized and regulated for those external users. And C says, control company activities. Not really the primary objective of the financial statements. Again, they might be used for that. That would be something done by management. But the primary objective is not for that for those external users. D, provide cost-benefit analysis. Again, we might be using that data in order to provide the analysis. But that would be something that the management internal users would do and we're focused here on external users. E, explain whether business is profitable. Again, that might be the we might be using them for that case and external users may be using them for that case as well as internal users. But the primary objective is for the external users information. So although that might be something they use it for, that would not be the all-encompassing reason for the financial statements. So provide financial information for external users. Next question. Accounting concept that assumes a business will remain in business has a long-term business objective and will not be going out of business soon. B, business entity. B, going concern assumption. C, cost concept. D, objectivity. E, reliability. These are going to be some types of assumptions that we just need to basically know when we look at the financial statements. One of those is that we're assuming when we consider the financial statements that the business will remain in business and has a long-term objective to be in business, we consider that the going concern assumption, which in this case is B, the going concern assumption. The business entity assumption typically means we're talking about a separate business entity. That is, of course, an important assumption that we have, but it's not the assumption we're looking for here. The business entity assumption meaning we have a separate business in that the books are kept separate from the books of say the owners and whatnot. It's a separate business entity. C was the cost concept. D, objectivity. That's going to be kind of an objective we have to be objectives and we want the financial statements to be done in accordance with a set of rules and objectivity being the sense that we kind of think of it like a third party an objective opinion or an objectively created financial statements. Reliability. That's one of the objectives of the financial statements for them to be reliable so that people can rely on them. However, be your correct answer for the going concern assumption being that assumption that assumes that the business will remain in business. Very important assumption. If the business is not going to remain in business, they need to disclose that because when we look at the financial statements, we're going to have a much different assessment about the company as to whether they believe they're going to be leaving soon. We assume their behavior will be much different if they're going to be in business for a year and then be out of business as opposed to if they have that long term goal. Our default assumption is that they have a long term goal to be a going concern assumption to be remaining in business for a long period of time. Next one. The private sector group having control setting generally accepted accounting principles is A, the AAA, B, FASB, C, the SEC, B, FASB is FASB, C, SEC, the SEC, letter D is the AICPA and E is the MBA. So note that we're talking here about the FASB or the FASB. When considering this hierarchy, note that we start to think that these financial statements are basically just a regulatory thing and they have no intrinsic purpose within the business world sometimes. Note that that's not the case. Obviously if we had no regulatory requirements we would still use a double entry accounting system it was generated on the private side not by a regulatory body but we had a need of course and we have a need to standardize that information so that external users can kind of compare the data and note that we're following the exact same rules because that really helps for the trust within the business and therefore we need to regulate but what we've done in essence is taken those best practices and put them into a standard form so that people can rely on them. That's typically done by the major rules we always go back to are going to be the generally accepted accounting principles gap and then the question is, well who makes gap? You can think of the FASB, the FASB financial accounting standards board, the answer B being the people who basically are in charge of creating the generally accepted accounting principles. Now it's important to note it's interesting to note as well that the FASB is a private sector group meaning it's basically a self run accounting within the accounting profession which is important because the profession does have a need and a want and a desire to self-regulate because that would be good for the profession. The SEC has some ultimate authority over regulating certain accounting practices but note that most of the authority is actually delegated to the private FASB financial accounting standards board to basically have the accountants self-regulate accountants so many of the other answers are not really applicable here so this is going to be the FASB is in charge of generally accepted accounting principles or generally in charge of creating or controlling and setting the gap generally accepted accounting principles Next question, a partnership A has unlimited liability for partners B is owned by one person, C is owned by stockholders, D is a separate legal entity and E is owned by the government Answer there, A has unlimited liabilities for partners. This partnership is going to be kind of similar to the sole proprietor. Note that the sole proprietor is very easy to form in that all you do is you can basically just start doing business and you're sole proprietor as long as you start acting like a business and start generating revenue. Partnership is pretty much the same way that two or more individuals start just