Learning Questions and Answers for Financial Accounting, Lesson 1.1 – Mastery Level

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1

To begin, read each of these questions and determine how many you know already. Based on the Guided Reading Cards, you might know some and maybe all. Mark any of these questions where your knowledge is not yet certain.

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Then, immediately following the questions, you will find the questions again but this time with the answers. Read the question. Read the answer. It might be necessary to read each question and answer two or three times to make sure you have absorbed the content.

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Finally, go back to the very beginning and read the questions again. This time you should get many more (or possibly all) of the questions correct. The goal is to be able to answer them all without a prompt. Repeat this cycle until you feel that you can explain each answer to your parents or to a friend. You want to keep working until your understanding is so clear that you could teach the material to someone else.

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(1) – What is financial accounting?

(2) – In general, what do decision-makers want to receive from financial accounting?

(3) – Why is a knowledge of financial accounting important for a student?

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(4) – Who is most likely to make use of the financial accounting information provided by a company such as McDonald's?

(5) – What are the most typical decisions made with the aid of financial accounting information?

(6) – Am I correct that financial accounting only relates to two decisions being made about an organization? One concerns the buying and selling of ownership shares and the other is about making loans and giving credit. Are there no other uses for financial accounting and the information that it provides?

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(7) – What is managerial accounting?

(8) – Financial accounting deals with two general decision categories. How many decisions can be addressed through the use of managerial accounting?

(9) – Assume you manage a small company that operates three donut shops in the Richmond, Virginia, area. What are some of the decisions that must be made using managerial accounting information?

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(10) – Which is more important to know – financial accounting or managerial accounting?

(11) – Financial accounting rules are said to be tightly structured. That typically means that every company has to follow the rules in much the same way. Why is financial accounting so structured?

(12) – Managerial accounting is a much less structured system of reporting than financial accounting. Why are there are no absolute rules in managerial accounting?

(13) – Which is more fun to learn – financial accounting or managerial accounting?

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Okay, that should be a good, strong start. After you read those questions, go through them again (next) with the answers included.

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Once you have done that, go back to the list of questions and make sure you can successfully answer each question. This course is not about merely reading. This course is about understanding and being able to use that knowledge.

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(1) – What is financial accounting?

(1) – What is financial accounting? Financial accounting encompasses the rules and the structure for the communication of specified information about a business or other organization so that a person or an entity can make a wide decision about that organization. The key words here are “communication of specified information.”

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(2) – In general, what do those decision-makers want to receive from financial accounting?

(2) – In general, what do those decision-makers want to receive from financial accounting? Decision-makers rely on the information provided by financial accounting to assess the organization’s financial health and future prospects. In class, I sometimes say that financial accounting is as close as we can come to having a crystal ball. No one can predict the future with certainty but financial accounting should allow decision-makers to evaluate the potential risks and rewards for that organization.

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(3) – Why is a knowledge of financial accounting important for a college student?

(3) – Why is a knowledge of financial accounting important for a college student? The more a person understands about the rules that underlie financial accounting, the better able that person is to understand and evaluate the information provided by a particular organization. The assumption is that college students will eventually be decision-makers (if not already so) and will need to understand the information provided to them so that they are able to make wise decisions. No one succeeds by ignoring information and making dumb decisions.

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(4) – Who is most likely to make use of the financial accounting information provided by a company such as McDonald's?

(4) – Who is most likely to make use of the financial accounting information provided by a company such as McDonald's? Anyone who is interested in the financial health and future prospects of McDonald's can make excellent use of the financial accounting information provided by that company (often on its website on the Internet). Traditionally, financial accounting is associated with decision-makers who exist outside of the organization: a banker in San Diego, for example, or a farmer in Kansas who wants to make an investment. Although financial accounting is created for the benefit of people outside the organization, it is readily available in most cases for anyone to analyze.

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(5) – What are the most typical decisions made with the aid of financial accounting information?

(5) – What are the most typical decisions made with the aid of financial accounting information? (1) - For a great many companies, their ownership shares (also called capital stock shares) can be bought and sold on stock exchanges or in private transactions. Probably no decision-makers are more keenly interested in financial accounting information than those decision-makers who buy and sell the ownership shares of a company. Whether a person is buying the capital shares of The Coca-Cola Company or selling the shares of Netflix, financial accounting information should always play a central role in that decision. (2) – Other decision-makers are trying to decide whether to grant credit to the organization. The organization could be seeking a loan or asking a supplier to provide merchandise on credit. Will the organization be able to pay off these debts as they come due is an essential question that many decision-makers face on a daily basis.

