Question 1

A statement of cash flows reports the revenues, expenses, and net income that results from a firm's operations over a given period of time.

Accepted Answer

A statement of cash flows reports the cash inflows and outflows from a firm's operating, investing, and financing activities over a given period of time. It does not report revenues, expenses, or net income.

Question 2

Operating cash flows of a firm should be exactly equal to the revenues and expenses that the firm reports on its income statement.

Accepted Answer

Operating cash flows reflect the actual cash inflows and outflows from the operations of the firm, which may differ from the revenues and expenses reported on the income statement due to factors such as timing differences and non-cash expenses such as depreciation. Additionally, other items such as changes in working capital and investments in capital expenditures can also impact the operating cash flows of a firm.

Question 3

When an external auditor doesn't uncover any problems with a firm's financial methods and statements, he or she will issue an unqualified opinion.

Accepted Answer

An unqualified opinion means the auditor has no reservations or concerns about the accuracy and fairness of the financial statements.

Question 4

In the statement of retained earnings, the change in retained earnings is found by subtracting dividends paid to shareholders from net income.

Accepted Answer

The statement of retained earnings shows how the retained earnings have changed from the beginning of the period to the end of the period. The change is calculated by subtracting dividends paid to shareholders from net income.

Question 5

The first step involved in deducting costs from revenue is to deduct costs of goods sold.

Accepted Answer

The first step in deducting costs from revenue is to subtract the cost of goods sold, which includes any direct costs associated with producing or providing the goods or services sold. After this, any other expenses or costs can be deducted to determine the company's net income or profit.

Question 6

The stockholders' equity statement can show how net income and dividends affect retained earnings.

Accepted Answer

The stockholders' equity statement shows the changes in the company's equity over time, including the impact of net income and dividends on retained earnings.

Question 7

It is mandatory for publicly traded firms in the United States to have an independent CPA firm perform an annual external audit of their financial statements.

Accepted Answer

This is mandated by the Sarbanes-Oxley Act of 2002 in response to accounting scandals such as Enron and WorldCom.

Question 8

Cash flows from operational activities show any cash used to buy fixed assets and long­term financial investments.

Accepted Answer

Cash flows from operational activities represent the cash generated or used in the normal course of business operations, such as the receipt of cash from customers and payment of cash for operating expenses. Cash used to buy fixed assets and long-term investments would be reflected in cash flows from investing activities.

Question 9

According to the accounting equation, Assets ­ Expenses = Net Income.

Accepted Answer

The accounting equation is Assets = Liabilities + Equity. Net income is calculated by subtracting expenses from revenue (not assets).

Question 10

Kale Inc. uses accrual­basis accounting. It can be said that Kale's revenue initially reflects as an increase in accounts receivable instead of an increase in cash.

Accepted Answer

Accrual-basis accounting records revenue when it is earned, not when cash is received. This means that when Kale Inc. earns revenue, it will initially reflect as an increase in accounts receivable (an asset) and not an increase in cash.

Question 11

A statement of cash flows identifies cash flows from three types of activities: production, sales, and promotional activities.

Accepted Answer

A statement of cash flows identifies cash flows from three types of activities: operating, investing, and financing activities. Production, sales, and promotional activities are all part of operating activities.

Question 12

Bryan, an external auditor, finds minor problems in a company's financial report but is of the view that it is an unbiased and precise version of the company's financial status. He is likely to issue an adverse opinion to the company.

Accepted Answer

An adverse opinion is issued when the auditor finds significant issues with the financial report that affect its accuracy or fairness. In this scenario, Bryan only found minor problems and believes the report to be unbiased and precise, so he would not issue an adverse opinion.

Question 13

Ralph owns stock in the Ranklin Corporation and wants to know whether the company earned a profit over the most recent quarter. This information would be available in the company's balance sheet.

Accepted Answer

A balance sheet does not provide information about a company's earnings for a specific quarter. It only shows the company's assets, liabilities, and equity at a specific point in time. Information about a company's earnings would be found in its income statement or statement of profit and loss.

Question 14

A college student registers for classes and pays tuition with a credit card. As the college uses accrual­basis accounting, it will recognize the payment as revenue after it receives the cash in its bank account.

Accepted Answer

Under accrual-basis accounting, revenue is recognized when it is earned, not when cash is received. In this case, the revenue is earned when the student registers for classes, not when the payment is received. The payment would be recorded as a liability until the revenue is earned.

Question 15

Steve's business checking account is short on cash. He calls his accountant to determine his profits for the previous month. The income statement is his best source of information to ascertain his profit and loss.

Accepted Answer

The income statement provides information on revenue and expenses, allowing Steve to calculate his profit or loss for the previous month.

Question 16

Revenue is the difference between the net income a firm earns and the expenses it incurs in a given time period.

Accepted Answer

Revenue is the total amount of money a firm earns from its sales or services in a given time period, before deducting any expenses. Net income is the revenue minus all expenses incurred by the firm, including taxes, wages, and cost of goods sold. Therefore, revenue alone cannot represent the difference between net income and expenses.

Question 17

Expenses = Revenue ­ Net Income.

Accepted Answer

Expenses are subtracted from Revenue to arrive at Net Income.

Question 18

Revenue is a decrease in the amount of cash and other assets that a firm earns from the sale of goods.

