Deck 3: The Accounting Information System

Question 1

The monetary unit assumption has led to an increase in the notes to financial statements.

Answer 1

False

Question 2

For information to be useful it must be both relevant and faithfully representative.

Answer 2

True

Question 3

The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

Answer 3

True

Question 4

The economic entity assumption states that assets should be recorded at their cost.

Question 5

The primary accounting standard-setting body in the United States is the Securities and Exchange Commission.

Question 6

Consistency in accounting means that a company uses the same generally accepted accounting principles from one accounting period to the next accounting period.

Question 7

To be faithfully representative accounting information should predict future events confirm prior expectations and be reported on a timely basis.

Question 8

When preparing financial statements the accountant assumes that the business will stay in business for the foreseeable future.

Question 9

Generally accepted accounting principles are rules and practices that are recognized as a general guide for financial reporting purposes.

Question 10

The most generally accepted measurement value used in accounting is market value.

Question 11

Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company.

Question 12

In order for information to be relevant it must be reported on a monthly basis.

Question 13

For accounting purposes business transactions should be kept separate from the personal transactions of the stockholders of the business.

Question 14

Full disclosure of all important facts aids in overcoming the limitations of accounting information.

Question 15

The going concern assumption is that the business will continue in operation long enough to carry out its existing objectives and commitments.

Question 16

The periodicity assumption states that the business will remain in operation for the foreseeable future.

Question 17

The convention of consistency pertains to the use of the same accounting principles by firms in the same industry.

Question 18

GAAP stands for generally accepted accounting procedures.

Question 19

The economic entity assumption states that a company will remain in operations for the foreseeable future.

Question 20

The economic entity assumption states that economic events can be identified with a particular unit of accountability.

Question 21

The collection of an account receivable will increase both cash and accounts receivable.

Question 22

The payment of a liability decreases both cash and accounts payable.

Question 23

A material item is one that is likely to influence an investor's decision.

Question 24

Dividends are classified as an expense.

Question 25

Relevance and cost are two constraints in accounting.

Question 26

A new account is opened for each transaction entered into by a business firm.

Question 27

If total assets are increased there must be a corresponding increase in liabilities or a decrease in stockholders' equity.

Question 28

Prepaid expenses are assets.

Question 29

Salaries and Wages Payable is a type of expense.

Question 30

Economic events that are required to be recorded in the financial statements are called accounting transactions.

Question 31

The periodicity assumption states that every economic entity can be separately identified and accounted for.

Question 32

Unearned Service Revenue is classified as a liability on the balance sheet.

Question 33

In general the FASB indicates that most assets must follow the fair value measurement principle.

Question 34

The cost constraint weighs the cost that companies incur to provide a type of information against the information's benefit to financial statement users.

Question 35

Materiality relates to whether an item is significant enough to likely influence the decision of an investor or creditor.

Question 36

Hiring a new employee affects both sides of the accounting equation.

Question 37

Materiality is a company-specific aspect of faithful representation.

Question 38

The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.

Question 39

Revenue increases stockholders' equity and should be recorded whenever cash is received from customers.

Question 40

Revenues are a subdivision of stockholders' equity.

Question 41

The convention of consistency refers to consistent use of accounting principles

A)among firms.
B)among economies.
C)throughout the accounting periods.
D)within industries.

Question 42

The quality of consistency enhances

A)relevance.
B)materiality.
C)comparability.
D)faithful representation.

Question 43

What organization issues U.S.accounting standards?

A)Security Exchange Commission
B)International Accounting Standards Committee
C)International Auditing Standards Committee
D)Financial Accounting Standards Board

Question 44

Which of the following organizations issues accounting standards for countries outside the United States?

A)SEC
B)GAAP
C)IASB
D)FASB

Question 45

When expenses exceed revenues a net loss results.

Question 46

The balance sheet lists current assets before property plant and equipment.

Question 47

Which one of the following is not an enhancing quality of useful information?

A)Timeliness
B)Understandability
C)Materiality
D)Comparability

Question 48

The retained earnings statement reports the changes in stockholders' equity for a specific period of time.

Question 49

The two fundamental qualities of useful information are

A)relevance and faithful representation.
B)verifiability and timeliness.
C)comparability and flexibility.
D)understandability and consistency.

Question 50

The balance sheet lists current liabilities before stockholders' equity.

Question 51

On the balance sheet stockholders' equity consists of net income and retained earnings.

Question 52

If there is a net loss it is shown as a deduction on the retained earnings statement.