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(6) – Am I correct that financial accounting only relates to two decisions being made about an organization? One concerns the buying and selling of ownership shares and the other is about making loans and giving credit. Are there no other uses for financial accounting and the information that it provides?

(6) – Am I correct that financial accounting only relates to two decisions being made about an organization? One concerns the buying and selling of ownership shares and the other is about making loans and giving credit. Are there no other uses for financial accounting and the information that it provides? Those decisions are so incredibly essential in the modern business world that fortunes can easily be won and lost on just those two. We could likely come up with other uses for financial accounting but no one should understate the importance of those two decisions.

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(7) – What is managerial accounting?

(7) – What is managerial accounting? Managerial accounting is the process within an organization for gathering and reporting information for internal decision-making.

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(8) – Financial accounting deals with two general decision categories. How many decisions can be addressed through the use of managerial accounting?

(8) – Financial accounting deals with two general decision categories. How many decisions can be addressed through the use of managerial accounting? Inside of a company there are likely to be hundreds if not thousands of decisions that must be made almost every day. The goal of managerial accounting is to (a) provide the needed information (b) to the appropriate decision-makers (c) whenever they are ready to make a decision. The type of information and its complexity will likely vary from decision to decision.

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(9) – Assume you manage a small company that operates three donut shops in the Richmond, Virginia, area. What are some of the decisions that must be made using managerial accounting information?

(9) – Assume you manage a small company that operates three donut shops in the Richmond, Virginia, area. What are some of the decisions that must be made using managerial accounting information? How many donuts need to be produced each day? How much should the company charge for each donut? Should a new type of donut be offered to customers? Should a new store be opened? Should advertising be on television or on Facebook? How much should workers be paid? What benefits should be given to employees? How much should be paid for a new donut-making machine? The number of decisions to be made with the assistance of managerial accounting information would be a very long list. These decisions can come and go in almost a random fashion.

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(10) – Which is more important to know – financial accounting or managerial accounting?

(10) – Which is more important to know – financial accounting or managerial accounting? Some people love the idea of investing in ownership stock or earning money by granting loans and credit. Financial accounting knowledge is essential for them. Other individuals love the thought of managing a business and creating wealth by building up the size and scope of the organization. Managerial accounting knowledge is essential for them. It is not an either-or decision. Both types of accounting are extremely important in their own particular way. The knowledge of one does not limit the knowledge of the other.

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(11) – Financial accounting rules are said to be tightly structured. That typically means that every company has to follow the rules in much the same way. Why is financial accounting so structured?

(11) – Financial accounting rules are said to be tightly structured. That typically means that every company has to follow the rules in much the same way. Why is financial accounting so structured? The decision-makers who use financial accounting to evaluate a company like Procter & Gamble are located all over the world. Their knowledge levels can be vastly different. They often have no other way to get essential information except through financial accounting. The accountants are very aware of the two specific decisions that the decision-makers are likely to make and what information is helpful. If each company did financial accounting in its own particular manner, the confusion would be enormous. The only way for such a wide array of users to understand what they are seeing is to set rules that everyone will follow. Thus, for the most part, Procter & Gamble and Johnson & Johnson follow the same financial accounting rules. Decision-makers are much more likely to understand what they are seeing.

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(12) – Managerial accounting is a much less structured system of reporting than financial accounting. Why are there are no absolute rules in managerial accounting?

(12) – Managerial accounting is a much less structured system of reporting than financial accounting. Why are there are no absolute rules in managerial accounting? Managerial accounting is created for individuals working inside a company. The information needs to be created to fit the specific decision that is being made and the individuals who are going to make use of that information. It is a tailor-made system (tailored for the users and tailored for the decision) rather than being for the general use of the public as a whole. Furthermore, because it is within the organization, the decision-makers can always ask for clarification or additional information if needed. A tight structure simply is not required for managerial accounting as will be seen all through our coverage of financial accounting which attempts to provide information that is useful to the world as a whole in order that two decision categories can be addressed wisely.

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(13) – Which is more fun to learn – financial accounting or managerial accounting?

(13) – Which is more fun to learn – financial accounting or managerial accounting? I know this will sound like the words of a nerd but learning should be fun because it shows you how the world works and helps you to succeed within that world. If you are working at a donut shop and want to earn a big bonus for doing well, managerial accounting is essential. If you have some extra cash and want to decide what company might prosper in the future, you will love having an understanding of financial accounting.