Deck 11: Understanding Accounting

Question 1

________ calls attention to problems and helps managers carry out the planning, decision making, and controlling functions.
Budgeting
Financial accounting
Auditing
Managerial accounting
Generally accepted accounting principles

Answer 1

Managerial accounting

Question 2

Government agencies would be most interested in the output of ___________ accountants, while company salespeople would be most interested in the output of ______________ accountants.
public; private
private; public
managerial; financial
financial; managerial
financial; financial

Answer 2

financial; managerial

Question 3

Forensic accountants are sometimes used to
ensure that the accounting system adheres to GAAP.
track down hidden funds in business firms.
ensure auditors follow auditing standards.
ensure businesses remain profitable.
do all of these.

Answer 3

track down hidden funds in business firms.

Question 4

Janice is a bookkeeper. Her primary function would be to
generate financial statements.
measure business performance.
record accounting transactions.
complete the same tasks as accountants do.
determine the value of the firm to investors.

Question 5

Financial accounting is
the field of accounting concerned with external users of a company's financial information.
the rules and procedures governing the content and form of financial reports.
a systematic examination of a company's accounting system to determine whether its financial reports fairly represent its operations.
a bookkeeping system that balances the accounting equation by recording the dual effects of every financial transaction.
a field of accounting that serves internal users of a company's financial information.

Question 6

A(n) ________ examines a company's accounting system to determine whether its financial reports fairly present its operations.
tax analysis
preliminary examination
company-wide analysis
portfolio analysis
audit

Question 7

Managerial accounting is
a field of accounting that serves internal users of a company's financial information.
the rules and procedures governing the content and form of financial reports.
the field of accounting concerned with external users of a company's financial information.
a systematic examination of a company's accounting system to determine whether its financial reports fairly represent its operations.
a bookkeeping system that balances the accounting equation by recording the dual effects of every financial transaction.

Question 8

Arthur's primary responsibility as an auditor is
publishing the audit report results in The Financial Post.
preparing budgets for the forthcoming year.
ensuring the firm's accounting practices adhere to generally accepted accounting principles.
collecting taxes.
determining that the company actually has the inventory that it says it has.

Question 9

David is an accountant who calls attention to problems and helps managers carry out the planning, decision making, and controlling functions. David is involved in ______ accounting.
budgeting
financial
auditing
managerial
generally accepted accounting principles

Question 10

The field of accounting that is concerned with external users of a company's financial information is called
managerial accounting.
bookkeeping.
public accounting.
financial accounting.
auditing.

Question 11

Which of the following is correct with respect to generally accepted accounting principles?
Public and private businesses can no longer use generally accepted accounting principles.
They are used in many foreign countries but not in Canada.
Public companies in Canada have moved away from using generally accepted accounting principles and have adopted adopted International Financial Reporting Standards (IFRS).
Private companies must use the new International Financial Reporting Standards (IFRS).
None of these statements are correct.

Question 12

What three services do CA firms typically provide?
Ratio analysis, journal preparation, and ledger preparation
Tax services, budget preparation, and ratio analysis
Audit services, ratio analysis, and tax collection
Tax services, audit services, and management services
Owners' equity analysis, journal and ledger preparation, and tax collection

Question 13

Who manages the entire firm's accounting activities?
Venture capitalist
Private accountant
Controller
Public (not chartered) accountant
Auditor

Question 14

Employees and unions use accounting information
to plan for tax inflows.
to set goals, develop plans, set budgets, and evaluate future prospects.
to estimate returns.
to decide if the company is a good credit risk.
to plan for benefits.

Question 15

____________ is the comprehensive information system for collecting, analyzing, and communicating financial information, while _____________ is the recording of financial transactions.
Financial accounting; managerial accounting
Managerial accounting; financial accounting
Bookkeeping; accounting
Accounting; bookkeeping
Controlling; accounting

Question 16

Martin is a salaried accountant who has been hired by Lexar Corp. to carry out its day-to-day financial activities. Martin is a(n)
public accountant.
auditor.
controller.
private accountant.
advisor.

Question 17

________ are rules and procedures governing the content and form of financial reports.
Accounting society rules
Generally Accepted Accounting Principles (GAAP)
National guidelines
The Auditor's Bible
The Rules of the Road

Question 18

The field of accounting that serves internal users of a company's financial information is
financial accounting.
auditing.
public accounting.
bookkeeping.
managerial accounting.

Question 19

Rose is reviewing a company's accounting system, checking the ledgers and journals, and tracking some transactions to see how they were handled. Rose is engaged in
financial accounting.
managerial accounting.
auditing.
public accounting.
bookkeeping.

Question 20

Marshall is preparing a statement of estimated profits and losses for a new product that has just been introduced by his company. The field of accounting that Marshall is working in is
managerial accounting.
auditing.
public accounting.
financial accounting.
bookkeeping.

