Deck 14: Money and the Financial System

Question 1

All of the following are outsiders who rely on information from an organization's financial statements except

A)lenders.
B)the Internal Revenue Service.
C)stockholders.
D)creditors.
E)managers.

Answer 1

E
Explanation: Managers and owners (both parties are on the inside)use financial statements for external purposes to report to the IRS,stockholders,creditors,customers,employees and other interested parties.

Question 2

How do managers and owners use financial statements?

Answer 2

Managers and owners use financial statements to aid in internal planning and control and for external purposes such as reporting to the Internal Revenue Service,stockholders,creditors,employees,and other interested parties.

Question 3

Bookkeeping is only one aspect of accounting and involves the recording of routine,day-to-day business transactions.

Answer 3

True
Explanation: The terms accounting and bookkeeping are often mistakenly used interchangeably.Much narrower and far more mechanical than accounting,bookkeeping is typically limited to the routine,day-to-day recording of business transactions.

Question 4

If Evelyn Chang is a self-employed,state-certified accountant who provides various types of accounting services for different companies and organizations,she is probably a

A)private accountant.
B)certified management accountant.
C)certified public accountant.
D)noncertified accountant.
E)forensic accountant.

Question 5

A CPA has the right to

A)officially express an unbiased opinion about the accuracy of a firm's financial statements.
B)possibly express a biased opinion about the accuracy of a firm's financial statements.
C)make no errors.
D)handle every firm's reports by different rules.
E)all of the above.

Question 6

Accounting

A)records,measures,and interprets financial data.
B)produces goods and services.
C)reports only to those within the organization.
D)reports only to those outside the organization.
E)develops promotional plans.

Question 7

Billy Banker has to decide whether to lend the Safe Toy Company $10,000 to pay suppliers.He will

A)review the company's financial statements.
B)give it the loan because he likes its looks.
C)see if its gum blows good bubbles.
D)ask its competition what to do.
E)turn down the loan application.

Question 8

A forensic accountant

A)investigates crime scenes.
B)works for a public corporation.
C)analyzes financial documents in search of fraudulent entries or financial misconduct.
D)investigates workplace accidents to determine fault.
E)analyzes annual reports to ensure that corporations have adequate corporate governance mechanisms.

Question 9

What is the difference between a certified public accountant (CPA)and a private accountant?

Question 10

The terms accounting and bookkeeping are interchangeable because they mean almost the same thing.

Question 11

Assets are a firm's economic resources.

Question 12

Only businesses use accounting information to demonstrate how their funds are being used.

Question 13

In accounting,a ledger is a time-ordered list of accounting transactions.

Question 14

Vikram Patel is an accountant who is employed by a large department store chain in the tax department.He is probably a(n)

A)public accountant.
B)private accountant.
C)legal accountant.
D)junior accountant.
E)senior accountant.

Question 15

Budgets are valuable tools because they break down cash inflows and outflows to help individuals and organizations clearly see where financial problems may lie.

Question 16

Accounting is the recording,measurement,and interpretation of financial information.

Question 17

CPA stands for

A)Certified Private Accountant.
B)Credentialed Private Accountant.
C)Credentialed Public Accountant.
D)Certified Public Accountant.
E)Certified Professional Accountant.

Question 18

Private accountants do all of the following except

A)work for a corporation,government,or other organization to prepare and analyze its financial information.
B)have titles such as controller or internal auditor.
C)prepare and interpret a firm's financial statements.
D)express an official unbiased opinion regarding the accuracy of a client's financial statements.
E)take part in internal planning and decision making.

Question 19

Although the terms accounting and bookkeeping are often used interchangeably,a point of distinction is that the scope of bookkeeping tends to be

A)narrower.
B)more important.
C)subject to interpretation.
D)more lucrative.
E)broader.

Question 20

Small businesses do not have a need for the financial information compiled by accountants.

Question 21

Only business organizations have revenue to report.

Question 22

Define double-entry bookkeeping and explain how to use it,keeping the accounting equation in balance.

Question 23

All business transactions can be classified as assets,liabilities,or owner's equity.

Question 24

What are the fundamentals of the accounting process?

