Cornerstones Of Financial Accounting, First Canadian Edition Solution Manual

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1.Accounting is a system for identifying, measuring, recording, and communicating financialinformation about an organization’s activities to permit informed decisions by users of theinformation. Bookkeeping is the process—made up of mechanical “steps”—of recordingtransactions and maintaining accounting records. While bookkeeping is part of accounting,accounting is viewed as the complete information system that communicates the economicactivities of a company to interested parties. Accounting is often referred to as the “languageof business” because it communicates information about economic activities of a companythat help people make decisions.2.Accounting information is demanded or needed by decision-makers both inside and outside thebusiness to provide information about business activities and finances so that informed decisionscan be made. Five groups that create the demand for accounting information and their uses ofaccounting information are described below.(1)Managers need accounting information to plan and make decisions about the business(e.g., predicting the consequences of their actions and deciding on which actions to take)and to control its operations (e.g., evaluating the effectiveness of their past decisions).(2)Employees use accounting information about their employer to aid in planning their careers(e.g., judging the future prospects of the company).(3)Investors (owners) need accounting information about a business to evaluate the futureprospects of a business and to decide where to invest their money.(4)Creditors (lenders) need accounting information to decide whether or not to lend money orextend credit to a business.(5)Governments need accounting information about businesses to determine taxes owed bybusinesses, to implement a variety of regulatory objectives, and to make national economicpolicy decisions.3.An accounting entity is a company that has an identity separate from that of its owners andmanagers and for which accounting records are kept. There are three main forms thataccounting entities take: a sole proprietorship, a partnership, and a corporation.4.A sole proprietorship is a business entity owned by one person. A partnership is a business entityowned jointly by two or more individuals. Proprietorships and partnerships are not legally separatefrom the personal affairs of the owners. That is, the owners are responsible for the debts of thebusiness. A corporation is a separate legal entity formed by one or more persons calledshareholders. A corporation is legally separate from the affairs of its owners, which limits theshareholders’ legal responsibility for the debts of the business to the amount that the shareholdersinvested in the business. Corporate shareholders may pay more taxes than owners of soleproprietorships or partnerships. The majority of business in Canada is conducted by corporations.1ACCOUNTING AND THEFINANCIAL STATEMENTSDISCUSSION QUESTIONS

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