Question 1

The following is a list of users of accounting information:

a) Managers
b) Regulators
c) Employees
d) Shareholders
e) Lenders
f) Suppliers
g) External auditors

Instructions
Identify the above users as internal (I) or external (E) using the
following format:
Internal (a) Managers

External (b) Regulators

External (c) External auditors

Internal (d) Shareholders

External (e) Lenders

External (f) Suppliers

Question 2
Each of the following independent situations represents a violation of accounting principles: highlight or
place an X beside the principle that is violated.

1. It is now the end of 2021 and Stella Co. is preparing its annual financial statements. The
company has been experiencing severe financial difficulties and management anticipates that the
company will cease operations in 2022 but this is not disclosed in the financial statements.
Going Concern Assumption Reporting Entity concept

Explanation: The company’s management anticipates that it would cease operation because of
financial difficulties, therefore it should be reported in the financial statements that the company
will no longer be a going concern.

2. Fritz Schmitz runs a small business. All receipts from the business are deposited into Fritz’s
personal bank account and all Fritz’s expenses, both personal and business, are paid out of this
same account. Fritz makes no attempt to maintain separate records for the business.
Going Concern Assumption Reporting Entity concept

Explanation: According to Reporting Entity concept, the personal transactions, liabilities and
assets should not be recorded in the business’s financial statements. Therefore, seperate records
for the business should be maintained.
3. Dean has a mining company that is very profitable. Over the past few years, Dean has been very
good at maintaining his business records and books. However, Dean’s wife has recently been
using the company account to pay for her personal expenses. She informed Dean that since he
owns the company all the money earned will go to him anyway and therefore using the company
account or their personal bank account makes no difference.
Going Concern Assumption Reporting Entity concept

Explanation: According to Reporting Entity concept, the personal transactions, liabilities and
assets should not be recorded in the business’s financial statements. Therefore, seperate records
for the business should be maintained.