Question 1

The main reason an accountant would conduct a trial balance would be to:

Accepted Answer

The main purpose of a trial balance is to ensure that the total debits equal the total credits in the accounts. This helps to identify any errors or discrepancies in the accounts and ensure that the figures are correct and balanced.

Question 2

Jose just graduated from college with a bachelor's degree in accounting.He plans to go to work for the Canadian Cancer Society as an accountant.Jose will be a(n):

Accepted Answer

Jose will be a private accountant because he will be working for a specific organization, the Canadian Cancer Society, rather than offering services to the general public or working independently.

Question 3

One of the most important performance ratios is what?

Accepted Answer

EPS (Earnings per share) is one of the most important performance ratios as it indicates the profitability of a company on a per-share basis. It is calculated by dividing the net income of a company by the number of outstanding shares. This ratio allows investors to compare the earnings of different companies on an equal basis and make more informed investment decisions. GAAP (Generally Accepted Accounting Principles), P/E (Price to Earnings ratio), and P and L (Profit and Loss statement) are important financial concepts, but they are not performance ratios.

Question 4

A(n)______provides a summary of money coming in to and money going out of a firm in a given time period.

Accepted Answer

A cash flow statement tracks the inflows and outflows of cash in a company, including operating, investing, and financing activities. It provides a summary of money coming in to and going out of the firm over a given period of time. The income statement provides information on a company's revenue and expenses over a given period, but does not show cash flows. The receivables and payables report shows amounts owed by customers and to suppliers, but not the overall cash flow of a company. A cash budget is a forecast of expected cash inflows and outflows in the future, but does not provide a summary of past cash flows.

Question 5

Which of the following is NOT an area of importance in accounting?

Accepted Answer

Setting prices for goods and services sold by the organization is typically the responsibility of marketing or sales departments, not accounting. Accounting focuses on recording, summarizing, and analyzing financial information.

Question 6

One of the major financial statements prepared in the fifth step of the accounting cycle is the:

Accepted Answer

The cash flow statement is one of the major financial statements prepared in the fifth step of the accounting cycle. It shows the inflow and outflow of cash during a specific period, providing important information about a company's liquidity and ability to meet its financial obligations. The other options, general journal, social audit, and asset summary, are not financial statements prepared in the fifth step of the accounting cycle.

Question 7

For the last several years,Bill Havers has gone to accountant Chelsea Jones for help in preparing his personal income tax forms.He heard about Chelsea from his boss,who said she had done a good job helping the business design a new accounting system.Bill has been happy with Chelsea's work and feels that the fees she charges are quite reasonable.Chelsea would be classified as a(n):

Accepted Answer

Chelsea Jones is a public accountant, as she provides accounting services to individuals and businesses for a fee. She is not an accounting broker, as she does not act as a middleman between clients and accountants. She is not an independent auditor, as she is not providing auditing services. She is also not a private accountant, as she is providing services to multiple clients.

Question 8

There standard inventory turnover ratio that applies to any company in any industry is what?

Accepted Answer

There is no standard inventory turnover ratio that applies to all companies in all industries. Inventory turnover ratios vary greatly depending on factors such as the industry, size of the company, and product type.

Question 9

The "bottom line" of an income statement shows the firm's:

Accepted Answer

The bottom line of the income statement reflects the net income or net loss of the firm. This is the amount that is left over after all of the expenses and revenues have been accounted for. It represents the financial performance of the firm and is a key indicator of its profitability. Owners' equity, retained earnings, and gross margin are all important components of the income statement but are not represented by the bottom line.

Question 10

If the total assets of a business are $107,000 and its liabilities are $75,000,which of the following statements is correct?

Accepted Answer

To find the owners' equity, subtract the liabilities from the total assets.

Owners' equity = Total assets - liabilities 
Owners' equity = $107,000 - $75,000 
Owners' equity = $32,000

Therefore, option B is correct. Option A is incorrect as it only represents the value of the current assets. Option C is incorrect as net income cannot be determined from this information. Option D is also incorrect as it is not possible for the owners' equity to be higher than the total assets.

