Deck 1: Accounting in Business

Question 1

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

Answer 1

True

Question 2

Owners of a corporation are called shareholders or stockholders.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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 7

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

Question 8

Regulators often have legal authority over certain activities of organizations.

Question 9

Good ethics are good business.

Question 10

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

Question 11

Identifying the proper ethical path is easy.

Question 12

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

Question 13

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

Question 14

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

Question 15

Internal users include lenders, shareholders, brokers and managers.

Question 16

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

Question 17

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

Question 18

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 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

General accounting principles arise from long-used accounting practices.

Question 25

Unlimited liability is an advantage of a sole proprietorship.

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

The business entity principle means that a business will continue operating for an indefinite period of time.

Question 33

The monetary unit assumption means that all international transactions must be expressed in dollars.

Question 34

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

Question 35

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

Question 36

As a general rule, revenues should not be recognized in the accounting records until it is received in cash.

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

An external transaction is an exchange of value within an organization.

Question 42

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

Question 43

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

Question 44

Strategic management is the process of determining the right mix of operating activities for the type of organization, its plans, and its markets.

Question 45

Revenues are increases in equity from a company's earning activities.

Question 46

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

Question 47

A net loss occurs when revenues exceed expenses.

Question 48

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

Question 49

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

Question 50

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

Question 51

Net income occurs when revenues exceed expenses.

Question 52

Assets are the resources of a company and are expected to yield future benefits.

Question 53

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

Question 54

Owner financing refers to resources contributed by creditors or lenders.

Question 55

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

Question 56

Owner's withdrawals are expenses.

Question 57

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

Question 58

Every business transaction leaves the accounting equation in balance.

Question 59

Liabilities are the owner's claim on assets.

Question 60

Return on assets is also known as return on investment.

Question 61

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

Question 62

Risk is the uncertainty about the return we expect to earn.

Question 63

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

Question 64

An income statement reports on investing and financing activities.

Question 65

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

Question 66

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

Question 67

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

Question 68

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

Question 69

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

Question 70

The balance sheet is based on the accounting equation.

Question 71

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

Question 72

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

Question 73

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

Question 74

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 75

Ending capital reported on the statement of owner's equity is calculated by adding owner investments and net losses and subtracting net incomes and withdrawals.

Question 76

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

Question 77

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

Question 78

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

Question 79

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

Question 80

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