A)Journals and ledgers
B)The accounting equation and the double-entry bookkeeping system
C)The accounting equation and the accounting cycle
D)Double-entry bookkeeping and the accounting cycle
E)Ledgers and financial statements

Question 25

Double-entry bookkeeping is a system of recording and classifying business transactions

A)in separate accounts in order to maintain the accounting equation.
B)by the amount of the transaction.
C)in all accounts including those that do not maintain the accounting equation.
D)in general ledgers.
E)none of the above.

Question 26

At the end of each accounting period,the dollar amounts in all the revenue and expense accounts on the income statement are moved into an account called "Retained Earnings."

Question 27

All of the following represent assets except

A)cash.
B)inventory.
C)land.
D)equipment.
E)a bank loan.

Question 28

When the financial statements are completed and an accountant has attested that the firm followed GAAP,a firm's books are said to be "closed," and the accounting cycle begins anew for the next accounting period.

Question 29

The accounting cycle collects,records,and analyzes raw data constantly through the business's life cycle.

Question 30

What is the last step that must be done before a firm's books can be closed for an accounting cycle?

A)The annual reports must be prepared
B)The journal must be filled out
C)The information from the journal must be transferred to the ledge
D)A CPA must attest that good principles were used in the preparation of the document
E)The trial balance must be verified

Question 31

What is owners' equity?

A)A firm's economic resources
B)A firm's 'goodwill' or reputation
C)Debts the firm owes to others
D)Outstanding loans and credit
E)All the money that the firm has that does not need to be paid back

Question 32

In double-entry bookkeeping,after gathering together and analyzing source documents and recording each financial transaction in a journal,a financial manager,bookkeeper,or accountant next

A)closes out the books.
B)posts transactions in a journal.
C)posts transactions in a ledger.
D)prepares a trial balance.
E)balances the accounting equation.

Question 33

The debts Anna's Flowers owes to the Small Business Administration and her company's suppliers represent which of the following?

A)Owners' equity
B)Assets
C)Liabilities
D)Stock
E)Bonds

Question 34

What is the accounting equation? Please describe each part.

Question 35

Which of the following equations is equivalent to the accounting equation?

A)Equity = liabilities-assets
B)Owners' equity = assets-liabilities
C)Revenues-expenses = net income
D)Net income = expenses-revenues + taxes
E)Profit = sales-revenues

Question 36

The accounting cycle includes all but which of the following?

A)Examine source documents.
B)Record transactions.
C)Post transactions.
D)Prepare financial statements.
E)Generate annual reports.

Question 37

Income statements show revenue,expenses,and income over a period of time.

Question 38

The accounting cycle is a system of analyzing and interpreting business transactions in separate accounts in order to maintain the balance of the accounting equation.

Question 39

Which of the following is the first step in the accounting cycle?

A)Examine source documents.
B)Record transactions.
C)Post transactions.
D)Prepare financial statements.
E)Generate annual reports.

Question 40

Cost of goods sold is calculated by subtracting the ending inventory from the beginning inventory.

Question 41

Balance sheets show revenues,expenses,and profits.

Question 42

Expenses can be incurred daily.

Question 43

Owners' equity includes funding contributed to an organization by the owner and income earned and retained to finance organizational growth.

Question 44

Define the "cost of goods sold" line on an income statement and explain how to calculate it.

Question 45

When a company wants to place a value on a physical asset for its balance sheet,it must

A)reduce the value by the amount the asset has depreciated.
B)auction the asset off.
C)ask its competitors what the asset is worth.
D)price a new one.
E)increase the value by the amount the asset has appreciated.

Question 46

When an accountant allocates the cost of a piece of equipment over a period of time,this is called

A)discounting.
B)encumberment.
C)cost plus.
D)expense designation.
E)depreciation.

Question 47

A balance sheet shows the financial position of an organization at any given moment in time.

Question 48

What are income statements temporary in nature?

Question 49

All of the following could be expense accounts except

A)interest expense.
B)retained expense.
C)general and administrative expense.
D)research and development expense.
E)depreciation expense.

Question 50

An income statement shows

A)revenues,expenses,and net income over a period of time.
B)assets,liabilities,and equity.
C)the company's status at a particular point in time.
D)how much income each employee earned.
E)how much income the CEO earned.

Question 51

The information presented in an income statement could be described using which of the following equations?

A)Equity = liabilities-assets
B)Equity = assets-liabilities
C)Revenues-expenses = net income
D)Net income = expenses-revenues + taxes
E)All of the above

Question 52

Net income is

A)earnings after taxes.
B)assets after taxes.
C)liabilities after taxes.
D)expenses after taxes.
E)cash disbursements after taxes.

