Actg
CHAPTER 1
The Accounting Environment: What Is Accounting and Why Is It Done?
QUESTIONS
Q1-1.
A variety of answers are possible but the essential elements are the production and communication of information so that stakeholders can make decisions.
Q1-3
Economic consequences are the impacts on wealth caused by choosing among available alternatives in business. Accounting has economic consequences because how an entity does its accounting (policy choices, estimates) can affect the wealth of different stakeholders. For example, you may be able to choose between two acceptable ways to account for an economic event. The choices may affect, for example, the amount of tax a company pays, bonuses managers receive or the price a business is sold for.
Q1-5
Accounting information can provide insight into how much cash you are retaining/spending as well as cash that could be available to repay debt. It can also provide information on items that could be pledged as security (if the lender requires this).
Q1-7.
Different stakeholders make different decisions that require different information. For example, lenders want to know whether the company will be able to repay its loans but the Canada Revenue Agency (CRA) wants to know the amount of taxes that should be paid for the current year. Much of the information the lenders would request, such as who are the company’s major customers and the amounts they owe the company, would be of no interest to the CRA. The CRA is simply interested in compliance with the income tax act.
Q1-9
It’s not possible to make a general statement about which stakeholder is most important—the answer depends on the entity and its needs. A private company with no external stakeholders would likely focus on CRA as the most important stakeholder. For a private company in need of a loan would a prospective lender would be most important. From a particular stakeholder’s perspective he/she is the most important stakeholder.
Q1-11.
The Accounting Environment: What Is Accounting and Why Is It Done?
QUESTIONS
Q1-1.
A variety of answers are possible but the essential elements are the production and communication of information so that stakeholders can make decisions.
Q1-3
Economic consequences are the impacts on wealth caused by choosing among available alternatives in business. Accounting has economic consequences because how an entity does its accounting (policy choices, estimates) can affect the wealth of different stakeholders. For example, you may be able to choose between two acceptable ways to account for an economic event. The choices may affect, for example, the amount of tax a company pays, bonuses managers receive or the price a business is sold for.
Q1-5
Accounting information can provide insight into how much cash you are retaining/spending as well as cash that could be available to repay debt. It can also provide information on items that could be pledged as security (if the lender requires this).
Q1-7.
Different stakeholders make different decisions that require different information. For example, lenders want to know whether the company will be able to repay its loans but the Canada Revenue Agency (CRA) wants to know the amount of taxes that should be paid for the current year. Much of the information the lenders would request, such as who are the company’s major customers and the amounts they owe the company, would be of no interest to the CRA. The CRA is simply interested in compliance with the income tax act.
Q1-9
It’s not possible to make a general statement about which stakeholder is most important—the answer depends on the entity and its needs. A private company with no external stakeholders would likely focus on CRA as the most important stakeholder. For a private company in need of a loan would a prospective lender would be most important. From a particular stakeholder’s perspective he/she is the most important stakeholder.
Q1-11.