Deck 1: Accounting in Business

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Owners of a corporation are called shareholders or stockholders.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

Regulators often have legal authority over certain activities of organizations.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

Identifying the proper ethical path is usually easy.

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

The monetary unit assumption means that all companies doing business in the United States must express transactions and events in US dollars.

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

The three common forms of business ownership include sole proprietorship,partnership,and corporation.

Question 32

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

Question 33

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

Question 34

According to the measurement (cost)principle,it is necessary for managers to report an approximation of an asset's market value upon purchase.

Question 35

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

Question 36

General accounting principles stem from long-used accounting practices.

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

A net loss occurs when revenues exceed expenses.

Question 45

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

Question 46

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

Question 47

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

Question 48

A stockholder's investment increases equity via net income.

Question 49

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

Question 50

Liabilities are owner claims on assets.

Question 51

Every business transaction leaves the accounting equation in balance.

Question 52

Dividends paid to stockholders are subtracted in the calculation of net income,as expenses.

Question 53

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

Question 54

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

Question 55

Owner financing refers to resources contributed by creditors or lenders.

Question 56

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

Question 57

Net income occurs when revenues exceed expenses.

Question 58

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

Question 59

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

Question 60

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

Question 61

Arrow's net income of $117 million and average assets of $1,400 million results in a return on assets of 8.36%.

Question 62

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

Question 63

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

Question 64

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

Question 65

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

Question 66

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

Question 67

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

Question 68

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

Question 69

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

Question 70

Return on assets is also known as return on investment.

Question 71

The balance sheet is based on the accounting equation.

Question 72

An income statement reports on investing and financing activities.

Question 73

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

Question 74

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

Question 75

Risk is the uncertainty about the return we will earn.

Question 76

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

Question 77

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

Question 78

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 79

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

Question 80

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