Deck 7: Accounting: Decision Making by the Numbers

Question 1

Strong financial performance would help employees make their case for nice pay raises and hefty bonuses.

Answer 1

True

Question 2

Generally accepted accounting principles (GAAP) are a set of accounting standards used in the preparation of financial statements.

Answer 2

True

Question 3

Financial accounting is the branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other stakeholders.

Answer 3

True

Question 4

Accounting is a system for recognizing, recording, organizing, analyzing, summarizing, and reporting information about the financial transactions that affect an organization.

Question 5

Key users of a corporation's accounting information include managers, government agencies, and shareholders.

Question 6

The GAAP accounting standards have replaced the IFRS accounting standards.

Question 7

Public companies that trade on the stock exchanges are required to follow the IFRS.

Question 8

Through IFRS, accountants aim to ensure that financial statements are standardized in such a way to allow users to track the firm's financial performance over a period of years and compare its results to those of other firms.

Question 9

As a result of the accounting scandals of the late 1990s and early 21st century, many countries have imposed new ethics-related requirements on accountants.

Question 10

Mary Chiu is an employee and shareholder for the McNeely Company. Mary is considered a primary user of her firm's accounting information.

Question 11

Companies that have the option to follow IFRS develop their own set of financial accounting rules and modify them whenever the market changes.

Question 12

The International Accounting Standards Board is constantly modifying, clarifying, and expanding IFRS as business practices evolve and new issues arise.

Question 13

Accounting systems are utilized by companies for several reasons, but they have little value when it comes to making economic decisions.

Question 14

Many of the major firms that were implicated in accounting scandals had a difficult time recovering but after making apologies to the public these firms continued successfully.

Question 15

Assets = Liabilities + Net income.

Question 16

The managers of a company are the only stakeholders of a company that have a legitimate interest in its accounting information.

Question 17

Shareholders are often interested in detailed accounting information about the individual departments or division within a company.

Question 18

Since it deals strictly with numbers, the practice of accounting is free from ethical considerations.

Question 19

Due to accounting scandals at several large corporations, many accounting boards passed new ethics-related requirements.

Question 20

Liabilities are resources owned by a firm.

Question 21

The owners' equity section of the balance sheet indicates the claims a firm's owners have against their company's assets.

Question 22

A statement of cash flows is the financial statement identifying a firm's sources and uses of cash in a given accounting period.

Question 23

The accounting entity approach is an accounting method that recognizes revenue when it is earned and matches expenses to the revenues produced.

Question 24

Accrual-basis accounting is the method that recognizes revenue when it is earned and matches expenses to those revenues.

Question 25

Revenues are increases in a firm's assets resulting from the sale of goods, the provision of services, or other activities intended to earn income.

Question 26

Net income is the difference between the revenue a firm earns and the expenses it incurs in a given time period.

Question 27

Balance sheets only reflect the assets and liabilities of the cost of goods sold.

Question 28

The statement of retained earnings shows how retained earnings have changed from one accounting period to the next. By subtracting dividends paid to shareholders from net income, managers will see changes in this statement over time.

Question 29

A company's balance sheet will "balance" even if it is on the verge of bankruptcy.

Question 30

According to the accounting equation, Assets - Expenses = Net Income.

Question 31

Liabilities could include bank loans and current payments owed to suppliers.

Question 32

A balance sheet is a financial statement reporting the financial position of a firm at a particular point in time by identifying and reporting the value of the firm's assets, liabilities, and owners' equity.

Question 33

Expenses are listed on the left side of a balance sheet.

Question 34

The statement of cash flows shows the cash flowing in and out of the firm from three types of activities: operations, investing, and financing. It also shows the net increase or decrease in cash from all three sources and the total amount of cash on hand at the end of the period.

Question 35

Revenue, expenses, and net income are the key sections found on a statement of cash flows.

Question 36

An income statement is the financial statement that reports revenues, expenses, and net income resulting from a firm's operations over an accounting period.

Question 37

The cash balance reported at the bottom of the statement of cash flows should equal the amount of cash reported for a balance sheet prepared at the end of the same accounting period.

Question 38

Business expenses are available resources that stakeholders control.

Question 39

The accounting equation is based on the fact that the value of a firm's assets is, by definition, exactly equal to the financing provided by creditors and by owners for the purchase of those assets.

Question 40

Assets are the tangible and intangible resources of value owned by a firm.

