Deck 1: How Accounting Works

Question 1

In the United States, the primary setter of management accounting standards is the

A) U.S. Department of Commerce
B) Financial Accounting Standards Board
C) Securities and Exchange Commission
D) IMA

Answer 1

D

Question 2

Accounting affects society in which of the following ways?

A) It makes certain actions seem legitimate.
B) It creates concepts that people use to think about issues.
C) People react to accounting reports in predictable ways.
D) All of the above

Answer 2

D

Question 3

The idea that accounting standards should be set in a way that information must be relevant and reliable for users is the

A) Economic consequences perspective
B) Social determinist perspective
C) Critical-interpretive perspective
D) Decision-usefulness perspective

Answer 3

D

Question 4

The perspective that the IASB and FASB say they wish to follow in setting standards is the

A) Decision-usefulness perspective
B) Critical-interpretive perspective
C) Economic consequences perspective
D) Free market perspective

Question 5

The start of the designation of certified public accountant in the U.S. began

A) Between 1780 and 1800
B) Between 1850 and 1870
C) Between 1890 and 1910
D) In the 1960s

Question 6

Researchers find that one of the types of values that vary across different societies includes a preference for

A) Expenses versus revenues
B) Optimism versus transparency
C) Uniformity versus flexibility
D) Secrecy versus professional judgment

Question 7

The SEC was created in reaction to what event?

A) The Panic of 1876
B) The 1890s depression
C) The 1929 stock market crash and the 1930s Great Depression
D) The Enron scandal

Question 8

The 1960s were when the SEC was created and began creating formal financial accounting principles.

A) The 1800s
B) World War I
C) The Great Depression
D) World War II

Question 9

The term for the type of accounting that is slow to assume that good things have happened, and quick to assume bad things have happened, is

A) Aggressive accounting
B) Optimistic accounting
C) Cash-basis accounting
D) Conservative accounting

Question 10

The critical-interpretive perspective suggests that accounting should be used as an instrument of social change.

Question 11

In the United States, the factors that have shaped the financial accounting rules include all of the following except:

A) Owners of stock in corporations are often different people than the managers of the companies.
B) There is a highly developed system of markets.
C) The government needs all companies to use the same accounting.
D) There is a ""free enterprise"" economy.

Question 12

The practice by accountants of focusing on a business separetely from its owners is the ""entity principle.""

A) Financial accounting is more focused on the needs of outside investors than is management accounting.
B) Management accounting is more likely to use subjective information than is financial accounting.
C) Financial accounting tends to deal with more detailed information about parts of the company, while managerial accounting is more summarized.
D) Unlike financial accounting reports, managerial accounting reports often involve reports on variances from budget.

Question 13

Which of the following fields have information that would be relevant to accounting regulators as they try to set rules for accounting for pension liabilities?

A) Probability
B) Pension law
C) Actuarial science
D) Economics
E) All of the above

Question 14

Which of the following would be most directly relevant to determining the amount of materials needed for a manufactured product?

A) Corporate law
B) Actuarial Science
C) Process Engineering
D) Ethics

Question 15

One reason that tax accounting rules differ from generally accepted accounting principles is that:

A) Taxpayers often tend to overstate income, and companies tend to understate income when reporting to shareholders.
B) Taxes are rarely disputed, so there is less need for verifiability in tax rules.
C) The tax code tries to follow the economic substance of transactions, but generally accepted accounting principles focus on their legal form.
D) Congress has decided that some actions should not be rewarded by tax deductions, even though they may meet the accounting definition of expenses.

Question 16

The purposes of financial accounting include

A) Both providing information for economic decisions AND tracking how much income shareholders earned
B) Providing information for economic decisions but not tracking how much income shareholders earned
C) Tracking how much income shareholders earned but not providing information for economic decisions
D) Giving information regarding stewardship, but neither providing information for economic decisions nor tracking how much income shareholders earned

Question 17

The fact that the U.S. has a free enterprise system has all of the following consequences for accounting, except:

A) Companies try to keep certain information secret, for competitive reasons.
B) Reporting tends to be from the perspective of the workers, not the owners.
C) Companies are allowed to choose among different accounting methods, instead of having to all use the same methods.
D) Companies generally do not try to measure the social value of their operations.

Question 18

One of the fundamental rules of measurement systems is that users must be indifferent between two items of the same type that have the same measurement.

Question 19

The primary purpose of managerial accounting is to provide information to potential investors and creditors.

Question 20

Managerial accounting is designed to assist management decision-making, planning, and control.

