Deck 17: Understanding Accounting and Financial Information

Question 1

Accounting involves both the recording and the interpreting of financial events.

Answer 1

True

Question 2

Accounting is NOT important for nonprofit organizations since financial data is not critical to their success.

Answer 2

False

Question 3

A firm's financial statements represent a health report regarding the condition of the firm.

Answer 3

True

Question 4

Churches, schools, and charitable organizations all need accountants.

Question 5

Purchasing insurance, paying employees, and using supplies are examples of financial transactions.

Question 6

Referring to an accounting system, inputs refers to events and transactions that occur within the business, while outputs refers to the journal entries and ledger categorization that occurs after the events and transactions are recorded.

Question 7

Accountants do the work involved in recording financial events and transactions, but the actual classifying and interpreting of this data is left to financial managers.

Question 8

Accounting provides information about the financial condition and operating performance of a firm.

Question 9

Accounting provides financial information that can be useful to owners, creditors, suppliers, employees, and competitors of an organization.

Question 10

Accounting, as the language of business, is solely concerned with providing information useful to managers of profit-seeking firms.

Question 11

In an effort to maintain a competitive advantage, firms do not share accounting information with people outside of the firm.

Question 12

The U.S. government is a user of a firm's accounting information.

Question 13

Accounting is an easy subject for people to understand because almost everyone is exposed to basic accounting concepts in their everyday life.

Question 14

The sole purpose of accounting is to help managers evaluate the financial condition of the firm so that they may make better pricing decisions.

Question 15

Inputs to the accounting system include sales documents.

Question 16

Although managers who work for large firms must know something about accounting, people who run small businesses only need to know the basics of bookkeeping.

Question 17

Accounting information is NOT relevant for nonprofit organizations.

Question 18

It is impossible to run a company effectively without the ability to read and understand basic accounting reports and financial statements.

Question 19

With increased computer technology, the ability to read and understand financial statements is no longer an important skill for managers.

Question 20

Good decisions are based on good information. Organizations need accounting-to provide good financial information.

Question 21

Double-entry bookkeeping requires that every transaction be recorded in two places.

Question 22

Jeremy thinks his business will be successful as long as he just keeps his customers satisfied. He does NOT need to have a great deal of knowledge about accounting practices.

Question 23

At present, accounting software packages have proven to be too complex and expensive to be useful for owners of small businesses.

Question 24

The accounting cycle usually involves the work of both the bookkeeper and the accountant.

Question 25

The purpose of a trial balance is to prepare a practice balance sheet.

Question 26

After recording a business's transactions, bookkeepers usually classify the recorded transactions into groups with common characteristics.

Question 27

A major part of a bookkeeper's job is to interpret financial data and suggest strategies for improving the firm.

Question 28

The accounting cycle is a six-step procedure that results in the preparation and analysis of major financial statements.

Question 29

GAAP refers to a set of standards concerning accounting principles that were established by the Financial Accounting Standards Board.

Question 30

Lyell owns his own small business, but he doesn't want to be bothered with accounting information. He tells his friends, "All I need accounting for is to prepare my income tax return for my business. I'll hire someone to do that for me." Lyell's attitude would be disastrous if he managed a large firm, but it is a reasonable view for a small business owner.

Question 31

A bookkeeper's first task is to record the firm's transactions in a journal.

Question 32

Bookkeeping is part of the accounting cycle, but accounting goes far beyond the activities involved in bookkeeping.

Question 33

Posting is a step in the accounting cycle that involves transferring information from the journal into the appropriate accounts in a ledger.

Question 34

There are two major financial statements prepared at the completion of the accounting cycle: the journal and the ledger.

Question 35

The accounting book that provides all the information about a single account in one place is called the ledger.

Question 36

The books where accounting data are first entered are called ledgers.

Question 37

Double-entry bookkeeping can help identify a recording error made by a bookkeeper.

Question 38

Because each business is unique, the accounting profession recognizes that the accounting principles followed by one company may need to be completely different from the accounting principles followed by another firm.

Question 39

Government organizations such as the IRS and other government regulatory agencies are interested in a firm's accounting information in order to help the firm strategize about ways to cut costs in order to minimize net income before taxes.

Question 40

A journal is where the initial record of a day's transactions is entered.

Question 41

The income statement reports the difference between a firm's assets and its liabilities as of a certain date.

Question 42

An income statement reports what a company owns and owes on a certain day.

