Exam 17: Understanding Accounting and Financial Information

Accounting, as the language of business, is solely concerned with providing information useful to managers of profit-seeking firms.

Peak Performance Sporting Goods Company has just applied for a bank loan in order to expand the business. Using the most recent balance sheet data provided by the company owner, you calculate that the company's current ratio is 2.5. In your presentation to the company boss, you remark

During periods of rising prices, firms that want to report more attractive profits would tend to favor the FIFO technique of inventory valuation.

Quinn is an accountant employed by CCDL Enterprises. Recently, she has spent much of her time working on defining measures of costs for the production department and checking to ensure that various departments are staying within their budgets. Quinn is a

Accountants do the work involved in recording financial events and transactions, but the actual classifying and interpreting of this data is left to financial managers.

Accounting recognizes that assets, such as machinery and buildings, lose value over time. Accountants will record a portion of the cost of an asset as an expense each year through the use of

Although a firm may use different inventory valuation methods, generally accepted accounting principles (GAAP) states that these methods must produce the same dollar value for the cost of goods sold.

The U.S. government is a user of a firm's accounting information.

Patents and copyrights are classified as ________ on the Balance Sheet.

An independent audit is an evaluation and unbiased opinion about the accuracy of a company's financial statements.

A hospital emergency room serves several patients from a ten-car pile-up on the local interstate. Most of the victims require bandages, antibiotics, foot and arm casts, topical ointments, and pain pills. These items are part of the costs of goods sold for the hospital emergency room.

Leverage ratios indicate the extent to which ________ has been used to fund a business's operations.

Profitability ratios are often used to measure management's earnings performance.

According to the Adapting to Change box, the SEC is determined to crack down on and punish those accused of fraud. However, so many auditors and CPAs are trained in how to search for fraud that there are too many cases to prosecute.

Paige noted that she disbursed $7,847 in payments for operations in her travel agency and received $7,162 in cash receipts for services rendered. She had no cash receipts or disbursements from investments or financing activities. Thus, Paige had a

The ________ shows the assets, liabilities, and owners' equity of a firm, at a specific point in time.

Financial accountants prepare reports for owners, creditors, suppliers, and others outside of the organization.

Kayla and Kingston run a shuttle service from Water Tower Place to Chicago O'Hare airport. Last month, they recorded the following: If 25% of their net income is paid to the government in taxes, what is their net income after taxes?

The accounting cycle usually involves the work of both the bookkeeper and the accountant.

Cash flow statements identify three sources of cash receipts and disbursements: assets, liabilities, and owners' equity.