Question 21

What is the formula for determining owners' equity?
Assets minus liabilities
Assets plus liabilities
Assets minus goodwill
Current assets minus current liabilities
There is no formula for computing owners' equity

Question 22

The accounting equation is
owners' equity - assets = liabilities.
owners' equity - liabilities = assets.
assets + liabilities = owners' equity.
assets + owners' equity = liabilities.
assets = liabilities + owners' equity.

Question 23

Under which condition is owners' equity negative?
Credits exceed debits.
Assets are greater than liabilities.
Assets and liabilities are equal.
Debits exceed credits.
Liabilities are greater than assets.

Question 24

Barry is a private accountant who is working through the accounting cycle. He has already analyzed transaction documents. His next step is to
record transactions in a journal.
do a trial balance.
prepare financial statements.
analyze the financial statements using ratio analysis.
transfer entries from the journal to the ledger.

Question 25

Owners' equity is
the profits earned by and reinvested in the company.
the amount of money that owners would receive if they sold all of a firm's assets and paid all of its liabilities.
the amount of money originally invested in a business by its owners.
a debt owed by a firm to an outside organization or individual.
any economic resource expected to benefit a firm or an individual who owns it.

Question 26

Janice is a private accountant. The first thing she must do when working through the accounting cycle is to
record transactions in a journal.
do a trial balance.
analyze transaction documents.
analyze the financial statements using ratio analysis.
transfer entries from the journal to the ledger.

Question 27

A(n) ________ is a debt owed by a firm to an outside organization or individual.
liability
owners' equity
debit
asset
credit

Question 28

________ is the amount of money owners would theoretically receive if they sold all of a firm's assets and paid all of its liabilities.
Asset
Debit
Credit
Liability
Owners' equity

Question 29

Which of the following is correct with respect to the issue of owners' equity?
It is the amount of cash listed on the balance sheet.
It is the amount of money the owners would receive if they sold all of a company's assets and paid all of its liabilities.
If a company's assets exceed its liabilities, owners' equity equals $10 000 for each dollar of assets.
If a company's liabilities exceed its assets, owners' equity equals minus $10 000 for each dollar of liabilities.
All of these are correct.

Question 30

Financial statements fall into three broad categories, which are
debits, credits, and loans.
income statements, balance sheets, and statements of cash flows.
assets, liabilities, and owners' equity.
cash, marketable securities, and goodwill.
budgets, income statements, and profit-and-loss statements.

Question 31

Under which condition is owners' equity positive?
Assets are greater than liabilities.
Assets and liabilities are equal.
Credits exceed debits.
Liabilities are greater than assets.
Debits exceed credits.

Question 32

Sheena is a private accountant who is working through the accounting cycle. She has completed transferring entries from the journal to a ledger. Her next step is to
record transactions in a journal.
do a trial balance.
prepare financial statements.
analyze the financial statements using ratio analysis.
transfer entries from the journal to the ledger.

Question 33

A(n) ________ is any economic resource expected to benefit a firm or the individual who owns it.
owners' equity
asset
debit
liability
credit

Question 34

Al Rosen is working as a private investigator of white-collar crimes. He is
a GAAP accountant.
a financial scanner.
a whistleblower.
an auditor.
a forensic accountant.

Question 35

Which of the following is correct with regard to private accountants?
They are hired by business firms who do not want to use the services of CAs or CGAs.
They are employed by business firms in areas such as marketing research, law, and production technology.
They are becoming less common as CAs, CGAs, and CMAs become more prominent and skilled.
They are almost exclusively found at the head office of business firms.
They are hired to deal with companies' day-to-day accounting needs.

Question 36

An asset is
the amount of money originally invested in a business by its owners.
the amount of money that owners would receive if they sold all of a firm's assets and paid all of its liabilities.
the profits earned by and reinvested in the company.
any economic resource expected to benefit a firm or an individual who owns it.
a debt owed by a firm to an outside organization or individual.

Question 37

Which of the following is correct with regard to auditing?
An audit focuses specifically on whether the inventory the company claims it has is actually there.
Companies do not normally have to supply audited financial statements when they apply for loans or when selling stock.
Audits determine if the firm has controls in place to prevent errors or fraud from going undetected.
Auditors generally do not have to examine documents such as cancelled cheques, payroll record, and cash receipts in order to conduct their audit.
Auditors ensures that the financial state of the company will be accurately reported.

Question 38

Owners' equity consists of two sources of capital. They are
the amount that the owners originally invested and profits earned by and reinvested in the company.
bank loans and money received from factoring accounts receivable.
bank loans and proceeds from the sale of stock.
trade credit and bank loans.
dividends received by investors and bank loans.

