INTRODUCTION TO ACCOUNTING REVIEW QUESTIONS 1. The purpose of accounting is to provide financial information about a business to individuals and organizations. 2. Four user groups normally interested in financial information about a business are owners, managers, creditors, and government agencies. 3. The six major steps of the accounting process are listed below. a. Analyzing is looking at events that have taken place and thinking about how these affect the business. This first step in the accounting process usually occurs when the business receives some type of information, such as a bill, that needs to be properly entered into the business's records. This first step also involves deciding if the piece of information should result in an accounting entry or not. b. Recording is entering financial information into the accounting system. c. Classifying is sorting and grouping like items together. d. Summarizing is the aggregation of many similar events to provide information that is easy to understand. e. Reporting is telling the results. f. Interpreting is deciding the importance of information in the various reports. 4. Generally accepted accounting principles (GAAP) are the rules that businesses must follow when preparing financial statements. 5. FASB takes the following steps to develop an accounting standard: 1. The issue is placed on the Board’s agenda. 2. After researching the issue, a Preliminary Views document is issued. 3. Public hearings are held. 4. An Exposure Draft is issued. 5. An Accounting Standards Update is issued which amends the FASB Accounting Standards Codification. 6. The International Accounting Standards Board. 7. The three types of ownership structures are listed below. a. A sole proprietorship is owned by one person. The owner assumes all risks for the business. The advantage is that the owner can make all of the business decisions. b. A partnership is owned by more than one person. Partners assume the risks for the business, and their assets may be taken to pay creditors. An advantage of a partnership is that owners share risks and decision making. A disadvantage is that partners may disagree about the best