Question 21

Which of the following is not a correct statement when comparing financial and managerial accounting?

Question 22

It is easy for standard-setters to set rules that both give companies flexibility in setting standards and ensure that different companies' reports are comparable.

Question 23

A common issue that management accounting tries to deal with is determining the cost of producing an item.

Question 24

Financial accounting is the field of accounting that would deal with the question of why operating performance differed from management plans.

Question 25

All companies must follow generally accepted managerial accounting principles in creating their internal reports.

Question 26

Because taxpayers often dispute the amounts they owe, it is important for tax computations to be verifiable.

Question 27

In the U.S., the same authorities set income tax rules and accounting standards for public companies.

Question 28

The object of accounting measurement must always be a separate legal entity.

Question 29

""Objects"" of accounting measurment can include both companies and groups of companies.

Question 30

There are often trade-offs that need to be made between the different criteria for good measurement systems.

Question 31

The primary maker of financial accounting standards in the United States is the International Accounting Standards Board.

Question 32

One of the ways that accounting affects society is by making certain actions seem legitimate.

Question 33

A measurement is a way of assigning numbers to objects.

Question 34

The accounting measurement system does not change or adapt to different needs of users.

Question 35

The accounting measurement system includes accountants, but does not include people who check if the accounting was done accurately.

Question 36

In the accounting measurement system, the nature of the rules and the qualifications needed by the measurers are interrelated.

Question 37

In situations when society and regulators trust accountants to use their discretion wisely, accounting rules tend to be very specific and detailed.

Question 38

The term "stewardship" describes managers' obligation to serve shareholders faithfully.

Question 39

The FASB, in its concepts statements, says that a major purpose of financial reporting is to provide investors and creditors with information that will help them make economic decisions.

Question 40

The text talks about accounting as a measuring system. The auditors of public company financial statements would be best described as which component of a measurement system?

A) Objects to be measured
B) Rules for measuring objects
C) Verifiers
D) Users

Question 41

Financial analysts are best described as which component of the accounting measurement system?

A) Standard-setters
B) Rules for measuring objects
C) Verifiers
D) Users

Question 42

The text talks about accounting as a measurement system. The accounting staff of a public company, which produces the financial statements, would be best described as which component of a measurement system?

A) Objects to be measured
B) Rules for measuring objects
C) Verifiers
D) Users
E) Measurers

Question 43

The "realization principle" for recognizing revenues would be best described as which component of a measurement system?

A) An object to be measured
B) A rule for measuring objects
C) A user decision model
D) A verifier

Question 44

The public companies whose financial statements we examine are best described as which component of the accounting measurement system?

A) An object to be measured
B) A rule for measuring objects
C) A user decision model
D) A verifier
E) Standard-setters

Question 45

Outside the United States, the primary setter of accounting standards is the

A) International Accounting Standards Board
B) Financial Accounting Standards Board
C) United Nations
D) International Association of Securities Regulators
E) International Institute of Certified Public Accountants

Question 46

All of the following are fundamental rules of measurement systems, except:

A) Quantities must be additive.
B) Quantities are always defined within some class of objects.
C) The quantities must be measured subjectively.
D) The measures must come from observations of the real world.

Question 47

In the United States, the primary setter of accounting standards for non-public companies is the

A) International Accounting Standards Board
B) Financial Accounting Standards Board
C) Securities and Exchange Commission
D) U.S. Department of Commerce
E) American Institute of Certified Public Accountants

Question 48

Which of the following are characteristics of good measurement systems?

A) Clarity
B) Power
C) Simplicity
D) Theoretical fruitfulness
E) All of the above

Question 49

Research states that one of the ways accounting values vary across societies is in degree of the preference for professional judgment versus statutory control.

Question 50

The critical-interpretive perspective suggests that rules should be designed in a way that benefits the preparers of financial statements.

Question 51

The FASB believes that the objectives of financial accounting should not depend in any way on the economic and legal environment of the United States.

Question 52

In the United States, ownership and management of public corporations is usually separate. As a result, shareholders
are not able to order managers to produce specific reports.

Question 53

One effect of the free enterprise system on U.S. accounting is that U.S. firms try to avoid disclosing information that would help their competitors.

Question 54

U.S. accounting typically uses inflation adjustments for the value of the dollar.

Question 55

One of the types of accounting values that differs among countries is the preference for professional judgment versus statutory control.

Question 56

One of the ways that accounting affects society is by making certain actions seem normal and legitimate.

Question 57

Setting accounting rules is always an objective scientific process, and is never affected by political considerations.