Question 43

Mike is the head of the accounting department at Micro Flash. After completing the trial balance, he will proceed with the preparation of the balance sheet, the income statement, and the statement of cash flows.

Question 44

The balance sheet reports revenues and selling costs for a period of time.

Question 45

The key financial statements are the balance sheet, the income statement, and the statement of cash flows.

Question 46

Sally prepares monthly financial statements for her client, Dent's Auto Body. Now, though, she must summarize the data in the accounting ledgers to determine if the figures are correct and balanced. Sally will prepare a statement of cash flows in order to complete this step of the cycle.

Question 47

The steps in the accounting cycle do not need to be followed in the order stated. Monthly financial statements can be prepared with a good amount of accuracy, prior to posting in the ledger or preparing the trail balance.

Question 48

One of the statements prepared in the accounting cycle is the statement of cash flows.

Question 49

Accounting software has proven to be especially helpful for small-business owners.

Question 50

Sophie has been a bookkeeper for a small chain of boutiques for nearly four years. Six months ago, the manager retired and a new manager was brought in. The new manager routinely asks her for information and advice about how to interpret the information she records. Sophie's experience as a bookkeeper means she is qualified to provide this type of advice.

Question 51

Barkatorium Pet Supplies recently hired an accountant to make sense of each day's transactions, and keep better financial records for the business. The accountant showed the owner that the ledger in a computerized accounting system would automatically take entries and post them to the correct accounts in the ledger, making the bookkeeping tasks much easier.

Question 52

Many businesses now use computers and accounting software to simplify the mechanical aspects involved in accounting.

Question 53

Computerized accounting programs have eliminated the need to prepare a trial balance.

Question 54

In addition to the tasks of recording and classifying accounting information, the best accounting software programs currently available for small businesses have the ability to make financial decisions, thus eliminating the need for owners of small businesses to consult with accountants or understand accounting terminology.

Question 55

Isabel created Waterfront Sports at a nearby lake resort. She wanted to combine her accounting degree with her love of the outdoors and kayaking. One of her first business purchases was a computerized accounting program. She learned in her college classes that a good software system will eliminate accounting cycle steps and the time it takes for her to interpret the results. As she put it, "It should make the decisions for me!"

Question 56

Assets are reported on the firm's balance sheet.

Question 57

Accounting software for small businesses has become so sophisticated that most small business owners will never need to consult with an actual accountant or understand accounting information themselves.

Question 58

A firm's balance sheet reports its financial condition on a specific date.

Question 59

One advantage of the double-entry method of bookkeeping is that it helps to identify mistakes made in recording financial transactions.

Question 60

Josephine has discovered her small business needs a better way to maintain accounting records and analyze business opportunities. Currently, she uses a manual accounting system. These days, any accounting program should do an excellent job of meeting her firm's accounting needs.

Question 61

General expenses include office salaries, rent, and insurance.

Question 62

Cash flow statements identify three sources of cash receipts and disbursements: assets, liabilities, and owners' equity.

Question 63

Liabilities are reported on the income statement.

Question 64

Assets are economic resources that are owned by a firm.

Question 65

The cost of goods sold includes all the costs of buying and keeping merchandise available for sale.

Question 66

The statement of cash flows calculates cash flows from operations, investing activities, and financing activities.

Question 67

A balance sheet is composed of assets, liabilities, and revenues.

Question 68

Net income before taxes is found by deducting total operating expenses from gross profit before factoring tax expense.

Question 69

The equipment a firm owns and the money it has in its bank account are considered assets.

Question 70

Rents, salaries, utilities, and insurance are examples of operating expenses.

Question 71

A statement of cash flows summarizes a company's cash receipts and cash payments over a period of time.

Question 72

Assets are listed on the balance sheet in order of liquidity, with the most liquid assets listed first.

Question 73

Rent, salaries, insurance and depreciation are examples of the cost of goods sold.

Question 74

The balance sheet reflects the fact that assets equal the sum of liabilities and owners' equity.

Question 75

The fundamental accounting equation is as follows: Assets = Liabilities + Owners' equity.

Question 76

Brand names such as Coca-Cola and McDonald's are examples of intangible assets.

Question 77

The statement of cash flows shows a firm's revenues, costs of goods sold, expenses, and net income.

Question 78

An analysis of the statement of cash flows can help a firm prevent cash shortages.

Question 79

The two major classes of operating expenses are current expenses and long-term expenses.

Question 80

Gross profit represents profit after the deduction of cost of goods sold, and before the deduction of all other selling expenses, general expenses, and tax expense.