Chapter 1-PFA-2025

Multiple Choice

Which of the following best describes accounting as a process?

• A system for measuring and communicating financial information

• A way to store business documents

• A method for hiring employees

• A process for marketing products

Open Ended

Why is it important for businesses to have a framework for financial accounting?

Multiple Choice

Which of the following decisions might be made by people about companies, according to Illustration 1.1?

• Investors decide whether to invest in stock.

• Managers decide production and expansion.

• Customers decide whether to purchase products.

• All of the above.

Open Ended

Explain how financial accounting information supports the decisions made by different groups of people about companies, as shown in Illustration 1.1 and the explanation of financial accounting.

Open Ended

Describe the relationship between accountants, companies, and external decision makers as depicted in the framework for financial accounting.

Multiple Select

Which of the following are functions of financial accounting?

• Measuring business activities

• Communicating information to external users

• Setting company policies

• Providing information for decision making

Multiple Choice

Which of the following is NOT typically considered an operating activity for a company?

• Paying rent for office space

• Selling products to customers

• Paying dividends to stockholders

• Paying employee salaries

Multiple Select

Which of the following activities are directly related to the calculation of net income?

• Revenues

• Expenses

• Dividends

• Assets

Multiple Choice

Why is it important for a company to maintain an accurate record of its assets, liabilities, stockholders’ equity, revenues, expenses, and dividends?

• To comply with government regulations

• To create a record of the activities of a company

• To increase the company’s profits

• To reduce the number of employees

Multiple Choice

Which type of business organization provides limited liability to its owners?

• Corporation

• Sole proprietorship

• Partnership

• All of the above

Multiple Choice

The total resources of a company are referred to as:

• Liabilities.

• Revenues.

• Assets.

• Expenses.

Open Ended

Explain the importance of assets for a company's future operations. Give examples of what can be considered assets.

Multiple Choice

The amounts recorded when the company sells products or provides services to customers are referred to as:

• Liabilities.

• Revenues.

• Assets.

• Expenses.

Open Ended

Describe the difference between assets and revenues using examples from a company's operations.

Open Ended

Financial statements are periodic reports published by the company for the purpose of communicating a company’s business activities to those outside of the company. Name two primary financial statements and briefly describe their purpose.

Multiple Choice

Which of the following is NOT a primary financial statement?

• Income statement.

• Statement of stockholders’ equity.

• Statement of cash flows.

• Statement of retained earnings.

Multiple Choice

What does the income statement primarily compare to assess a company's ability to earn a profit?

• Revenues and expenses

• Assets and liabilities

• Cash inflows and outflows

• Dividends and retained earnings

Open Ended

Explain how net income is calculated and how it is used in the statement of stockholders’ equity.

Multiple Select

Which of the following are considered expenses in the income statement for Eagle Soccer Academy?

• Rent expense

• Supplies expense

• Dividends

• Salaries expense

Open Ended

Why is it incorrect to include dividends as an expense in the income statement, and how should dividends be reported instead?

Multiple Choice

In the statement of stockholders’ equity, what is subtracted from net income to calculate the change in retained earnings?

• Dividends

• Expenses

• Common stock

• Revenue

Open Ended

What questions do you still have about the framework for financial accounting or the role of accounting as a measurement/communication process?

Open Ended

How does accounting function as both a measurement and a communication process in the context of financial accounting?