Deck 1: Accounting in Business

Question 1

The Sarbanes-Oxley Act (SOX)does not require public companies to apply both accounting oversight and stringent internal controls.

Answer 1

False

Question 2

An accounting system captures relevant data about transactions and then classifies, records, and reports data.

Answer 2

True

Question 3

The fraud triangle asserts that the three factors that must exist for a person to commit fraud are opportunity, pressure, and rationalization.

Answer 3

True

Question 4

Financial accounting is the area of accounting aimed at serving external users by providing them with general-purpose financial statements.

Question 5

Regulators often have legal authority over certain activities of organizations.

Question 6

External users include lenders, shareholders, customers, and regulators.

Question 7

The balance sheet shows a company's net income or loss due to earnings activities over a period of time.

Question 8

In the partnership form of business, the owners are called stockholders.

Question 9

Opportunities in accounting include auditing, consulting, market research, and tax planning.

Question 10

The Sarbanes-Oxley Act (SOX)requires each issuer of securities to disclose whether it has adopted a code of ethics for its senior financial officers and the contents of that code.

Question 11

External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles.

Question 12

A partnership is a business owned by two or more people.

Question 13

The Financial Accounting Standards Board is the governmental agency that sets both broad and specific accounting principles.

Question 14

Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.

Question 15

Owners of a corporation are called shareholders or stockholders.

Question 16

Internal operating activities include research and development, distribution, and human resources.

Question 17

The primary objective of managerial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities.

Question 18

Recordkeeping, or bookkeeping, is the recording of transactions and events, either manually or electronically. This is just one part of accounting.

Question 19

Internal users include lenders, shareholders, brokers and nonexecutive employees.

Question 20

Identifying the proper ethical path is usually easy.

Question 21

Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.

Question 22

The three common forms of business ownership include sole proprietorship, partnership, and corporation.

Question 23

A limited liability company offers the limited liability of a partnership or proprietorship and the tax treatment of a corporation.

Question 24

A limited liability company offers the limited liability of a corporation and the tax treatment of a partnership or proprietorship.

Question 25

A sole proprietorship is a business owned by one or more persons.

Question 26

The idea that a business will continue to operate instead of being closed or sold underlies the going-concern assumption.

Question 27

The International Accounting Standards board (IASB)has the authority to impose its standards on companies around the world.

Question 28

General accounting principles stem from long-used accounting practices.

Question 29

The monetary unit assumption means that all companies doing business in the United States must express transactions and events in U.S. dollars.

Question 30

The three common forms of business ownership include sole proprietorship, partnership, and non-profit.

Question 31

Objectivity means that financial information is supported by independent, unbiased evidence; it demands more than a person's opinion.

Question 32

Understanding generally accepted accounting principles is not necessary to effectively use and interpret financial statements.

Question 33

Generally accepted accounting principles are the basic assumptions, concepts, and guidelines for preparing financial statements.

Question 34

The business entity principle means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Question 35

The business entity assumption means that a business is accounted for separately from other business entities, including its owner or owners.

Question 36

As a general rule, revenues should not be recognized in the accounting records when earned, but rather when cash is received.

Question 37

Specific accounting principles are basic assumptions, concepts, and guidelines for preparing financial statements and arise out of long-used accounting practice.

Question 38

The International Accounting Standards Board (IASB)is the government group that establishes reporting requirements for companies that issue stock to the public.

Question 39

According to the measurement (cost)principle, it is necessary for managers to report an approximation of an asset's market value upon purchase.

Question 40

The Securities and Exchange Commission (SEC)is a government agency that has legal authority to establish GAAP.

Question 41

A net loss occurs when revenues exceed expenses.

Question 42

Owner's investments are increases in equity from a company's earnings activities.

Question 43

Every business transaction leaves the accounting equation in balance.

Question 44

Owner's equity is increased when cash is received from customers in payment of previously recorded accounts receivable.

Question 45

Assets are the resources a company owns or controls that are expected to yield future benefits.

Question 46

Liabilities are the owner's claim on assets.

Question 47

An external transaction is an exchange within an entity that may or may not affect the accounting equation.

Question 48

Owner withdrawals are subtracted in the calculation of net income, as expenses.

Question 49

Revenues are increases in equity (via net income)from a company's sales of products and services to customers.

Question 50

Owner financing refers to resources contributed by creditors or lenders.

Question 51

The accounting equation can be restated as: Assets - Equity = Liabilities.

Question 52

The three major types of business activities are operating, financing, and investing.

Question 53

Financing activities provide the means organizations use to pay for resources such as land, buildings, and equipment.

Question 54

From an accounting perspective, an event is a happening that affects the accounting equation, but cannot be measured.

Question 55

Investing activities are the means an organization uses to pay for resources like land, buildings, and equipment to carry out its plans.

Question 56

Net income occurs when revenues exceed expenses.

Question 57

The accounting equation implies that: Assets + Liabilities = Equity.

Question 58

Investing activities are the acquiring and disposing of resources that an organization uses to acquire and sell its products or services.

Question 59

Planning is a part of each business activity (Operating, investing, and financing), and gives each activity meaning and focus.

Question 60

An owner's investment increases equity via net income.

Question 61

The purchase of supplies appears on the statement of cash flows as an investing activity because it involves the purchase of assets.

Question 62

Operating activities include long-term borrowing and repaying cash from lenders, and cash investments or withdrawals by the owner.

Question 63

U.S. Government Treasury bonds provide low return and low risk to investors.

Question 64

The four basic financial statements include the balance sheet, income statement, statement of owner's equity, and statement of cash flows.

Question 65

Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business.

Question 66

An income statement reports on investing and financing activities.

Question 67

Return on assets reflects a company's ability to generate profit through productive use of its assets.

Question 68

Return on assets is often stated in ratio form as the amount of average total assets divided by income.

Question 69

The income statement reports on operating activities at a point in time.

Question 70

The first section of the income statement reports cash flows from operating activities.

Question 71

The balance sheet is based on the accounting equation.

Question 72

The income statement describes revenues earned and expenses incurred along with the resulting net income or loss over a specified period of time, due to earnings activities.

Question 73

Return on assets is useful in evaluating management, analyzing and forecasting profits, and planning activities.

Question 74

The statement of cash flows shows the net effect of revenues and expenses for a reporting period.

Question 75

Return on assets is also known as return on investment.

Question 76

A balance sheet covers activities over a period of time such as a month or year.

Question 77

Generally, the lower the risk, the higher the return that can be expected.

Question 78

Risk is the uncertainty about the return we will earn.

Question 79

The income statement shows the financial position of a business on a specific date.

Question 80

Arrow's net income of $117 million and average assets of $1,400 million results in a return on assets of 8.36%.