Deck 1: Accounting in Business

Question 1

Recordkeeping,or bookkeeping,is the recording of transactions and events,either manually or electronically.This is just one part of accounting.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Regulators often have legal authority over certain activities of organizations.

Answer 3

True

Question 4

Financial accounting is the area of accounting aimed at serving external users by providing them with general-purpose financial statements.

Question 5

Owners of a corporation are called shareholders or stockholders.

Question 6

An accounting system captures relevant data about transactions and then classifies,records,and reports data.

Question 7

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

Question 8

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

Question 9

Auditors verify the effectiveness of internal controls.

Question 10

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

Question 11

Internal users of accounting information do not directly run the organization and have limited access to its accounting information.

Question 12

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

Question 13

The Sarbanes-Oxley Act (SOX)requires documentation and verification of internal controls.It also emphasizes effective internal controls.

Question 14

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

Question 15

The Financial Accounting Standards Board (FASB)is a group tasked with setting generally accepted accounting principles (GAAP).

Question 16

Internal users include lenders,shareholders,brokers and nonexecutive employees.

Question 17

Ethics is defined as maximizing personal wealth,regardless the cost.

Question 18

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

Question 19

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

Question 20

Management is not responsible for implementing internal controls and does not need to issue a report on internal controls.

Question 21

The measurement principle prescribes that accounting information is based on subjective opinion rather than cost.

Question 22

The going-concern assumption presumes that a business will continue operating instead of being closed or sold.

Question 23

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

Question 24

A sole proprietorship is a business with multiple owners.

Question 25

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

Question 26

Objectivity means that financial information is supported by independent,unbiased evidence; it demands more than a person's opinion.

Question 27

The monetary unit assumption means that companies should express transactions in terms such as "a lot" or "very little."

Question 28

The business entity assumption means that a business is accounted for separately from other business entities,including its owner or owners.

Question 29

The business entity principle means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Question 30

General principles are the basic assumptions,concepts,and guidelines for preparing financial statements.GAAP aims to make information relevant and representationally faithful.

Question 31

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

Question 32

As a general rule,revenues should not be recognized in the accounting records when earned,but rather when cash is received.

Question 33

Objectives,qualitative characteristics,elements,and recognition and measurement are components of the FASB conceptual framework.

Question 34

A partnership must pay an additional business income tax.

Question 35

The four common forms of business ownership include sole proprietorship,partnership,limited liability company (LLC),and corporation.

Question 36

The Securities and Exchange Commission (SEC)is a U.S.government agency that oversees proper use of GAAP by companies that sell stock and debt to the public.

Question 37

Limited liability and indefinite business life are characteristics of a corporation.

Question 38

The International Accounting Standards Board (IASB)issues International Financial Reporting Standards (IFRS)that identify preferred accounting practices.

Question 39

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

Question 40

Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.

Question 41

Liabilities are owners' claims on assets.

Question 42

Investing activities include long-term borrowing and repaying of cash from lenders.

Question 43

Stock issuances are increases in equity from the sale of products or services.

Question 44

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

Question 45

Stockholder investments increase equity via net income.

Question 46

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

Question 47

Financing activities provide the resources organizations use to pay for resources such as land,buildings,and equipment.

Question 48

A net loss occurs when revenues exceed expenses.

Question 49

Owner financing refers to resources contributed by creditors or lenders.

Question 50

Revenues are increases in equity (via net income)from a company's sales of products and services to customers.

Question 51

Every business transaction leaves the accounting equation in balance.

Question 52

Assets are the resources a company owns or controls that are expected to yield future benefits.

Question 53

Net income occurs when revenues exceed expenses.

Question 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

Dividends are subtracted as expenses in the calculation of net income.

Question 59

An external transaction is an exchange within an entity that may or may not affect the accounting equation.

Question 60

Planning is a part of each business activity (operating,investing,and financing),and gives each activity meaning and focus.

Question 61

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

Question 62

The four basic financial statements include the balance sheet,income statement,statement of retained earnings,and statement of cash flows.

Question 63

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

Question 64

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

Question 65

Return on assets is often stated in ratio form as the amount of average total assets divided by revenue.

Question 66

Return on assets is often stated in ratio form as the amount of income divided by assets invested.

Question 67

Risk is the uncertainty about the return we will earn.

Question 68

An income statement reports on investing and financing activities.

Question 69

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

Question 70

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

Question 71

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

Question 72

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 73

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

Question 74

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

Question 75

The income statement describes revenues earned and expenses incurred along with the resulting net income or loss over a specified period of time.

Question 76

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

Question 77

The balance sheet is based on the accounting equation.

Question 78

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

Question 79

Operating activities include long-term borrowing and repaying cash from lenders,stockholder investments and dividends paid to stockholders.

Question 80

Arrow's net income of $120 million and average total assets of $1,500 million results in a return on assets of 8%.