Question 11

The accounting profession is divided into five key working areas,two of which are:

Accepted Answer

The two key working areas mentioned in the question are auditing and managerial accounting. While the other options may be relevant to accounting, they are not specifically mentioned as key working areas in the question.

Question 12

McCartney Consulting Group is a management-consulting firm that provides its expertise to businesses that employ its services.Since it does not hold an inventory of goods or produce any goods itself:

Accepted Answer

Since McCartney Consulting Group does not produce goods, it does not have a cost of goods sold, meaning its gross profit (revenue minus cost of goods sold) could be identical to its net revenue.

Question 13

Ralph owns a small business.Some friends have suggested that he should switch from his current manual accounting system to one that is computerized.Ralph is not certain he wants to use computers in his small firm's accounting system.He is concerned about the time it would take in learning the system,and wonders whether the benefits will justify the costs of setting up the system.As a small business owner,Ralph would probably find that:

Accepted Answer

Computer software can be very helpful to small business owners who lack strong accounting support within their companies. It can save time and reduce errors in accounting tasks, and provide useful financial data for decision making. While there may be some learning curve in adopting the new system, the long-term benefits can outweigh the initial costs.

Question 14

Carlisle Communications is preparing its cash flow statement.Among other things,this statement will show:

Accepted Answer

The cash flow statement shows the cash inflows and outflows that resulted from financing activities, as well as operating activities and investing activities. It does not necessarily show net income, general expenses, operating expenses, or total owners' equity.

Question 15

Stockholders of the Sasha Deal Company are concerned about irregularities in the firm's accounting system.One approach to identify problems in the records of the company would be to have a(n)______performed.

Accepted Answer

An independent audit is performed by an outside auditor who is not affiliated with the company being audited. This type of audit is usually required by law and provides an unbiased assessment of the company's financial statements and accounting practices. This would be the most appropriate choice given the concerns of the stockholders. A certified audit and GAAP analysis are also possible options but they would be performed by an outside auditor. An internal audit is conducted by a party within the company and may not be as objective as an independent audit.

Question 16

The sixth step in the accounting cycle involves:

Accepted Answer

The answer of The sixth step in the accounting cycle...

Question 17

Taylor Casual,a chain of retail clothing stores,wants to assure investors and other outsiders that its financial statements are accurate.One way to do so would be to hire a public accounting firm to:

Accepted Answer

The best choice would be to perform an independent audit, which is conducted by a public accounting firm that is not affiliated with the company. This would provide an unbiased review of the company's financial statements and assure investors and other outsiders that the statements are accurate. Option A may seem viable, but a "generally accepted practices" endorsement from an accounting firm does not carry the same weight as an independent audit. Option B is not necessary as the company can still have its own accounting department, and Option C is not sufficient as an internal audit may not provide the same level of assurance as an independent audit.

Question 18

Which financial statement represents what the company owns and owes as of a specific date?

Accepted Answer

The balance sheet represents what the company owns (assets) and owes (liabilities) as of a specific date. The income statement shows a company's financial performance over a period of time, the trial balance is a list of all accounts in the ledger with their balances, and the cash flow statement shows the inflow and outflow of cash during a specific period.

Question 19

The area of accounting that provides managers of an organization with information they need to make decisions is called:

Accepted Answer

Managerial accounting focuses on providing internal stakeholders, such as managers and executives, with the financial information they need to make informed decisions about operations, investments, and other strategic choices.

Question 20

The current ratio is found by dividing the firm's current assets by its______ _.

Accepted Answer

The current ratio is a liquidity ratio that measures a firm's ability to pay off its short-term liabilities with its current assets. The formula for the current ratio is current assets divided by current liabilities. Therefore, the correct answer is B: current liabilities.

Quiz 16: Understanding Accounting and Financial Information