Deck 14: The Role of Accountants and Accounting Information

Question 1

A budget is a financial statement that lists a firm's annual revenues and expenses so that a bottom line shows an annual profit or loss.

Answer 1

False

Question 2

An asset is defined as any economic resource expected to benefit a firm or an individual who owns it.

Answer 2

True

Question 3

Current assets include cash and assets that can be converted into cash within the following year.

Answer 3

True

Question 4

Accounting is more comprehensive than bookkeeping because it involves more than merely recording information.

Question 5

Accountants follow standard reporting practices and principles when they prepare external reports.

Question 6

Depreciation is used to recognize the cost of an asset in the year in which it is purchased.

Question 7

The potential users of accounting information include investors,creditors,tax authorities,and government regulatory agencies.

Question 8

A firm's financial accounting system is concerned with external users of information.

Question 9

Administrative and general expenses result from activities related to selling goods or services.

Question 10

Bookkeeping is a comprehensive system for collecting,analyzing,and communicating financial information.

Question 11

The income statement describes a firm's revenues and expenses resulting in a figure showing the firm's annual profit or loss.

Question 12

Fixed assets are merchandise that has been acquired for sale and is still on hand.

Question 13

A firm's financial accounting system is concerned with internal information users.

Question 14

Leverage measures the ability of the firm to pay bills as they come due.

Question 15

The controller is a company's chief accounting officer.

Question 16

Owners' equity refers to a debt owed by a firm to an outside organization or individual.

Question 17

Certified public accountants are licensed by the Securities and Exchange Commission.

Question 18

The purpose of ethics in accounting is to maintain public confidence in business institutions,financial markets,and the products and services of the accounting profession.

Question 19

The CPA Vision Project was formed to deal with the sharp increase in young people entering the accounting profession since 1990.

Question 20

An audit examines whether a firm's financial statement conforms to generally accepted accounting principles.

Question 21

The Certified Fraud Examiners (CFE)designation is administered by the American Institute of Certified Public Accountants (AICPA).

Question 22

There are three kinds of assets: current,fixed,and long-term.

Question 23

Revenues are recognized when a sale is made.

Question 24

Owners' equity consists of two sources: (a)the amount that the owners originally invested and (b)profits earned by and reinvested in the company.

Question 25

Cash receipts and payments from buying and selling stocks,bonds,property,and equipment would be included under "Cash flows from investing" on the statement of cash flows.

Question 26

Balance sheets are sometimes called statements of financial position.

Question 27

The CPA Vision Project has identified "crunching numbers" as the core competency for accountants.

Question 28

The American Institute of Certified Public Accountants (AICPA)prepares CPA exams and provides technical support and discipline in matters of ethics.

Question 29

Intangible assets include patents,trademarks,copyrights,and franchise fees.

Question 30

Sarbox requires that the CFO and CEO certify that the firm's financial statements are true,fair,and accurate.

Question 31

The American Institute of Certified Public Accountants (AICPA)legally enforces accounting and auditing rules and procedures.

Question 32

Owners' equity may also be described as net worth.

Question 33

Retained earnings are net profits minus dividend payments to stockholders.

Question 34

The most commonly used liquidity ratio is the current ratio,which has been called the "banker's ratio."

Question 35

Private accountants are generally employed by CPA firms.

Question 36

Sarbox prohibits providing auditing and non-auditing services to the same client.

Question 37

Cash is the most liquid asset.

Question 38

In general,a current ratio of 2:1 or higher is satisfactory.

Question 39

An auditor certifies whether the client's reports comply with GAAP.

Question 40

The income statement is sometimes called a profit-and-loss statement.

Question 41

The usefulness of accounting tools and methods depends on truth and ethics in their application.

Question 42

At Tyco,the company inflated ad revenues to keep stock prices high before and after merging with Time Warner.

Question 43

The ________ is a company's chief accounting officer.

A) budget manager
B) bookkeeper
C) controller
D) auditor

Question 44

A satisfactory current ratio indicates that a firm is a good short-run credit risk.

Question 45

When hired as consultants,accounting firms provide ________ services ranging from personal financial planning to planning corporate mergers.

A) regulatory
B) private accounting
C) auditing
D) management advisory

Question 46

A(n)________ is an economic resource that is expected to benefit a firm or individual who owns it.

A) asset
B) liability
C) equity
D) account

Question 47

A(n)________ is a salaried accountant hired by a business to carry out its day-to-day financial activities.

A) public accountant
B) advisor
C) private accountant
D) auditor

Question 48

The current ratio is usually satisfactory at 2:1 or higher - that is,if current assets more than double current liabilities.

