Chapter 1 A Framework for Financial Accounting REVIEW QUESTIONS Question 1-1 (LO 1-1) Accounting is the language of business. Whereas a basic math class might involve adding, subtracting, and solving for unknown variables, accounting involves learning to measure business transactions and communicating those measurements in a format that is generally understood by decision makers. Question 1-2 (LO 1-1) Those interested in making decisions about a company include investors, creditors, customers, suppliers, managers, employees, competitors, regulators, tax authorities, and local communities. Question 1-3 (LO 1-1) Financial accounting seeks to measure business activities of a company and to communicate those measurements to external parties for decision-making purposes. The two primary external, or outside the firm, users of financial accounting information are investors and creditors. Managerial accounting deals with the methods accountants use to provide information to an organization’s internal users, that is, its own managers. Question 1-4 (LO 1-1) The two primary functions of financial accounting are to measure business activities of a company and to communicate information about those activities to investors and creditors for decision-making purposes. Question 1-5 (LO 1-2) The three basic business activities are financing, investing, and operating activities. Financing activities are transactions that raise cash needed to operate the business. Investing activities typically include the purchase or disposal of long-term resources such as land, buildings, equipment, and machinery. Operating activities include the primary operations of the company, providing products and services to customers and the associated costs of doing so, like utilities, taxes, advertising, wages, rent, and maintenance. Question 1-6 (LO 1-2)