Deck 1: Introducing Financial Accounting

Question 1

Internal users include lenders, shareholders, brokers and managers.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

An accounting information system communicates data to help users make better decisions.

Question 5

Identifying the proper ethical path is usually easy.

Question 6

Financial accounting is the area of accounting that serves the decision making needs of internal users.

Question 7

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

Question 8

Regulators often have legal authority over certain activities of organizations.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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 18

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 19

Owners of a corporation are called shareholders or stockholders.

Question 20

Bookkeeping is the recording of transactions and events and is only one part of accounting.

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

Objectivity means that financial information is supported by independent, unbiased evidence.

Question 27

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

Question 28

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

Question 29

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

Question 30

The FASB and IASB are attempting to converge and enhance the conceptual framework that guides standard setting, however the differences between U.S. GAAP and IFRS greatly outweigh the similarities.

Question 31

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

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

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

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

General accounting principles arise from long-used accounting practices.

Question 37

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

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

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

Question 40

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

Question 41

Net income occurs when revenues exceed expenses.

Question 42

A company's operating and financing totals are always equal.

Question 43

Owner financing refers to resources contributed by creditors or lenders.

Question 44

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

Question 45

Revenues are increases in equity from a company's sales of products and services to customers.

Question 46

Dividends are expenses.

Question 47

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

Question 48

Every business transaction leaves the accounting equation in balance.

Question 49

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

Question 50

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

Question 51

Common stock is an increase in equity from a company's earnings activities.

Question 52

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

Question 53

A stockholder's investment in a business normally creates an asset (cash), a liability (note payable), and stockholders' equity (investment).

Question 54

Liabilities are the owner's claim on assets.

Question 55

Return on assets is also known as return on investment.

Question 56

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

Question 57

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

Question 58

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

Question 59

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

Question 60

A net loss occurs when revenues exceed expenses.

Question 61

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 62

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

Question 63

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

Question 64

The balance sheet is based on the accounting equation.

Question 65

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

Question 66

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

Question 67

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

Question 68

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

Question 69

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

Question 70

Risk is the uncertainty about the return we will earn.

Question 71

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

Question 72

An income statement reports on investing and financing activities.

Question 73

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

Question 74

Arrow's net income of $117 million and average assets of $1,400 million results in a return on assets of 8.36%.
Return on Assets = Net Income/Average Assets
Return on Assets = $117 million/$1,400 million = 8.36%

Question 75

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

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

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

Question 79

Ending retained earnings on the statement of retained earnings is calculated by adding stockholder investments and net losses and subtracting net income and dividends.

Question 80

The income statement describes revenues earned and expenses incurred over a specified period of time due to earnings activities.