Deck 1: Introduction to Financial Statements

Question 1

Accounting information is not important to marketing managers.

Answer 1

False

Question 2

High standards of ethics are not required for preparers of financial information.

Answer 2

False

Question 3

Describe the purpose and content of each of the financial statements.

Answer 3

The income statement presents the revenues and expenses of a company for a specific period of time.The statement of changes in equity summarizes the changes in shareholders' equity that have occurred for a specific period of time.The statement of financial position reports the assets, liabilities, and shareholders' equity of a business at a specific date.The statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time.Notes to the financial statements add explanatory detail where required.The financial statements are included in an annual report, along with nonfinancial and other financial information.

Question 4

Two internal users of accounting information are investors and managers.

Question 5

Authorities, such as the Canada Revenue Agency, want to know whether a business complies with the tax laws.

Question 6

Explain the three main types of business activity.

Question 7

External users of accounting information include the managers who plan, organize, and run a business.

Question 8

Accounting identifies and records economic events of a business.

Question 9

The Canada Revenue Agency is the major external user of information.

Question 10

A private corporation is one whose shares are traded on an organized stock exchange, like the Toronto Stock Exchange.

Question 11

A proprietorship is usually operated by the owner.

Question 12

Shareholders and creditors are the only people who need accounting information.

Question 13

Expenses are the cost of assets consumed or services used in the process of generating revenue.

Question 14

The liability of corporate shareholders is limited to the amount of their investment.

Question 15

The information needs and questions of external users vary considerably.

Question 16

A partnership is a business organized as a separate legal entity.

Question 17

Describe the primary forms of business organizations.

Question 18

Accounting communicates financial information about a business to both internal and external users.

Question 19

Identify the users and uses of accounting.

Question 20

A proprietor has unlimited liability.

Question 21

Profit is another term for revenue.

Question 22

The basic accounting equation subdivides liabilities into two categories: claims of creditors and claims of the Canada Revenue Agency.

Question 23

The statement of cash flows shows how cash was used during the period.

Question 24

Economic resources that are owned by a business are called shareholders' equity.

Question 25

Depreciation is the cost of certain long-lived assets allocated to expense for each period.

Question 26

The issue of shares and distribution of dividends are used in determining profit.

Question 27

The purchase of equipment is an example of a financing activity.

Question 28

The statement of changes in equity covers a different time period than that covered by the income statement.

Question 29

Profit for the period is determined by subtracting total expenses and dividends from revenues.

Question 30

Payments to shareholders are called dividends.

Question 31

Creditors use the statement of financial position as another source of information to determine the likelihood they will be repaid.

Question 32

The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a business for a specific period of time.

Question 33

Financial statement users are interested in profit because it may be a predictor of future profit.

Question 34

Financing activities for corporations include borrowing money and selling shares.

Question 35

Expenses are identified by the type of liability associated with them.

Question 36

Assets are resources owned by a business that provide current services or benefits to the business.

Question 37

Shareholders' equity is always equal to the cash on hand at any given date.

Question 38

Investing activities involve collecting the necessary funds to operate the business.

Question 39

The statement of financial position reports assets and claims to those assets at a specific point in time.

Question 40

Revenues are increases in economic resources that result from a business's operating activities.

Question 41

Shareholder's equity consists of at least two parts: share capital and retained earnings.

Question 42

A negative balance in retained earnings is called a deficit.

Question 43

The reasons for a decrease in cash can be determined by examining the income statement.

Question 44

Which of the following would not be considered an internal user of accounting data?
(a)the president of a company
(b)the controller of a company
(c)a creditor of a company
(d)a salesperson of a company

Question 45

Any deficiency in cash from operating activities must be made up by issuing shares.

Question 46

The accounting equation can be expressed as: Assets - Shareholders' Equity = Liabilities.

Question 47

If the assets owned by a business total $100,000 and liabilities total $52,000, shareholders' equity totals $48,000.

Question 48

Which of the following uses accounting information to determine whether a company's profit will result in a share price increase?
(a)shareholders
(b)marketing managers
(c)creditors
(d)Chief Financial Officer

Question 49

Which of the following is the most appropriate definition of accounting?
(a)The information system that identifies, records, and communicates the economic events of an organization to interested users.
(b)a means of collecting information
(c)The interconnected network of subsystems necessary to operate a business.
(d)electronic collection, organization, and communication of vast amounts of information

Question 50

The world's economic systems depend on financial reporting that is
(a)highly transparent.
(b)accurate.
(c)reliable.
(d)all of the above.

Question 51

Claims of creditors and shareholders on the assets of a business are called liabilities.