Question 53

Do-It-Yourself Home Repair Shop started the accounting period with $10,000 worth of shovels in inventory.During the accounting period,it purchased $5,000 worth of shovels and sold $7,500 worth.What is its cost of goods sold?

A)$15,000
B)$2,500
C)$5,000
D)$7,500
E)$10,000

Question 54

The net income of a company is equal to the total profits minus

A)assets.
B)equity.
C)expenses.
D)sales.
E)income.

Question 55

Balance sheets show assets,liabilities,and expenses over a period of time.

Question 56

Liquidity is judged by how easily an asset can be turned into cash.

Question 57

Owners' equity includes owners' contributions to their business along with income retained to finance growth and development.

Question 58

An accounting term that is synonymous with revenue is

A)profit.
B)expenses.
C)sales.
D)net income.
E)price.

Question 59

The financial document that shows a company's revenue,expenses,and profits over a period of time is called a(n)

A)income statement.
B)balance sheet.
C)budget.
D)statement of cash flow.
E)discount statement.

Question 60

Net income is the profit (or sometimes loss)after all expenses,excluding taxes,have been deducted from revenue.

Question 61

Negative cash flow always indicates that a company is in financial trouble.

Question 62

Information found on the company's income statement and balance sheet is extracted from these documents and examined more closely through the use of

A)general analysis.
B)specific analysis.
C)psychoanalysis.
D)summative analysis.
E)ratio analysis.

Question 63

All of the following would be considered owners' equity accounts except

A)common stock.
B)preferred stock.
C)stockholders' equity.
D)accounts payable.
E)retained earnings.

Question 64

What is owners' equity? How can stock issues complicate how the owners' equity account is recorded?

Question 65

A company's short-term financial obligations are called its

A)assets.
B)equity.
C)net profit.
D)current liabilities.
E)accounts payable.

Question 66

Discuss why the financial statement called the "balance sheet" was given the name and explain the two different formats that this statement can have.

Question 67

The balance sheet uses all of the following account titles to describe liabilities except

A)sales revenue.
B)accounts payable.
C)current liabilities.
D)taxes payable.
E)wages payable.

Question 68

A company's assets that can be easily converted into cash are called

A)fixed assets.
B)long-term assets.
C)current assets.
D)equity.
E)revenue assets.

Question 69

The financial document that has been likened to a snapshot of how the company's finances are doing at that moment is called a(n)

A)income statement.
B)balance sheet.
C)annual report.
D)budget.
E)statement of cash flow.

Question 70

___________ is an account showing money owed to a company by its clients or customers.

A)Accounts payable
B)Accounts receivable
C)Current assets
D)Current liabilities
E)Balance sheet

Question 71

All of a firm's unpaid financial obligations are occasionally consolidated into an account called

A)current liabilities.
B)accounts payable.
C)cost of goods sold.
D)accrued expenses.
E)long-term liabilities.

Question 72

Ratio analysis brings the information on financial statements into sharper focus so that a firm's managers and others can measure its productivity,profitability,and sources of financing relative to other firms.

Question 73

Liquidity ratios show how fast a company can turn current assets into cash to pay off short-term debt.

Question 74

Profitability ratios measure how efficiently a firm uses its assets to generate $1 of sales.

Question 75

The owners' contributions to a company and all earnings retained to finance continued growth and product development are

A)owners' equity.
B)assets.
C)liabilities.
D)revenue.
E)profits.

Question 76

After ratios are computed,it is not much help to compare them with those of similar organizations.

Question 77

The balance sheet uses all of the following account titles to describe assets except

A)accounts receivable.
B)cash.
C)inventory.
D)current assets.
E)deferred income taxes.

Question 78

The financial statement that explains how a firm's cash changed from the beginning of the accounting period to the end is called the

A)statement of cash flows.
B)balance sheet.
C)income statement.
D)master budget.
E)profit-loss statement.

Question 79

The financial statement that represents an accumulation of all of a company's transactions since it began is the

A)income statement.
B)balance sheet.
C)profit and loss statement.
D)statement of cash flow.
E)income tax form.

Question 80

Debt utilization ratios measure how much debt a company is using relative to other sources of capital.