Question 39

Max Corp. has total assets of $100 million and total liabilities of $30 million. Last year it earned a profit of $3 million. What is owners' equity at Max Corp.?
$3 million
$100 million
$103 million
$73 million
$70 million

Question 40

According to the accounting equation, if assets equal $4000 and liabilities equal $1500, then owner's equity would equal
$5500.
$2500.
$3500.
$8000.
it is not possible to tell with the information given.

Question 41

The financial statement detailing a firm's assets, liabilities, and owners' equity is the
income statement.
statement of cash flows.
balance sheet.
manufacturing statement.
statement of retained earnings.

Question 42

What purpose does the balance sheet serve?
It shows the stock price of the firm during the last year and how much fluctuation there have been in the stock price.
It shows short- and long-term liquidity ratios, profitability ratios, and activity ratios.
It shows a firm's financial condition on a particular date in terms of its assets, liabilities, and owners' equity.
It shows investors how much profit the firm made during the last year.
It shows a firm's sources and uses of cash.

Question 43

Rent for the period to come is included in which account on the balance sheet?
Inventory
Cost of goods sold
Merchandise inventory
Accounts payable
Prepaid expenses

Question 44

What is the accounting term that describes an amount paid for an existing business above the value of its other assets?
A patent
A copyright
Goodwill
A franchise fee
Reputation

Question 45

What are the three types of assets that will typically be found on a balance sheet?
Local, national, and international
Positive, negative, and neutral
Land, buildings, and equipment
Current, fixed, and intangible
Short-term, long-term, and medium-term

Question 46

Stephen is looking at a financial statement that shows detailed information about the accounting equation factors. He is looking at the company's
T-accounts.
income statement.
balance sheet.
double entry accounting system.
profit and loss statement.

Question 47

________ are amounts due from customers who have purchased goods on credit.
Accounts owed
Accounts receivable
Accounts forwarded
Accounts payable
Account balances

Question 48

If you wanted to see how much Mega Computer owed your company, where would be the best place to look?
Income statement
Balance sheet
Cash flow statement
Budget
Net income statement

Question 49

Due to a downturn in the local economy, Bob is concerned about converting his assets to cash quickly. In accounting terms, he is apprehensive about
current assets.
liquidity.
turnover.
net income.
marketable securities.

Question 50

A current asset is
an expense, such as rent, that is paid before the upcoming period in which it is due.
a nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit.
an amount due from a customer who has purchased goods on credit.
an asset with long-term use or value, such as land, buildings, and equipment.
an asset that can or will be converted to cash within the following year.

Question 51

________ is an asset that represents the cost of merchandise which was made or bought for sale to customers and that is still on hand.
Accounts payable
Prepaid expenses
Cost of goods sold
Merchandise inventory
Accounts receivable

Question 52

________ are non-physical assets, such as a patent or trademark, that have economic value in the form of expected benefits.
Intangible assets
Fixed assets
Prepaid assets
Current assets
Long-term assets

Question 53

________ are purchased as short-term investments and are only slightly less liquid than cash.
Prepaid expenses
Patents
Accounts receivable
Marketable securities
Futures

Question 54

If the following facts were known, which one would strengthen the argument that a company would be able to meet its current financial obligations?
The level of accounts payable is high.
Liabilities exceed assets.
The company currently has a negative cash flow.
The company needs to increase the number of customers it serves.
Assets exceed liabilities.

Question 55

Which of the following is an intangible asset?
An inventory level of 1000 copies of a book
The copyright for a textbook
A printing press used in the publication of a book
A $1000 Canada Savings Bond
The building in which a book was printed

Question 56

Peter, an accountant, enters every transaction in the journal to reflect its impact on assets and its impact on liabilities and owners' equity. He is using
a double entry accounting system.
a balance sheet.
a financial ratio.
breakeven analysis.
a financial statement.

Question 57

Which term is used to identify how quickly assets can be converted into cash?
Acid test ratio
Activity
Accounts receivable
Current ratio
Liquidity

Question 58

An account receivable represents
an asset with long-term use or value, such as land, buildings, and equipment.
an amount due from a customer who has purchased goods on credit.
an expense, such as rent, that is paid before the upcoming period in which it is due.
a nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit.
an asset that can or will be converted to cash within the following year.

Question 59

A balance sheet would not be able to help a manager answer which question?
Is it a good time to try to grow the business?
Can the company survive if a period of low revenues happens?
Does the company have an excessive number of employees?
Is the company able to take on more debt?
What is the total value of all of the company's assets?

Question 60

Which of the following ensures that the accounting equation is always kept in balance?
Credits
Debits
Double-entry accounting
Balance sheet
T-accounts

Question 61

If the following facts were known, which one would strengthen the argument that a company is profitable?
The company's sales revenue is low relative to its cost of goods sold.
The company's cost of goods sold is low relative to its sales revenue.
The number of customers has remained stable for some time.
The company has had the same owners over its lifetime.
The company's selling expenses are high compared to its administrative expenses.