Question 52

Which of the following uses accounting information to determine whether a company can pay its obligations?
(a)shareholders
(b)marketing managers
(c)creditors
(d)Canada Revenue Agency

Question 53

Which of the following would not be considered an external user of accounting data?
(a)Canada Revenue Agency
(b)management
(c)creditors
(d)customers

Question 54

Which of the following would not be considered an internal user of accounting data for XYZ Inc.?
(a)the company president
(b)production manager
(c)merchandise inventory clerk
(d)receptionist of the employees' labour union

Question 55

The statement of financial position is always the first statement prepared and presented.

Question 56

The statement of changes in equity is not dependent on the results from the income statement.

Question 57

Which of the following groups uses accounting information primarily to ensure the company is operating within prescribed rules?
(a)taxing authorities
(b)regulatory agencies
(c)labour unions
(d)management

Question 58

Which of the following uses accounting information to determine whether a marketing proposal will be cost effective?
(a)shareholders
(b)marketing managers
(c)creditors
(d)Human Resource managers

Question 59

The accounting equation can be expressed as: Assets + Liabilities = Shareholders' Equity.

Question 60

External users want answers to all of the following questions except
(a)Is the company earning satisfactory income?
(b)Will the company be able to pay its debts as they come due?
(c)Will the company be able to afford employee pay raises this year?
(d)How does the company compare in profitability with competitors?

Question 61

Which form of business would have its shares listed on a stock exchange?
(a)proprietorship
(b)partnership
(c)private corporation
(d)public corporation

Question 62

Cost of goods sold is a(n)
(a)liability.
(b)financing activity.
(c)asset.
(d)expense.

Question 63

A business organized as a corporation
(a)is not a separate legal entity in most provinces.
(b)requires that shareholders be personally liable for the debts of the business.
(c)is owned by its shareholders.
(d)has income tax disadvantages over a proprietorship or partnership.

Question 64

Buying assets needed to operate a business is an example of a(n)
(a)purchasing activity.
(b)financing activity.
(c)investing activity.
(d)operating activity.

Question 65

The partnership form of business organization
(a)is a separate legal entity.
(b)is a common form of organization for service-type businesses.
(c)enjoys an unlimited life.
(d)has limited liability.

Question 66

Expenses are incurred
(a)only on rare occasions.
(b)to produce assets.
(c)to produce liabilities.
(d)to generate revenues.

Question 67

Which of the following statements is not true?
(a)Public corporations must use international financial reporting standards.
(b)Private corporations can choose to use either international financial reporting standards (IFRS) or accounting standards for private enterprises (ASPE).
(c)Both public and private corporations issue shares.
(d)All private corporations are small.

Question 68

The concept that economic activity which can be identified with a particular company must be kept separate and distinct from the owner(s) and from all other economic entities is known as
(a)the separation concept.
(b)the reporting entity concept.
(c)the economic concept.
(d)the business organization concept.

Question 69

Buying and selling products are examples of
(a)operating activities.
(b)investing activities.
(c)financing activities.
(d)manufacturing activities.

Question 70

A corporation has which of the following set of characteristics?
(a)shareholder control, income tax disadvantages, increased skills and resources
(b)simple to set up and maintains control with founder
(c)harder to raise funds and gives shareholders control
(d)Easier to transfer ownership and raise funds, no personal liability

Question 71

Which of the following is not a principal type of business activity?
(a)operating
(b)investing
(c)financing
(d)marketing

Question 72

The right to receive money in the future is called a(n)
(a)account payable.
(b)account receivable.
(c)liability.
(d)revenue.

Question 73

A small neighbourhood barber shop that is operated by its owner would likely be organized as a
(a)public corporation.
(b)partnership.
(c)private corporation.
(d)proprietorship.

Question 74

The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is called a(n)
(a)account payable.
(b)account receivable.
(c)revenue.
(d)expense.

Question 75

Which of the following activities involves raising the necessary funds to support the business?
(a)operating
(b)investing
(c)financing
(d)marketing

Question 76

The common characteristic possessed by all assets is
(a)long life.
(b)great monetary value.
(c)tangible nature.
(d)future economic benefit.

Question 77

An advantage of the corporate form of business is that
(a)it has limited life.
(b)its shareholders' personal resources are at stake.
(c)its ownership is easily transferable via the sale of shares.
(d)it is simple to establish.

Question 78

The proprietorship form of business organization
(a)in most provinces, must have at least two owners.
(b)is often chosen for small owner operated businesses.
(c)is difficult to set up.
(d)is classified as a separate legal entity.

Question 79

A business organized as a separate legal entity is a
(a)corporation.
(b)proprietorship.
(c)government unit.
(d)partnership.

Question 80

Allocating the cost of using long-term assets over their useful lives is called
(a)allocation expense.
(b)depreciation expense.
(c)a general expense.
(d)asset use expense.