generating revenue they are in essence a partnership and have certain liabilities including paying taxes. A partnership too is not a separate legal entity so it's not a separate legal entity meaning and for liability purposes that generally means that they're more susceptible to litigation so that's one so if for example if someone sued the partnership then they might be possible it's more easy for those individuals to go after personal assets rather than just the business assets. That's one of the major reasons for incorporating that liability protection. So the answer here a partnership A has unlimited liability, B is owned by one person obviously that's not correct because a partnership means two or more people that's the definition of a partnership. C says a part is owned by stockholders that of course would be a corporation and not a partnership B says a separate legal entity not a separate legal entity notice that we have a separate entity concept in terms of accounting keep that separate in your mind we will have a concept of a business assumption meaning we're going to keep the partnership books separate from the individuals books but that's not the same thing as a separate legal entity. Separate legal entity you can kind of think of it as like the partnership like a piece of paper just a not even an abstract thing not even a person basically having rights that we typically give to people such as owning assets owning property and that's not a partnership. E is owned by the government that's not true and next one if there are ethical concerns related to a business decision making process decision taking decision making process should A be agreed upon by everyone involved B avoid increasing doubt on the decision maker and decision process C reduce transparency of the decision making process D avoid explaining the reasoning for the decision or E avoid explaining the decision making process so once again if there are ethical concerns related to a business decision taking should and we're going to say the answer D avoid increasing doubt on the decision maker and decision process so clearly what we're trying to do if there's going to be ethical concerns we want to basically reassure the process make sure that the process is going well we want to avoid increasing the doubt on the decision maker and the decision process. A be agreed on by everyone involved that might be desirable but it's not necessarily going to happen that we're going to have total agreement so the fact that we don't have total agreement doesn't necessarily mean that something is wrong per se it's just obviously people could have disagreements for other reasons. C reduce transparency of the decision making process typically that's not a good idea and in order for us to increase the confidence in the process usually that by increasing transparency often times in terms of the process people want to know they may not agree with the decision people don't always agree with the decision that is made but if people feel that the process is fair and done well and done within reason then even if they don't agree with the ultimate decision they're often much more able to accept or go along with a thing that a decision is fair even if they don't agree with it depending on the process. So we typically want to show that process and see how the process is being set up and how it's formalized. D avoid explaining reasoning for the decision again that's kind of reducing the transparency and what we really want to do is increase the transparency. We don't want to give rationales or try to justify everything of the decision or try to deal with every kind of point on the decision but we do want to explain of course the reasoning and the process again that process and that reasoning being fair and transparent and kind of uniform impartial in some cases would be something that would be beneficial. E avoid explaining the decision making process again those are going to be together we want to try to explain the process to get to the decision doesn't mean everyone agrees to it but understanding the process on how we do it is important. We can even get to the right decision you know obviously and a decision that people agree with that people agree with the decision and they weren't told about the process involved in the process or don't think the process was fair even if a good decision was to happen they won't be happy you know people won't we won't be happy with it because the process and understanding the process and hopefully be involved in the process if you're supposed to is all a part of making everybody happy and so next one use the accounting equation to find the asset amount if equity is 250,000 and liabilities are 100,000 in this type of problem I would always write down the accounting equation we can abbreviate it as assets equaling liabilities plus equity I know that's not the most nice looking of things but I would always write it down and then put the algebra in there so that we can then solve for the algebra and even though there's only three numbers and we could probably do it in our head and just add and subtract it if you write it down you're much more likely not to add or subtract go in the wrong way and note that if you do go the wrong way that the answer that is incorrect will almost surely be there so any combination of the numbers presented will probably be one of the answers given you that false sense of security so obviously here we would just plug in the equity of 250,000 I'm going to drop the zeroes, three zeroes and the liabilities of the 100,000 again I'm going to drop the zeroes and equals the assets and then we can go ahead and do the math and we would get the 350,000 so you just want to make sure you're not going the wrong way of course and get in the 150,000 they're going to give you all the types of combinations there they're going to try to provide that false sense of security when you do the math a bit wrong so just make sure to write down the equation every time as much as possible