Question 49

________ offer accounting services to the public and are licensed at the state level.

A) Bookkeepers
B) Certified Public Accountants
C) Certified Management Accountants
D) Controllers

Question 50

The code of professional conduct for public accountants in the United States is maintained by the American Institute of Certified Public Accountants.

Question 51

Earnings per share determines the firm's ability to pay its long-term debt.

Question 52

If a company's assets exceed its liabilities,owners' equity is negative.

Question 53

________ is the recording of financial transactions.

A) Bookkeeping
B) Accounting
C) Controlling
D) Budgeting

Question 54

________ is a comprehensive system for collecting,analyzing,and communicating financial information.

A) Bookkeeping
B) Accounting
C) Controlling
D) Auditing

Question 55

________ is concerned with external users of information: consumers groups,unions,stockholders,and government agencies.

A) Managerial accounting
B) Government accounting
C) Financial accounting
D) Stock market accounting

Question 56

The beginning of the earnings cycle determines the timing for revenue recognition in a firm's financial statement.

Question 57

All firms must issue a statement of cash flows.

Question 58

A(n)________ examines a company's accounting system to determine whether its financial reports fairly present its operations.

A) company-wide analysis
B) portfolio analysis
C) audit
D) preliminary examination

Question 59

Debts are usually paid from cash.

Question 60

At Waste Management,accountants overstated income in financial statements by improperly calculating depreciation and salvage values for equipment.

Question 61

________ are costs,other than the cost of goods sold,incurred in producing a good or service.

A) Operating incomes
B) Depreciation
C) Operating expenses
D) Inventory expenses

Question 62

________ is the cost of merchandise that has been acquired for sale to customers and is still on hand.

A) Depreciation
B) Fixed asset
C) Goodwill
D) Merchandise inventory

Question 63

________ represent the total cost of obtaining materials for making the products sold by a firm during the year.

A) Net profits
B) Cost of goods sold
C) Revenues
D) Operating expenses

Question 64

________ are funds that flow into a business from the sale of goods or services.

A) Net profits
B) Cost of goods sold
C) Revenues
D) Assets

Question 65

The process of distributing the cost of an asset over its life is known as ________.

A) prepaid expenses
B) subtracting methods
C) depreciation
D) licensing

Question 66

A(n)________ is a debt owed by a firm to an outside organization or individual.

A) asset
B) liability
C) equity
D) account

Question 67

________ is gross profit minus operating expenses.

A) Operating income
B) Net income
C) Cash flow
D) Leverage

Question 68

________ is the amount paid for an existing business beyond the value of its other assets.

A) Goodwill
B) Excess compensation
C) Licensing
D) Asset promotion

Question 69

________ are current liabilities consisting of bills owed to suppliers,plus wages and taxes due within the upcoming year.

A) Accounts receivable
B) Accounts payable
C) Prepaid expenses
D) Marketable securities

Question 70

A ________ ratio measures a firm's potential earnings.

A) financial
B) solvency
C) managerial
D) profitability

Question 71

________ is the amount of money that owners would receive if they sold all of a company's assets and paid all of its liabilities.

A) An asset
B) Owners' equity
C) Inventory
D) Remaining liability

Question 72

A(n)________ ratio measures a firm's ability to meet its debt obligations.

A) financial
B) solvency
C) managerial
D) activity

Question 73

________ are nonphysical assets such as patents or trademarks that have monetary value in the form of expected benefits.

A) Legal assets
B) Intangible assets
C) Limited assets
D) Limited-life assets

Question 74

Land,building,and equipment are ________.

A) liquid assets
B) fixed assets
C) depleted assets
D) current assets

Question 75

Assets that can be converted into cash within the following year are referred to as ________.

A) liquid assets
B) long-term assets
C) quick assets
D) current assets

Question 76

Subtracting income taxes from operating income reveals ________.

A) operating income
B) net income
C) cash flow
D) leverage

Question 77

________ expenses,such as management salaries and maintenance costs,are related to the general management of the company.

A) Gross
B) Revenue
C) Sales and marketing
D) Administrative and general

Question 78

The ________ is the financial statement describing a firm's yearly cash receipts and cash payments.

A) income statement
B) balance sheet
C) cash flow statement
D) statement of retained earnings

Question 79

________ expenses result from activities related to selling goods or services.

A) Gross
B) Revenue
C) Sales and marketing
D) Income

Question 80

The financial statement detailing a firm's assets,liabilities,and owners' equity is the ________.

A) income statement
B) statement of cash flows
C) balance sheet
D) manufacturing statement