Question 41

Forensic accountants provide standardized reports primarily intended for managers and other decision-makers employed by an organization.

Question 42

A university student registers for classes and pays the tuition with a credit card. Because it uses accrual-basis accounting, the college will recognize the payment as revenue as soon as the transaction turns into cash in the school's bank account.

Question 43

If an auditor identifies limited problems with the firm's financial methods and statements, but believes that in all other aspects the statements are fair and accurate, the auditor's report will express an adverse opinion.

Question 44

Forensic accountants combine their knowledge of accounting with investigative skills.

Question 45

The cash flows received from operations reported in the statement of cash flows should be exactly equal to the revenue the firm reports on its income statement.

Question 46

Firms must NOT include notes within financial statements that may disclose facts about the status of a lawsuit against the firm because this type of information is for internal stakeholders only.

Question 47

Firms must disclose changes in accounting methods that could affect the comparability of the current financial statements to those of previous years.

Question 48

An unqualified opinion should set off alarm bells to view the firm's financial statements with extreme skepticism.

Question 49

Comparative income statements allow users to compare inventory levels with assets listed on the income statement.

Question 50

Auditors check the accuracy of every accounting transaction; especially in large, public companies.

Question 51

If the auditor does not find any problems with the way a firm's financial statements were prepared and presented, the report will offer an adverse opinion.

Question 52

When an external audit doesn't uncover any problems with the firm's financial methods and statements, the auditor will issue an unqualified opinion.

Question 53

When auditors discover more serious and widespread problems with a firm's statements, they will offer an adverse opinion.

Question 54

Many firms offer a comparative statement to show previous accounting periods side by side, making it possible to see how account values have changed over a period of time.

Question 55

Ralph owns some stock in the Lottadoe Corporation, and wants to know whether this company earned a profit over the most recent year. This information would be available on the company's balance sheet.

Question 56

Financial accounting uses procedures developed internally that are not required to follow accounting standards.

Question 57

Rosalyn owns stock in Munnymacher Inc. and just received her annual report from this company. If she wants to see the total value of Munnymacher's assets, she should look at the company's balance sheet.

Question 58

Publicly traded firms with complex changes in their operations may report these changes in the notes section of their annual report.

Question 59

Horizontal analysis is an analysis of financial statements comparing account values reported over a period of years. This information is used to serve as a basis of comparison and to identify trends.

Question 60

Horizontal analysis compares the balance sheet in a given year to the income statement and statement of cash flows in that same year to ensure that these three statements contain consistent information.

Question 61

A liquid asset is one that is calculated by dividing net income by owner's equity.

Question 62

Wages paid to workers is an example of implicit or opportunity costs.

Question 63

Activity-based costing is a technique to assign product costs based on links between activities that drive costs and the production of specific products.

Question 64

Indirect costs tend to be a result of the firm's general operation rather than the production of any specific product.

Question 65

Whether a particular financial ratio is considered good or bad depends, in part, on the industry.

Question 66

If a company keeps an average of 100 finished bicycles in inventory each month, and it sold 1000 bicycles this year, then it turned its inventory ten times.

Question 67

An example of a fixed cost would be the interest on a bank loan.

Question 68

Activity-based costing is a much simpler and easier method to implement than the direct labour method.

Question 69

Current ratio is calculated by dividing current assets by current liabilities.

Question 70

Variable costs rise when a firm increases its production of goods and services.

Question 71

A high debt-to-equity ratio indicates that a firm is "highly leveraged."

Question 72

The current ratio helps financial managers evaluate the ability of a firm to pay short-term liabilities as they come due.

Question 73

Managerial accounting provides information, not intended for the general public, to internal stakeholders such as the managers of specific divisions or departments.

Question 74

It is standard practice to compare a firm's financial ratios to industry averages.

Question 75

Accountants define cost as the value of what is given up in exchange for something else.

Question 76

BUSN101 is one of the university courses delivered in classroom D310, which the cleaning staff maintains; therefore, the wages paid to the cleaning staff is considered a direct cost of delivering the BUSN101 course.

Question 77

Managerial accounting uses procedures developed internally that are not required to follow accounting standards.

Question 78

A high inventory turnover ratio is bad because it indicates the firm has too much inventory.

Question 79

Fixed costs remain the same even when the firm changes its level of production.

Question 80

Liquidity ratios measure the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the next year.