Solution Manual for Fundamentals of Financial Accounting 5th CANADIAN by Phillips

Solution Manual for Fundamentals of Financial Accounting 5th CANADIAN by Phillips Chapter 1 Business Decisions and Financial Accounting ANSWERS TO QUESTIONS 1. Accounting is a system of analyzing, recording, and summarizing the results of a business’s activities and then reporting them to decision makers. 2. An advantage of operating as a sole proprietorship, rather than a corporation, is that it is easy to establish. Another advantage is that income from a sole proprietorship is taxed only once in the hands of the individual proprietor (income from a corporation is taxed in the corporation and then again in the hands of the individual proprietor). A disadvantage of operating as a sole proprietorship, rather than a corporation, is that the individual proprietor can be held responsible for the debts of the business. 3. Financial accounting focuses on preparing and using the financial statements that are made available to owners and external users such as customers, creditors, and potential investors who are interested in reading them. Managerial accounting focuses on other accounting reports that are not released to the general public, but instead are prepared and used by employees, supervisors, and managers who run the company. 4. Financial reports are used by both internal and external groups and individuals. The internal groups are comprised of the various managers of the business. The external groups include investors, creditors, governmental agencies, other interested parties, and the public at large. 5. The business itself, not the individual shareholders who own the business, is viewed as owning the assets and owing the liabilities on its balance sheet. A business’s balance sheet includes the assets, liabilities, and shareholders’ equity of only that business and not the personal assets, liabilities, and equity of the shareholders. The financial statements of a company show the results of the business activities of only that company. 6. (a) Operating – These activities are directly related to earning profits. They include buying supplies, making products, serving customers, cleaning the premises, advertising, renting a building, repairing equipment, and obtaining insurance coverage. (b) Investing – These activities involve buying and selling productive resources with long lives (such as buildings, land, equipment, and tools), purchasing investments, and lending to others. (c) Financing – Any borrowing from banks, repaying bank loans, receiving contributions from shareholders, or paying dividends to shareholders are considered financing activities.