Deck 1: Introducing Accounting in Business

Question 1

Internal users of accounting information include lenders, shareholders, brokers and managers.

Answer 1

False

Question 2

Accounting is an information and measurement system that identifies records and communicates financial information to users.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Auditors are banned from direct investments with their clients.

Question 5

The Financial Accounting Standards Board is a private group that sets both broad and specific accounting principles.

Question 6

The Securities and Exchange Commission (SEC) is an agency of the federal government that establishes reporting requirements for companies that issue stock to the public.

Question 7

Managerial accounting is an area of accounting that provides internal reports to assist the decision making needs of internal users.

Question 8

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

Question 9

Ownership of a corporation is divided into units called shares or stock.

Question 10

According to the cost principle, it is preferable for managers to report the most current estimate of an asset's value.

Question 11

An external audit report is a professional opinion about whether the financial statements are prepared according to generally accepted accounting principles.

Question 12

Unlimited liability is an advantage of all sole proprietorships.

Question 13

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

Question 14

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

Question 15

Understanding generally accepted accounting principles is not necessary when using and interpreting financial statements.

Question 16

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

Question 17

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

Question 18

Accounting is one way important information about businesses are reported to decision makers.

Question 19

Bookkeeping is the sole purpose of accounting.

Question 20

The internal operating functions of businesses include research and development, distribution and human resources.

Question 21

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

Question 22

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

Question 23

The Retained earnings is increased when cash is received from customers in payment of previously recorded accounts receivable.

Question 24

A net loss arises when revenues exceed expenses.

Question 25

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

Question 26

Owner financing refers to resources contributed by creditors or lenders.

Question 27

Expenses decrease retained earnings and are the costs acquired to earn revenues.

Question 28

Reebok's net income of $119 million and average assets of $1,400 million results in a return on assets of 8.5%.

Question 29

An owner's investment in a business always creates an asset (cash), a liability (note payable) and an equity (common stock).

Question 30

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

Question 31

Investing activities are the acquiring and selling of resources that an organization uses in its everyday operations.

Question 32

Planning refers to defining an organization's ideas, goals and actions.

Question 33

Revenues are increases in retained earnings from a company's earnings activities.

Question 34

Every business transaction should leave the accounting equation in balance.

Question 35

Risk is the amount of uncertainty about the return we expect to earn in the future.

Question 36

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

Question 37

The balance sheet shows whether or not the firm achieved its primary objective of earning a profit.

Question 38

Assets are the resources owned or controlled by a business.

Question 39

Dividends are expenses of a business.

Question 40

The legitimate claims of a business's creditors take precedence over the claims of its stockholders.

Question 41

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

Question 42

Internal users of accounting information always include:

A) Shareholders
B) Managers
C) Lenders
D) Suppliers
E) Customers

Question 43

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

Question 44

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 45

The income statement is a financial statement that shows revenues earned and expenses incurred during a specified period of time.

Question 46

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

Question 47

Operating activities include long-term borrowing and repaying cash from lenders and cash investments by owners or dividends to the owner.

Question 48

Internal users of accounting information include:

A) Shareholders
B) Customers
C) Creditors
D) Government regulators
E) Line Supervisor

Question 49

The balance sheet is based on the accounting equation.

Question 50

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

Question 51

Fast-Forward paid $6,000 in dividends. This amount should be included as an expense on the income statement.

Question 52

Which of the following is the primary purpose of accounting?

A) To establish a business
B) To identify, record and communicate business transactions
C) To deceive stockholders
D) To keep from paying taxes
E) To establish credit for a company

Question 53

Owner's investments and dividends are reported on the income statement.

Question 54

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

Question 55

Technological advancement

A) Has replaced accounting
B) Has not changed the work that accountants do
C) Has freed accounting professionals to concentrate more on the analysis and interpretation of information
D) In accounting has replaced the need for decision makers
E) In accounting is only available to large corporations

Question 56

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

Question 57

The first section of the income statement reports cash from operations.

Question 58

Identifying business activities requires selecting transactions and events relevant to an organization. Which of the following events would be recorded in the accounting records of Acme Car Wash?

A) Acme washes 500 cars
B) J.B. Smith, a customer, buys lunch at the restaurant next door to Acme while waiting for her car to be washed
C) Clean Company, a supplier, sells 50 pounds of soap to ABC Company
D) Sudsey Company, a supplier, goes out of business
E) Acme hires Andrea as a receptionist

Question 59

The primary objective of financial accounting is:

A) To serve the decision-making needs of internal users
B) To provide financial statements to help external users analyze and interpret an organization's activities
C) To monitor and control company activities
D) To provide information on both the costs and benefits of managing products and services
E) To know what, when and how much to produce

Question 60

Chuck Taylor invested $175,000 in cash in Fast-Forward. This amount would be reported in the statement of cash flows under financing activities.