Accepted Answer

Revenue is the increase in the amount of cash and other assets that a firm earns from the sale of goods.

Question 19

Net operating income is the difference between a firm's revenue and its cost of goods sold.

Accepted Answer

Net operating income is the difference between a firm's revenue and its operating expenses, not just its cost of goods sold.

Question 20

In the context of an auditor's report, an unqualified opinion and a clean opinion are the same thing.

Accepted Answer

An unqualified opinion and a clean opinion both indicate that the auditor found no material misstatements in the financial statements and can provide assurance that they are fairly presented in accordance with the relevant accounting framework.

Quiz 8: Accounting: Decision Making by the Numbers

A statement of cash flows reports the revenues, expenses, and net income that results from a firm's operations over a given period of time.

Operating cash flows of a firm should be exactly equal to the revenues and expenses that the firm reports on its income statement.

When an external auditor doesn't uncover any problems with a firm's financial methods and statements, he or she will issue an unqualified opinion.

In the statement of retained earnings, the change in retained earnings is found by subtracting dividends paid to shareholders from net income.

The first step involved in deducting costs from revenue is to deduct costs of goods sold.

The stockholders' equity statement can show how net income and dividends affect retained earnings.

It is mandatory for publicly traded firms in the United States to have an independent CPA firm perform an annual external audit of their financial statements.

Cash flows from operational activities show any cash used to buy fixed assets and longterm financial investments.

According to the accounting equation, Assets Expenses = Net Income.

Kale Inc. uses accrualbasis accounting. It can be said that Kale's revenue initially reflects as an increase in accounts receivable instead of an increase in cash.

A statement of cash flows identifies cash flows from three types of activities: production, sales, and promotional activities.

Bryan, an external auditor, finds minor problems in a company's financial report but is of the view that it is an unbiased and precise version of the company's financial status. He is likely to issue an adverse opinion to the company.

Ralph owns stock in the Ranklin Corporation and wants to know whether the company earned a profit over the most recent quarter. This information would be available in the company's balance sheet.

A college student registers for classes and pays tuition with a credit card. As the college uses accrualbasis accounting, it will recognize the payment as revenue after it receives the cash in its bank account.

Steve's business checking account is short on cash. He calls his accountant to determine his profits for the previous month. The income statement is his best source of information to ascertain his profit and loss.

Revenue is the difference between the net income a firm earns and the expenses it incurs in a given time period.

Expenses = Revenue Net Income.

Revenue is a decrease in the amount of cash and other assets that a firm earns from the sale of goods.

Net operating income is the difference between a firm's revenue and its cost of goods sold.

In the context of an auditor's report, an unqualified opinion and a clean opinion are the same thing.

Quiz 8: Accounting: Decision Making by the Numbers

A statement of cash flows reports the revenues, expenses, and net income that results from a firm's operations over a given period of time.

Operating cash flows of a firm should be exactly equal to the revenues and expenses that the firm reports on its income statement.

When an external auditor doesn't uncover any problems with a firm's financial methods and statements, he or she will issue an unqualified opinion.

In the statement of retained earnings, the change in retained earnings is found by subtracting dividends paid to shareholders from net income.

The first step involved in deducting costs from revenue is to deduct costs of goods sold.

The stockholders' equity statement can show how net income and dividends affect retained earnings.

It is mandatory for publicly traded firms in the United States to have an independent CPA firm perform an annual external audit of their financial statements.

Cash flows from operational activities show any cash used to buy fixed assets and long­term financial investments.

According to the accounting equation, Assets ­ Expenses = Net Income.

Kale Inc. uses accrual­basis accounting. It can be said that Kale's revenue initially reflects as an increase in accounts receivable instead of an increase in cash.

A statement of cash flows identifies cash flows from three types of activities: production, sales, and promotional activities.

Bryan, an external auditor, finds minor problems in a company's financial report but is of the view that it is an unbiased and precise version of the company's financial status. He is likely to issue an adverse opinion to the company.

Ralph owns stock in the Ranklin Corporation and wants to know whether the company earned a profit over the most recent quarter. This information would be available in the company's balance sheet.

A college student registers for classes and pays tuition with a credit card. As the college uses accrual­basis accounting, it will recognize the payment as revenue after it receives the cash in its bank account.

Steve's business checking account is short on cash. He calls his accountant to determine his profits for the previous month. The income statement is his best source of information to ascertain his profit and loss.

Revenue is the difference between the net income a firm earns and the expenses it incurs in a given time period.

Expenses = Revenue ­ Net Income.

Revenue is a decrease in the amount of cash and other assets that a firm earns from the sale of goods.

Net operating income is the difference between a firm's revenue and its cost of goods sold.

In the context of an auditor's report, an unqualified opinion and a clean opinion are the same thing.

Cash flows from operational activities show any cash used to buy fixed assets and longterm financial investments.

According to the accounting equation, Assets Expenses = Net Income.

Kale Inc. uses accrualbasis accounting. It can be said that Kale's revenue initially reflects as an increase in accounts receivable instead of an increase in cash.

A college student registers for classes and pays tuition with a credit card. As the college uses accrualbasis accounting, it will recognize the payment as revenue after it receives the cash in its bank account.

Expenses = Revenue Net Income.