Stakeholders Who Use Accounting Information Include ______.

Question: Explain the term stakeholder. Distinguish between stakeholders with a direct versus an indirect interest in the companies that issue financial reports.

Answer:

Question: Why is accounting called the language of business?

Answer: Accounting provides information that is useful in making decisions by all participants in the market for resource goods and services, both profit-oriented and nonprofit oriented. Because accounting’s role is so important, it is often called the language of business.

Question: What is the primary mechanism used to allocate resources in the United States?

Answer: Competition for resources in the open market

Question: In a business context, what does the term market mean?

Answer: A market is a group of people or organizations that come together for the purpose of exchanging items of value.

Question: What market trilogy components are involved in the process of transforming resources into

finished products?

Answer: The market for business resources involves three distinct participants: consumers, conversion agents, and resource owners.

Question: Give an example of a financial resource, a physical resource, and a labor resource.

Answer: Financial Resource: money

Physical Resource: natural resources, buildings, machinery and equipment, furniture and fixtures.

Labor Resource: includes both intellectual and physical labor; i.e. employees

Question: What type of income or profit does an investor expect to receive in exchange for providing

financial resources to a business? What type of income does a creditor expect from providing

financial resources to an organization or business?

Answer: Investors expect a distribution of the business’s profits as a return on their financial investment (capital allocation).

Creditors lend financial resources to businesses and receive interest as a return or profit on the loan.

Question: How do financial and managerial accounting differ?

Answer: Financial accounting provides information that is useful to external resource providers.

Managerial accounting provides information that is useful to managers in operating an organization (i.e., internal users).

Question: Describe a not-for-profit or nonprofit enterprise. What is the motivation for this type of entity?

Answer: Not-for-profit or nonprofit entities provide goods or services to consumers for humanitarian or special reasons rather than to earn a profit for owners.

Question: What are the U.S. rules of accounting information measurement called?

Answer: generally accepted accounting principles (GAAP)