Question 61

The organization that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the:

A) AICPA
B) FASB
C) CAP
D) SEC
E) IASB

Question 62

Generally Accepted Accounting Principles:

A) Focus on the review of a situation
B) Does not require financial statements
C) Never change
D) Intend to make information on the financial statements relevant, reliable and comparable
E) Oversees Security and Exchange Commission

Question 63

The private board that currently has the authority to establish U.S. generally accepted accounting principles is the:

A) APB
B) FASB
C) AAA
D) AICPA
E) SEC

Question 64

Which of the following statements is true of external information users?

A) They are directly involved in managing the organization
B) Their needs are met by the managerial area of accounting
C) They have limited access to an organization's accounting information
D) They use accounting information to help improve the efficiency and effectiveness of an organization
E) They are the only users of accounting information who rely on internal controls to monitor company activities

Question 65

Which of the following is the correct sequence for the heading for ABC Company's 2010 Balance Sheet?

A) ABC Company, For the year ended 12/31/10, Balance Sheet
B) For the year ended 12/31/10, Balance Sheet, ABC Company
C) Balance Sheet, 12/31/10, ABC Company
D) 12/31/10, ABC Company, Balance Sheet
E) ABC Company, Balance Sheet, 12/31/10

Question 66

Businesses can take all of the following forms except:

A) Sole proprietorship
B) Common stock
C) Partnership
D) Corporation
E) Limited Liability Corporation

Question 67

Ethical behavior requires:

A) That an auditors' pay not depend on the figures in the client's reports
B) Auditors to invest in businesses they audit
C) Analysts to report information favorable to their companies
D) Managers to use accounting information to benefit themselves
E) That an auditor provides a favorable opinion

Question 68

The principle prescribing that financial statements reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue is the:

A) Going-concern principle
B) Business entity principle
C) Objectivity principle
D) Cost Principle
E) Monetary unit principle

Question 69

Which of the following statements best describes the relationship of U.S. GAAP and IFRS?

A) They are identical
B) They are entirely different conceptual frameworks
C) They are similar but not identical
D) Neither has anything to do with accounting
E) They both relate only to publicly traded companies

Question 70

Social responsibility:

A) Is a concern for the impact of one's actions on society as a whole
B) Is a code that helps in dealing with confidential information
C) Is required by the SEC
D) Requires that all businesses conduct social audits
E) Is mandated by the federal government

Question 71

Which of the following accounting principles dictates when expenses are recognized?

A) Revenue recognition principle
B) Monetary unit principle
C) Business entity principle
D) Matching principle
E) Full disclosure principle

Question 72

The area of accounting aimed at serving the decision making needs of internal users is:

A) Financial accounting
B) Managerial accounting
C) External auditing
D) SEC reporting
E) Governmental accounting

Question 73

Which of the following elements are found on the income statement?

A) Cash
B) Accounts Receivable
C) Common Stock
D) Retained Earnings
E) Salaries Expense

Question 74

The financing functions of a business include:

A) Research and development
B) Purchasing
C) Marketing
D) Distribution
E) Selling common stock

Question 75

A corporation:

A) Is a legal entity separate and distinct from its owners
B) Must have many owners
C) Has shareholders who have unlimited liability for the acts of the corporation
D) Is the same as a limited liability partnership
E) Does not have to pay taxes

Question 76

An Asset is:

A) only acquired with cash
B) something the company owns
C) only contributed by stockholders
D) a company's obligation to pay
E) is also called contributed capital

Question 77

A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000 and purchased for $137,000. The land should be recorded in the purchaser's books at:

A) $95,000
B) $137,000
C) $138,500
D) $140,000
E) $150,000

Question 78

Which accounting assumption assumes that all accounting information is reported monthly or yearly?

A) Business entity assumption
B) Monetary unit assumption
C) Value assumption
D) Cost assumption
E) Time period assumption

Question 79

The accounting guideline prescribing that financial statement information be supported by independent, unbiased evidence other than someone's belief or opinion is the:

A) Business entity principle
B) Monetary unit principle
C) Going-concern principle
D) Cost principle
E) Measurement principle

Question 80

Which of the following elements are found on the Balance Sheet?

A) Service Revenue
B) Net Income
C) Operating Activities
D) Utilities Expense
E) Retained Earnings