Question 1

Currently,generally accepted accounting principles are developed by the American Institute of Certified Public Accountants (AICPA).

Accepted Answer

Currently, generally accepted accounting principles (GAAP) are developed and maintained by the Financial Accounting Standards Board (FASB), which is an independent organization that operates separately from the AICPA. However, the AICPA does play a role in developing and updating specific accounting guidelines and principles.

Question 2

The owners and managers of a business are the only users of the financial information.

Accepted Answer

Financial information is also used by various stakeholders such as investors, creditors, auditors, tax authorities, government agencies, and employees.

Question 3

Public accountants work on the staff of federal,state,or local governmental units.

Accepted Answer

Public accountants work for public accounting firms or are self-employed, offering services such as auditing, tax preparation, and consulting to the general public, rather than working on the staff of governmental units.

Question 4

When a partner leaves,the partnership is dissolved and a new partnership may be formed with the remaining partners.

Accepted Answer

When a partner leaves, the partnership is dissolved and a new partnership may be formed with the remaining partners. This is known as reconstituting the partnership.

Question 5

Laws passed by Congress in 1933 and 1934 gave the Securities and Exchange Commission (SEC)final say on matters of financial reporting by publicly owned corporations.

Accepted Answer

The Securities and Exchange Commission (SEC) was given final say on matters of financial reporting by publicly owned corporations through laws passed by Congress in 1933 and 1934 such as the Securities Act of 1933 and the Securities Exchange Act of 1934.

Question 6

Anyone can invest in a closely held corporation.

Accepted Answer

A closely held corporation typically restricts the number of its shareholders and does not offer its stock to the general public, limiting investment opportunities to a select group of investors.

Question 7

The financial statements and the auditor's report must be made available to stockholders of publicly owned corporations.

Accepted Answer

This is required by law in most countries to provide shareholders with information about the financial health of the company they have invested in.

Question 8

The purpose of accounting is to provide financial information about an economic or social entity.

Accepted Answer

Accounting is a systematic process of recording, measuring, classifying, summarizing, interpreting and communicating financial information about an economic or social entity.

Question 9

An accounting system is designed to accumulate and classify data about a firm's financial affairs and summarize it in the general journal.

Accepted Answer

An accounting system accumulates and classifies data to summarize it in financial statements, not just in the general journal. The general journal is used for recording transactions, but the system also includes ledgers and other components for comprehensive financial reporting.

Question 10

Managerial Accounting is any activity associated with the preparation of tax returns and the audit of those returns.

Accepted Answer

Managerial Accounting involves the preparation and analysis of financial information for internal use by management in decision-making, planning, and control. It is not directly related to tax preparation and audit. That falls under the domain of public accounting.

Question 11

Most owners and managers rely heavily on the accountant's judgment and knowledge when making financial decisions.

Accepted Answer

Owners and managers often rely on their accountant's expertise to make sound financial decisions for their business.

Question 12

The separate entity assumption applies only to the corporate form of business.

Accepted Answer

The separate entity assumption applies to all forms of business, not just the corporate form. It means that the business is a separate entity from its owners and should be treated as such for accounting purposes.

Question 13

The Securities and Exchange Commission (SEC)requires that publicly owned corporations submit financial statements to it each year.

Accepted Answer

This statement is true. The SEC requires publicly owned corporations to submit annual financial statements, along with other disclosures and reports, to ensure transparency and provide investors with the information they need to make informed decisions.

Question 14

As the first step in the development of generally accepted accounting principles,the FASB writes an exposure draft,which explains the topic under consideration.

Accepted Answer

The first step is to identify a financial reporting issue, after which the FASB may issue an exposure draft later in the process to solicit public comment.

Question 15

When a business is organized as a sole proprietorship,the owner should combine his/her personal financial information with the business financial information.

Accepted Answer

In a sole proprietorship, the owner's personal and business financial information should be kept separate for accounting, tax, and legal purposes, even though the law does not distinguish between the owner's personal and business assets and liabilities.

Question 16

The SEC uses financial information to determine a company's tax base.

Accepted Answer

The SEC's primary role is to regulate and enforce securities laws, not determine a company's tax base. That responsibility lies with the IRS (Internal Revenue Service) in the United States.

Question 17

Public accounting firms provide three major types of services: auditing,tax accounting,and management advisory services.

Accepted Answer

This statement is true. Public accounting firms primarily offer auditing, tax accounting, and management advisory services to clients.

Question 18

Accounting is defined as the process by which financial information about a business is recorded,classified,summarized,interpreted,and communicated to owners,managers,and other interested parties.

Accepted Answer

This is a correct definition of accounting.

Question 19

Accountants provide financial information to various parties so they can make business decisions.

Accepted Answer

This is the main responsibility of accountants. They analyze and report financial information to stakeholders such as managers, investors, creditors, and regulators to help them make informed decisions.

Question 20

In a sole proprietorship,the owner is responsible for the debts of the business if the firm is unable to pay.

Accepted Answer

In a sole proprietorship, the owner and the business are considered the same entity, which means that the owner is personally liable for any debts or obligations of the business. This means that the owner's personal assets can be at risk if the business is unable to pay its debts.

Quiz 1: Accounting: the Language of Business