Deck 1: Accounting in Business

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

Internal users include lenders, shareholders, brokers and managers.

Question 5

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

Question 6

Good ethics are good business.

Question 7

Owners of a corporation are called shareholders or stockholders.

Question 8

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

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

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

Question 11

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 12

Identifying the proper ethical path is easy.

Question 13

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

Question 14

The International Accounting Standards Board (IASB) is an independent group which issues International Financial Reporting Standards (IFRS).

Question 15

Regulators often have legal authority over certain activities of organizations.

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

Unlimited liability is an advantage of a sole proprietorship.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

General accounting principles arise from long-used accounting practices.

Question 38

In the U.S., the Securities and Exchange Commission (SEC) is a government agency that has legal authority to establish GAAP.

Question 39

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

Question 40

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

Question 41

Owner financing refers to resources contributed by creditors or lenders.

Question 42

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

Question 43

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

Question 44

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

Question 45

Every business transaction leaves the accounting equation in balance.

Question 46

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

Question 47

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

Question 48

Return on assets is also known as return on investment.

Question 49

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

Question 50

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

Question 51

Net income occurs when revenues exceed expenses.

Question 52

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

Question 53

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

Question 54

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

Question 55

Liabilities are the owner's claim on assets.

Question 56

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

Question 57

A net loss occurs when revenues exceed expenses.

Question 58

Owner's withdrawals are expenses.

Question 59

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

Question 60

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

Question 61

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

Question 62

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

Question 63

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

Question 64

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

Question 65

The four basic financial statements include the income statement (statement of comprehensive income), statement of changes in equity, balance sheet (statement of financial position), and statement of cash flows.

Question 66

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

Question 67

Technology

A) Has replaced accounting.
B) Has not changed the work that accountants do.
C) Has closely linked accounting with consulting, planning, and other financial services.
D) In accounting has replaced the need for decision makers.
E) In accounting is only available to large corporations.

Question 68

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

Question 69

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 70

The balance sheet is based on the accounting equation.

Question 71

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

Question 72

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

Question 73

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

Question 74

Accounting is an information and measurement system that does all of the following except:

A) Identifies business activities.
B) Records business activities.
C) Communicates business activities.
D) Does not use technology to improve accuracy in reporting.
E) Helps people make better decisions.

Question 75

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

Question 76

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

Question 77

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

Question 78

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

Question 79

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

Question 80

An income statement reports on investing and financing activities.