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

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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.

Question 5

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

Question 6

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 7

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

Question 8

Regulators often have legal authority over certain activities of organizations.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

Owners of a corporation are called shareholders or stockholders.

Question 16

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

Question 17

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

Question 18

Identifying the proper ethical path is usually easy.

Question 19

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

Question 20

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

Question 21

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

Question 22

General accounting principles stem from long-used accounting practices.

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

Owner withdrawals are subtracted in the calculation of net income, as expenses.

Question 42

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

Question 43

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

Question 44

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

Question 45

Every business transaction leaves the accounting equation in balance.

Question 46

Liabilities are the owner's claim on assets.

Question 47

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

Question 48

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

Question 49

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

Question 50

A net loss occurs when revenues exceed expenses.

Question 51

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

Question 52

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

Question 53

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

Question 54

Owner financing refers to resources contributed by creditors or lenders.

Question 55

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

Question 56

Net income occurs when revenues exceed expenses.

Question 57

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

Question 58

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

Question 59

An owner's investment increases equity via net income.

Question 60

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

Question 61

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

Question 62

Risk is the uncertainty about the return we will earn.

Question 63

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

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

An income statement reports on investing and financing activities.

Question 66

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

Question 67

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

Question 68

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

Question 69

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

Question 70

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

Question 71

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

Question 72

Return on assets is also known as return on investment.

Question 73

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

Question 74

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

Question 75

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

Question 76

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

Question 77

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

Question 78

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 79

The balance sheet is based on the accounting equation.

Question 80

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