Deck 1: Uses of Accounting Information and the Financial Statements

Question 1

Management accounting focuses on external decision making.

Answer 1

False

Question 2

The Sarbanes-Oxley Act orders the SEC to hold chief executives and CFOs responsible for the accuracy of their company's financial statements.

Answer 2

True

Question 3

Earned income is a measure of profitability.

Answer 3

True

Question 4

Liquidity means having enough funds on hand to pay debts when they fall due.

Question 5

Responsibility for ethical financial reporting rests solely with the accountant.

Question 6

The terms bookkeeping and accounting are synonymous.

Question 7

The intentional preparation of misleading financial statements is referred to as fraudulent financial reporting.

Question 8

Obtaining funds from a bank is an example of an investing activity.

Question 9

The processing stage of accounting is accomplished by the recording of data.

Question 10

Paying taxes to the government is an example of an operating activity.

Question 11

Financial accounting information is used primarily by management.

Question 12

Accounting ratios are useful as management performance measures.

Question 13

A major function of management is to provide the accountant with relevant and useful information.

Question 14

A company's management information system is a subsystem of its accounting information system.

Question 15

Criminal penalties cannot be imposed on those who prepare fraudulent financial statements.

Question 16

The purchase of equipment is an example of a financing activity.

Question 17

Fraudulent financial reporting can result from the misapplication of accounting principles.

Question 18

The modern definition of accounting focuses on the role of accounting in making economic decisions rather than on how to do accounting.

Question 19

Two major goals of business are to achieve profitability and to achieve liquidity.

Question 20

Buying and selling goods and services are examples of operating activities.

Question 21

Financing a business means obtaining funds so the business can begin and continue operating.

Question 22

Accountants consider money the common unit of measure for all business transactions.

Question 23

Corporations represent the largest number of businesses in the United States.

Question 24

The Federal Reserve Board is an example of an economic planner.

Question 25

Taxing authorities are considered accounting information users with an indirect financial interest.

Question 26

The Securities and Exchange Commission is an accounting information user with a direct financial interest.

Question 27

The evaluation and interpretation of financial statements and related performance measures is called technical analysis.

Question 28

Knowledge of the exchange rate is necessary to apply the money measure concept in case of international transactions.

Question 29

Not-for-profit organizations have no obligation to report their financial performance to outside parties.

Question 30

Partnerships in the United States generate more business (in terms of receipts) than sole proprietorships and corporations put together.

Question 31

For reporting purposes, the personal assets and debts of a business owner should be combined with the assets and debts of the business.

Question 32

For accounting purposes, a business and its owners are considered separate entities.

Question 33

Regulatory agencies are considered information users with a direct financial interest.

Question 34

Only about 10 percent of the U.S. economy is generated by governmental and not-for-profit organizations.

Question 35

Exchange rates for currency change daily according to the supply and demand for each currency.

Question 36

Creditors are those who lend money to others or deliver goods and services before being paid.

Question 37

The primary external users of accounting information are investors and management.

Question 38

A corporation is an economic unit that is legally separate from its owners.

Question 39

The day-by-day accumulation of interest is considered a transaction involving an exchange of value.

Question 40

Payment to a creditor is an example of a nonexchange business transaction.

Question 41

Creditors' equities is another term for liabilities.

Question 42

The obligation to provide services to another entity is a type of liability.

Question 43

The liability of corporate stockholders is limited to the amount of their investment.

Question 44

The personal resources of any partner can be called upon to pay the obligations of the partnership.

Question 45

One way of stating the accounting equation is: Assets + Liabilities = Owner's Equity.

Question 46

Revenues have the effect of increasing owner's capital.

Question 47

Financial position may be assessed by referring to a balance sheet.

Question 48

The economic resources invested in a business by the owner are represented by owner's equity.

Question 49

Owner's equity equals assets minus liabilities.

Question 50

A partnership is dissolved when any partner leaves the business or dies.

Question 51

Net income is another term for revenues.

Question 52

If a company has suffered only net losses since its inception, the owner's equity account will always have a negative balance.

Question 53

Net assets equal assets plus liabilities.

Question 54

In general, any partner can obligate the partnership to another party.

Question 55

The stockholders of a corporation elect the board of directors.

Question 56

Owner withdrawals are an example of an expense.

Question 57

Equipment is an asset that is considered nonmonetary in nature.

Question 58

When a corporate stockholder sells his or her shares of stock, the corporation is technically dissolved.

Question 59

Cash is another term for owner's equity.

Question 60

A net loss results when owner's withdrawals exceed net income.

Question 61

A proper heading for the income statement could include "For the Year Ended December 31, 20xx."

Question 62

An increase in revenue will result in an increase in owner's equity.

Question 63

The account 'Wages Payable' would appear on the income statement.

Question 64

The statement of owner's equity relates the income statement to the balance sheet by showing how the owner's Capital account changed during the accounting period.

Question 65

Objectivity means carrying out one's professional responsibilities with competence and diligence.

Question 66

The heading for a balance sheet might include the line "As of December 31, 20xx."

Question 67

The account 'Supplies' will appear as an expense on the income statement.

Question 68

The Internal Revenue Service is responsible for issuing accounting standards for state and local governments.

Question 69

The purchase of land with cash would be disclosed on the statement of cash flows.

Question 70

The income statement is also known as the statement of financial position.

Question 71

Both public accountants and management accountants are required to adhere to a code of professional conduct.

Question 72

The statement of cash flows discloses significant events related to the operating, investing, and financing activities of a business.

Question 73

Independence is the avoidance of all relationships that impair or appear to impair the objectivity of the accountant.

Question 74

Inventory is an example of a monetary asset.

Question 75

The statement of owner's equity discloses the owner's withdrawals made during the period.

Question 76

Generally accepted accounting principles encompass the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

Question 77

Companies whose securities are sold to the general public must adhere to standards established by the Securities and Exchange Commission.

Question 78

The International Accounting Standards Board is the primary and most important determinant of generally accepted accounting principles.

Question 79

Owner's equity equals cumulative net income or loss plus owner investments minus cumulative withdrawals.

Question 80

The accounting fees earned by an accounting firm would appear on its balance sheet.