Question 62

Paid-in capital is
a debt that must be paid within the year.
the process of distributing the cost of an asset over its useful life.
the amount paid for an existing business above the value of its other assets.
a debt that is not due for at least one year.
additional money, above proceeds from a stock sale, paid directly to a firm by its owners.

Question 63

Which financial statement shows the cost of obtaining materials to make products that were sold during the year?
Income statement
Balance sheet
Statement of cash flows
Operating expenses statement
Statement of retained earnings

Question 64

The amount of profit or loss will be reflected in the
balance sheet.
cost of goods sold.
quick ratio.
income statement.
statement of cash flow.

Question 65

Jerry wants to calculate gross profit for his business. Which formula should he use?
Operating expenses minus income taxes
Sales revenue minus income taxes
Sales revenue minus operating expenses
Sales revenue minus cost of goods sold
Operating income minus income taxes

Question 66

If a firm has $1 000 000 in retained earnings, what does this mean?
That the firm paid out $1 000 000 this year in dividends
That the company is owed $1 000 000 by its creditors but has not yet collected the money
That the firm has $1 000 000 in the bank
That the company's net profits less its dividend payments equals $1 000 000
That the company has saved $1 000 000 during the period since the last balance sheet was made up

Question 67

The process of distributing the cost of an asset over its life is known as
licensing.
subtracting methods.
cost averaging.
prepaid expenses.
depreciation.

Question 68

A prepaid expense is
an expense, such as rent, that is paid before the upcoming period in which it is due.
a nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit.
an amount due from a customer who has purchased goods on credit.
an asset that can or will be converted to cash within the following year.
an asset with long-term use or value, such as land, buildings, and equipment.

Question 69

A fixed asset is
an amount due from a customer who has purchased goods on credit.
an asset with long-term use or value, such as land, buildings, and equipment.
an expense, such as rent, that is paid before the upcoming period in which it is due.
an asset that can or will be converted to cash within the following year.
a nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit.

Question 70

Andy's line of credit with a local bank is likely a(n)
intangible asset.
prepaid expense.
current liability.
account receivable.
long-term liability.

Question 71

A current liability is
additional money, above proceeds from a stock sale, paid directly to a firm by its owners.
the process of distributing the cost of an asset over its useful life.
the amount paid for an existing business above the value of its other assets.
a debt that is not due for at least one year.
a debt that must be paid within the year.

Question 72

Prahbat is looking at a financial statement produced by Iron Corp. The statement lists the company's annual revenues, its expenses, and its profit. Prahbat is looking at a(n)
cash flow statement.
revenue-expense statement.
balance sheet.
budget.
income statement.

Question 73

At Lexi Corp., sales revenue is $20 million, the cost of goods sold is $14 million, operating expenses are $3 million, and income taxes are $1 million. What are retained earnings?
$6 million
$17 million
$3 million
$2 million
It is not possible to tell with the information provided

Question 74

Current liabilities consisting of bills owed to suppliers plus wages and taxes due within the upcoming year are known as
accounts receivable.
accounts payable.
prepaid expenses.
marketable securities.
net liabilities.

Question 75

At Lexi Corp., sales revenue is $20 million, the cost of goods sold is $14 million, operating expenses are $3 million, and income taxes are $1 million. What is the company's net income?
$6 million
$17 million
$16 million
$2 million
The answer cannot be computed with the information provided

Question 76

At Lexi Corp., sales revenue is $20 million, the cost of goods sold is $14 million, operating expenses are $3 million, and income taxes are $1 million. What is the company's gross profit?
$6 million
$17 million
$16 million
$2 million
None of these

Question 77

Meredith recently bought a business. But she paid more for the business than the total of its current and fixed assets. What did she pay extra for?
Land the company owns
Equipment in the company's factory
Goodwill
The franchise fee
Accounts receivable that are on the company's books

Question 78

At Lexi Corp., sales revenue is $20 million, the cost of goods sold is $14 million, operating expenses are $3 million, and income taxes are $1 million. What is the company's operating income?
$6 million
$17 million
$3 million
$2 million
None of these

Question 79

Gem Corp. has $100 million in assets and $50 million in liabilities. Last year, the company earned $10 million in net profit and paid out $5 million in dividends to shareholders. What are the retained earnings for the company?
$50 million
$5 million
$45 million
$90 million
$95 million

Question 80

As buildings and equipment wear out or become obsolete, their value decreases. To reflect decreasing value, accountants use
prepaid expenses.
licensing.
subtracting methods.
depreciation.
all of these.