Accounting Fundamentals

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Date Submitted: 05/17/2012 08:12 AM

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Chapter 1 Eye Openers

1. What is the objective of most businesses?

The objective of most businesses is to earn a profit.

2. What is the difference between a manufacturing business and a service business? Is a restaurant a manufacturing business, a service business, or both?

The difference between a manufacturing business and a service business is that a manufacturing business makes something, a product, and then sells it to a customer. A service business doesn’t make a product, but instead offers some kind of help, or service, to its customers. I think that a restaurant is a service business because although a restaurant makes a product, food, they are providing a service by cooking and serving the food.

3. Name some users of accounting information.

Some users of accounting information are Managers and Employees, which are internal users, and Customers, Creditors, Investors, and the Government, which are external users.

4. What is the role of accounting in business?

The role of accounting in business is to provide information for managers to use in operating the business.

5. Why are most large companies like Microsoft, PepsiCo, Caterpillar, and AutoZone organized as corporations?

Most large companies are organized as corporations because they require a large amount of resources to operate. By being a corporation, these companies are under state or federal statutes as a separate legal taxable entity.

6. Barry Bergan is the owner of Elephant Delivery Service. Recently, Barry paid interest of $3000 on a personal loan of $40,000 that he used to begin the business. Should Elephant Delivery Service record the interest payment? Explain.

Elephant Delivery Service should not record the interest payment because even though the money was used for the company, it was taken out as a personal loan by Mr. Bergan. According to the business entity concept, the business is viewed as an entity separate from its owners, creditors, or other businesses, so anything...