Question 53

The income statement reports on the profitability of a company at a specific point in time.

Question 54

The agency of the United States Government that oversees the U.S.financial markets is the

A)Internal Revenue Service.
B)Security Exchange Commission.
C)Financial Accounting Standards Board.
D)International Auditing Standards Committee.

Question 55

The balance sheet reports assets liabilities and stockholders' equity at a specific date.

Question 56

Generally accepted accounting principles

A)are accounting rules formulated by the Internal Revenue Service.
B)are sound in theory but rarely used in real life.
C)are accounting rules that are recognized as a general guide for financial reporting.
D)have eliminated all errors in accounting.

Question 57

Cash received in advance of providing a service affects both Cash and Stockholders' Equity.

Question 58

Information that is presented in a clear fashion so that users can interpret it is an example of

A)relevance.
B)faithful representation.
C)understandability.
D)comparability.

Question 59

All of the following are qualities of useful information except

A)faithful representation.
B)materiality.
C)relevance.
D)flexibility.

Question 60

The issuance of additional shares of common stock increases a company's revenues.

Question 61

The accounting concept that indicates assets should be reported at the price received to sell the asset at the reporting date is the

A)economic entity assumption.
B)monetary unit assumption.
C)fair value principle.
D)historical cost principle.

Question 62

An item is considered material if

A)it does not cost a lot of money.
B)it is of a tangible good.
C)its size is likely to influence the decision of an investor or creditor.
D)the cost of reporting the item is greater than its benefits.

Question 63

Which of the following is a constraint in accounting?

A)Comparability
B)Cost
C)Consistency
D)Relevance

Question 64

In order for accounting information to be relevant it must

A)have very little cost.
B)help predict future events or confirm prior expectations.
C)not be reported to the public.
D)be used by a lot of different firms.

Question 65

Accounting information is relevant to business decisions when it

A)has been verified by external audit.
B)is prepared on an annual basis.
C)confirms prior expectations.
D)is neutral in its representations.

Question 66

Which of the following is not a quality associated with faithful representation?

A)Complete
B)Material
C)Neutral
D)All of these answer choices are associated with faithful representation.

Question 67

Information presented in a clear and concise fashion so that users can comprehend its meaning is an application of

A)consistency.
B)timeliness.
C)verifiability.
D)understandability.

Question 68

Accounting information should be neutral in order to enhance

A)faithful representation.
B)consistency.
C)comparability.
D)relevance.

Question 69

A company using the same accounting principles from year to year is an application of

A)timeliness.
B)consistency.
C)full disclosure.
D)materiality.

Question 70

Characteristics associated with faithfully representative accounting information are

A)verifiable and timely.
B)verifiable and neutral.
C)complete and neutral.
D)relevance and verifiable.

Question 71

Characteristics associated with relevant accounting information are

A)comparability and timeliness.
B)predictive value and confirmatory value.
C)neutral and verifiable.
D)consistency and understandability.

Question 72

Information is _____ if independent parties using the same methods obtain similar results.

A)verifiable
B)consistent
C)understandable
D)relevant

Question 73

Which of the following statements is not true?

A)Comparability means a company uses the same accounting principles from year to year.
B)Faithful representation is the quality of information that gives assurance that it is free of error.
C)Relevant accounting information must be capable of making a difference in the decision.
D)The primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions.

Question 74

Different companies using the same accounting principles is an application of

A)consistency.
B)materiality.
C)full disclosure.
D)comparability.

Question 75

The assumption which requires that only those things that can be expressed in money be included in the accounting records is the

A)economic entity assumption.
B)monetary unit assumption.
C)going concern assumption.
D)periodicity assumption.

Question 76

For accounting information to have relevance it must be

A)consistent.
B)timely.
C)verifiable.
D)understandable.

Question 77

Accounting information should be verifiable in order to enhance

A)comparability.
B)faithful representation.
C)consistency.
D)relevance.

Question 78

A company can change to a new method of accounting if management can justify that the new method results in

A)more meaningful financial information.
B)a higher net income.
C)a lower net income for tax purposes.
D)less likelihood of clerical errors.

Question 79

If accounting information has relevance it is useful in making predictions about

A)future IRS audits.
B)new accounting principles.
C)foreign currency exchange rates.
D)the future events of a company.

Question 80

Relevant accounting information

A)is information that has been audited.
B)must be reported within the operating cycle or one year whichever is longer.
C)has been objectively determined.
D)is information that is capable of making a difference in a business decision.