EXERCISE 1.

1

1. According to Stan Snyder, CPA and expert bean counter, accounting is the art of recording,
summarizing, reporting, and analyzing financial transactions. Although accounting follows the
same principles and rules as bookkeeping, an accountant can design a system that will capture
all of the details necessary to satisfy the needs of the business.
2. It is often described as the language of business because it is the medium of communication
between a business firm and the various parties interested in its financial activities. It is the tool,
which enables firms to communicate to various interested third parties certain quantitative
information about the financial activities of a business.
3. Users of financial accounting information may be both internal and external to the organization.
Internal users refer to managers who use accounting information in making decisions related to
the company's operations. External users, on the other hand, are not involved in the operations
of the company but hold some financial interest.
4. It is significant because it provides enough information for users to assess the value of a
company for themselves. With no knowledge of this, users have no way to monitor the
effectiveness of their accounting department.
5. The first form of business organization according to ownership is the Sole Proprietorship. A sole
proprietorship is a business owned by only one person. The owner faces unlimited liability;
meaning, the creditors of the business may go after the personal assets of the owner if the
business cannot pay them. The second form is Partnership. A partnership is a business owned by
two or more persons who contribute resources into the entity. The partners divide the profits of
the business among themselves. The third one is Corporation. A corporation is a business
organization that has a separate legal personality from its owners. Ownership in a stock
corporation is represented by shares of stock. The board of directors, an elected group from the
stockholders, controls the activities of the corporation.
6. The three types of activity that can be performed by business organizations are Financing,
Investing, and Operating.
7. Generally Accepted Accounting Principles (GAAP) is a framework of accounting standards, rules
and procedures defined by the professional accounting industry. GAAP is exceedingly useful
because it attempts to standardize and regulate accounting definitions, assumptions, and
methods.
8. GAAP standards ensure that all companies have the same methods for reporting financial
information. Also, it allows investors to understand how the company is reporting its income
and expenses.
9. The different basic accounting concepts are assets, liabilities, equity, income and expenses.
10. Assets is the group of things that you own or anything else that has convertible value.
Liabilities is the group of things on which you owe money or anything else which you must pay
back at some time. Equity is the same as "net worth." It represents what is left over after you
subtract your liabilities from your assets. It can be thought of as the portion of your assets that
you own outright, without any debt. Income is the payment you receive for your time, services
you provide, or the use of your money. Expenses refer to money you spend to purchase goods
or services provided by someone else.