Test your comprehension by writing your answer to these questions:

1. What two primary internal users rely on financial information? How do they use this information?
   ANSWERManagers use information to make decisions for the company. For example, a manager may ask whether the company should expand operations, how much to pay employees, whether to hire more employees, which supplier to purchase from, or how much to charge for a product or service.
   Employees use financial information to decide whether to stay at their current employment or work elsewhere. This decision will hinge on salary, opportunities for career progression, corporate culture, vacation time, and office location among other considerations.
2. How do governments use financial information? What types of decisions do they make?
   ANSWERGovernments use financial information to calculate taxes and subsidies. In Canada, companies pay income taxes, and the tax forms start with accounting profit (followed by lots of fun adjustments that you’ll see in your accounting for income tax course!). Companies also withhold and submit sales tax to the government (GST, PST, and HST) which is calculated and reported through a company’s accounting system.
3. Give three examples of economic transactions. Why does it matter that accountants tell the truth about these transactions?
   ANSWERStudent responses will vary. Sample economic transactions are buying a house, paying bills, buying and selling products, making investments, and recording taxes owing. When accountants tell the truth about transactions, it paints a picture of the economic reality of an entity. That means that users of financial information have the most transparent and honest information possible. With high-quality information, users can make the good and equitable decisions for themselves, their families, communities, and the entity itself.
4. What types of economic entities use accounting? Is knowledge of accounting only useful for corporate accounting?
   ANSWEREntities can include people, households, proprietorships, partnerships, and companies. A knowledge of accounting can help all entities make efficient financial decisions that impact all aspects of life. A household might ask whether they can afford to take a trip, whether they have enough savings in case of job loss, when to buy a house, or how much to invest in RRSPs to save for retirement.
5. Why is an accountant’s job important? Who do accountants protect?
   ANSWERThe role of accountants is to hold companies to account. If companies communicate through financial information, and accountants are responsible for the production and verification of this information, then the accounting profession (and the ethics, skill, and professionalism of accountants) is the glue that holds markets and society together. Accountants protect companies, investors, governments, employees, communities, and societies. We all benefit from accounting and from the work of professional accountants!!