Deck 1: Accounting in Business

Question 1

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

Answer 1

False

Question 2

Owners of a corporation are called shareholders or stockholders.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

Managerial accounting is the area of accounting that provides internal reports to assist the decision making needs of internal users.

Question 5

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

Question 6

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

Question 7

Bookkeeping is the recording of transactions and events and is only part of accounting.

Question 8

Identifying the proper ethical path is easy.

Question 9

Regulators often have legal authority over certain activities of organizations.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

Internal users include lenders,shareholders,brokers and managers.

Question 15

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

Question 16

An accounting information system communicates data to help businesses make better decisions.

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

The business entity principle means that a business will continue operating for an indefinite period of time.

Question 27

Unlimited liability is an advantage of a sole proprietorship.

Question 28

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

Question 29

As a general rule,revenues should not be recognized in the accounting records until it is received in cash.

Question 30

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

Question 31

Planning is defining an organization's ideas,goals,and actions.

Question 32

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

Question 33

Objectivity means that financial information is supported by independent unbiased evidence.

Question 34

General accounting principles arise from long-used accounting practices.

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

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

Question 37

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

Question 38

According to the cost principle,it is preferable for managers to report an estimate of an asset's value.

Question 39

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

Question 40

The monetary unit assumption means that all international transactions must be expressed in dollars.

Question 41

Return on assets is also known as return on investment.

Question 42

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

Question 43

Owner's withdrawals are expenses.

Question 44

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

Question 45

Strategic management is the process of determining the right mix of operating activities for the type of organization,its plans,and its markets.

Question 46

Owner financing refers to resources contributed by creditors or lenders.

Question 47

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

Question 48

An external transaction is an exchange of value within an organization.

Question 49

A net loss occurs when revenues exceed expenses.

Question 50

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

Question 51

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

Question 52

Assets are the resources of a company and are expected to yield future benefits.

Question 53

Every business transaction leaves the accounting equation in balance.

Question 54

Revenues are increases in equity from a company's earning activities.

Question 55

Net income occurs when revenues exceed expenses.

Question 56

An owner's investment in a business always creates an asset (cash),a liability (note payable),and owner's equity (investment.)

Question 57

Liabilities are the owner's claim on assets.

Question 58

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

Question 59

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

Question 60

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

Question 61

The income statement displays revenues earned and expenses incurred over a specified period of time due to earnings activities.

Question 62

Risk is the uncertainty about the return we expect to earn.

Question 63

The statement of cash flows identifies cash flows separated into operating,investing,and financing activities over a period of time.

Question 64

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 65

Accounting is an information and measurement system that does all of the following except:

A)Identifies business activities.
B)Records business activities.
C)Communicates business activities.
D)Does not use technology to improve accuracy in reporting.
E)Helps people make better decisions.

Question 66

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

Question 67

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

Question 68

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

Question 69

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

Question 70

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

Question 71

An income statement reports on investing and financing activities.

Question 72

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

Question 73

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

Question 74

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

Question 75

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

Question 76

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

Question 77

The balance sheet is based on the accounting equation.

Question 78

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

Question 79

Ending capital reported on the statement of owner's equity is calculated by adding owner investments and net losses and subtracting net incomes and withdrawals.

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%.