Guided Readings for Financial Accounting, Lesson 1.1 – Mastery Level
These guided reading cards are designed to help you organize and review the subject matter and learn to understand financial accounting. The more you read through these cards, the better grasp you will have of this material.
Mark any of these cards that you feel are important for your later review.
These cards make use of many different techniques to introduce each
topic and help you understand financial accounting. Different students
learn best in different ways. Experiment with the types of learning
styles that are included here and then focus on the techniques that
work best for you. Individualize the instruction to mesh with your
Open your textbook to Chapter One. Start your study of Chapter One by watching the short video at the beginning of the chapter titled, “Introduction to Chapter One.”
This video provides you with an easy, quick overview of the entire
Now, read Section 1.1 of Chapter One of the textbook, “Making Good Financial Decisions about an Organization.” Consider how an understanding of financial accounting could benefit you. Think about a time now or in the future when you might need the knowledge contained in this course. Much of this material is known throughout the world of business. If the knowledge is common in business then (a) you need to learn it and (b) you are capable of learning it.
For these cards, you can see “both sides
at once” and then use the arrow to move from one card to the next. Or, you can set “front side first” and then use “click card to flip” if that seems more logical for you.
Q1. What is meant by the term “financial accounting?”
Financial accounting is the communication of financial information about an organization so that parties (usually outside parties) can make wise decisions about the organization. By reporting the organization’s past and present, financial accounting enables decision makers to anticipate the organization’s future.
Q2. In general, when a decision maker studies financial accounting information in order to make a wise decision about an organization, what is that party interested in discovering?
Financial accounting provides information that helps decision-makers judge the financial health and future prospects of an organization. Often, the decision-maker hopes to anticipate how the value of the organization will change over time. Will the size and value increase and, if so, how quickly? Or, put in another way, which organizations will be able to grow the fastest?
SUGGESTION: Do the first Test Yourself question in Section 1.1 of your Financial Accounting textbook (Version 3.1 by Hoyle, Skender, and Kratz). (The question starts, “James Esposito is...”) These questions are included at key points in the textbook to provide you with a chance to practice what you have read. Read the answer carefully to make sure you understand the information being covered.
Q3. What are the two most likely decisions that outsider parties make about an organization after studying financial accounting information?
First, some decision-makers study an organization to decide whether
either partial or complete ownership is a good idea. Should shares of
the ownership be bought or sold or retained?
Second, other decision-makers want to know whether to provide credit (such as give a loan or sell on credit) to the organization.
Will you ever need to make such decisions? Hopefully, the answer is a resounding, “YES!”
Q4. What is the difference between financial accounting and managerial accounting?
Financial accounting provides financial information about an organization as a whole. Most of those decision makers are outside of the company. They are trying to decide whether to (a) hold or obtain ownership shares or (b) provide a loan or credit. Managerial accounting provides information to address individual decisions mostly made by people inside the organization. With managerial accounting, there is no limit to the number of possible questions: what to pay workers, what to charge for a product, etc.?
SUGGESTION: Take a moment to do the second Test Yourself question in Section 1.1. (It starts, “Jane Winestone is…”) Read the question carefully and come up with your answer. Then read the answer and explanation. If you are correct, move on. If you miss the question, read the explanation carefully to understand what you missed and why.
Q5. Ms. Smith works for a company that owns and operates 23 donut shops in two states. The company is in the process of introducing a new type of chocolate donut to the market. Ms. Smith must set the sales price for these donuts. Is she more interested in receiving financial accounting information or managerial accounting information?
This decision is being made within the organization by an employee and is about one element of the operations and not the overall business entity. She should receive and use managerial accounting information to help her make the best possible decision on the pricing of the new donut. The managerial accounting information might be gathered for her alone because she is the one charged with this decision.
Q6. Mr. Thomas holds 100 ownership shares of the Delightful Donut Corporation. He purchased these shares for $18 per share two years ago. They are now selling for $61 per share on the New York Stock Exchange. He is trying to decide whether to buy more ownership shares or sell some or all of the shares he holds. Is he most likely to rely on financial accounting information or managerial accounting information?
Mr. Thomas is an outside party who is making a decision about this organization as a whole. For example, is it financially healthy? What are its future prospects? Will the company pay dividends in the future? What will happen to the price of the stock? These answers will help him make a decision about the stock ownership. He needs financial accounting information.
Within Section 1.1, you will find a subsection titled “Financial Accounting and Wise Decision Making.” In that area of the textbook, you will find a link to a short video titled, “Why Study and Learn Financial Accounting?” Write down the two or three most important pieces of information you discover in this video.