Question 1

Double-entry bookkeeping refers to the process by which accounting transactions are recorded.

Accepted Answer

Double-entry bookkeeping is a widely used accounting system that requires every financial transaction to be recorded in at least two different accounts - a debit account and a credit account. This is done to ensure accuracy and to maintain the accounting equation.

Question 2

Assets can include intangible possessions such as patents and trademarks.

Accepted Answer

Assets can include not only tangible possessions, like buildings and equipment, but also intangible possessions, like patents and trademarks.

Question 3

The GAAP standard of relevance ensures that one firm's financial statements can be compared with those of similar businesses.

Accepted Answer

The GAAP standard of relevance requires that financial information is important and useful to the decision-making needs of the users. This ensures that financial statements of one firm can be compared to those of similar businesses to make informed decisions.

Question 4

When examining a statement of cash flows, investors obtain relevant information about a firm's cash receipts and payments for its operations, investments, and financing during an accounting period.

Accepted Answer

When examining a statement of cash flows, investors can determine the sources and uses of cash for a company's operating activities, investing activities, and financing activities. This information is useful for financial analysis and decision-making.

Question 5

Accrual accounting recognizes revenues and expenses when cash changes hands.

Accepted Answer

Accrual accounting recognizes revenues and expenses when they are earned or incurred, regardless of when cash is actually received or paid out.

Question 6

The right side of the balance sheet lists claims against assets.

Accepted Answer

The right side of the balance sheet is also known as the liability and equity side, which lists the claims against assets such as liabilities and equity.

Question 7

A firm has $15 million in assets and $5 million in owner's equity. Therefore, the firm must also have $15 million in liabilities.

Accepted Answer

The firm would have $10 million in liabilities, as assets ($15 million) minus owner's equity ($5 million) equals liabilities.

Question 8

The Federal Bureau of Investigation is an example of a governmental agency that hires accountants.

Accepted Answer

The Federal Bureau of Investigation (FBI) is a federal law enforcement agency that hires accountants to investigate financial crimes, track money laundering, and analyze financial records in support of criminal investigations.

Question 9

The balance sheet is based on the accounting equation.

Accepted Answer

The accounting equation is Assets = Liabilities + Equity, and the balance sheet is a financial statement that reports a company's assets, liabilities, and equity at a specific point in time based on that equation.

Question 10

The not-for-profit sector is one of the fastest growing segments of accounting practice.

Accepted Answer

The not-for-profit sector has been growing steadily in recent years, creating a demand for accountants who specialize in this area. This is due to the increasing number of non-profit organizations and the complex regulatory requirements they face. Therefore, the statement is true.

Question 11

Few not-for-profit organizations publish financial information since they are not required by law to do so.

Accepted Answer

Not-for-profit organizations are required by law to publish their financial information, including their income and expenses, in a document called Form 990, which is filed annually with the IRS. This information is also made available to the public through various sources, such as the organization's website, the IRS website, and databases like Guidestar.

Question 12

The three principal financial statements are the balance sheet, income statement, and the statement of retained earnings.

Accepted Answer

The three principal financial statements are the balance sheet, income statement, and the cash flow statement. The statement of retained earnings is also important but is not typically classified as one of the principal financial statements.

Question 13

An accountant employed by a business other than an accounting firm is called a management accountant.

Accepted Answer

A management accountant works for a specific business or organization, providing financial information and analysis to help with decision-making and planning within the company. This is different from an accountant who works for an accounting firm and provides services to multiple clients.

Question 14

On a balance sheet, total assets must always equal the sum of liabilities and owners' equity.

Accepted Answer

This is known as the accounting equation and is a fundamental principle in accounting. The equation can be expressed as: Assets = Liabilities + Owners' Equity. The balance sheet is a statement that shows the assets, liabilities, and owners' equity of a company at a particular point in time. The sum of assets must always be equal to the sum of liabilities and owners' equity, as every asset must be financed by either debt or equity.

Question 15

Depreciation is reported as an expense on the firm's income statement, it but does not involve any actual cash.

Accepted Answer

Depreciation is a non-cash expense that represents the decrease in value of assets over time. It is reported on the income statement to accurately reflect the cost of using these assets in the production of goods or services. However, it does not involve any actual cash leaving the firm.

Question 16

Assets are shown in ascending order of liquidity.

Accepted Answer

The answer of Assets are shown in ascending order of...

Question 17

The primary role of government accountants is to determine how efficiently their organizations have accomplished their objectives.

Accepted Answer

Government accountants are responsible for ensuring that government organizations are using their financial resources effectively and efficiently to achieve their objectives. They analyze financial data, develop and implement budgets and financial plans, and provide guidance on financial policies and regulations. Ultimately, their goal is to help their organizations operate in the most effective and efficient way possible.

Question 18

A firm's balance sheet shows its financial position over a period of time.

Accepted Answer

A firm's balance sheet shows its financial position at a specific point in time, not over a period of time.

Question 19

The Securities and Exchange Commission is the chief federal regulator of financial markets and the accounting industry.

Accepted Answer

The Securities and Exchange Commission (SEC) is the chief federal regulatory agency responsible for overseeing and regulating the financial markets, including securities exchanges and broker-dealers, and the accounting industry.

Question 20

Assume a company buys a machine worth $1 million and pays for it by borrowing the funds from a bank. The firm's assets will rise by $1 million and its liabilities will decrease by $1 million.

Accepted Answer

The firm's assets will rise by $1 million due to the acquisition of the machine, but its liabilities will increase by $1 million as well because of the borrowed funds from the bank.

Quiz 15: Understanding Accounting and Financial Statements