Exam 11: Understanding Accounting

The matching principle takes precedence over the income statement.

Double-entry accounting is used by private-sector firms, but not public-sector organizations.

What is a budget?

_________ is the ability of a firm to finance an investment through borrowed funds. Liquidity Leverage Solvency Profitability Activity

Aardvark is a small pest-control business that has 30 employees. The company started business within the past year and needs to make a decision on how best to make sure its finances are managed well as the company continues to grow its customer base and its business. Which of the following, if true, would NOT strengthen the case that Aardvark needs to hire a full-time controller? The company needs its cash flow to be continuously monitored. The company needs to determine how to market its products so as to reach the largest number of customers. The company needs to have its excess funds invested in high-growth opportunities. The company needs to have financial goals mapped out for it. The company needs to have good sources of funding identified.

Marshall is preparing a statement of estimated profits and losses for a new product that has just been introduced by his company. The field of accounting that Marshall is working in is managerial accounting. auditing. public accounting. financial accounting. bookkeeping.

Historically, it was thought that the current ratio should be _________, but more recently, many firms that are financially strong operate with current ratios of ___________. at least 10:1; less than 5:0 more than 7:1; 2.0 less than 5:1; more than 10:1 2:1; less than 2:1 3:1; less than 5:1

An account receivable represents an asset with long-term use or value, such as land, buildings, and equipment. an amount due from a customer who has purchased goods on credit. an expense, such as rent, that is paid before the upcoming period in which it is due. a nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit. an asset that can or will be converted to cash within the following year.

As buildings and equipment wear out or become obsolete, their value decreases. To reflect decreasing value, accountants use prepaid expenses. licensing. subtracting methods. depreciation. all of these.

Streeter & Sons is a regional service company that has been in business for a few years, but has not employed a controller or anyone else full-time to keep track of its financial state. The company needs to take a good look at its financial state to determine whether it needs to make any changes in its practices, in order to prevent possible financial meltdown. Which of the following, if true, would weaken the case that more than one type of financial statement should be examined in order to determine a company's financial health? Nowadays, many companies burnish their balance sheet by claiming inflated figures for goodwill. An income statement from one year may be radically different from the one for the previous year. It can be difficult for auditors to independently verify certain figures in income statements. The management by data trend has led companies to consider detailed and accurate financial statements imperative. In times of recession, companies often reduce their accounting and financial management staffs.

Explain the role of accountants and distinguish between the kinds of work done by public accountants, private accountants, management accountants, and forensic accountants.

Rose is reviewing a company's accounting system, checking the ledgers and journals, and tracking some transactions to see how they were handled. Rose is engaged in financial accounting. managerial accounting. auditing. public accounting. bookkeeping.

Accounting is more comprehensive than bookkeeping because it involves more than merely recording information.

Carter Industries had net income of $250 000 for the year. They had 50 000 shares of preferred stock and 200 000 shares of common stock outstanding. What is earnings per share?

Stephen is looking at a financial statement that shows detailed information about the accounting equation factors. He is looking at the company's T-accounts. income statement. balance sheet. double entry accounting system. profit and loss statement.

Owners' equity is meaningful for investors, but not for lenders.

Manhattan Corporation has total assets of $700 000, total liabilities of $200 000, and owners' equity of $500 000. What is Manhattan Corporation's debt to equity ratio?

A(n) _____ ratio evaluates management's use of assets. financial solvency activity profitability liability

What is the difference between "profit" and "cash flow"? Profit refers to what is left after expenses have been subtracted from revenues, while cash flow refers to cash receipts and cash payments A firm cannot make a profit unless its cash flow is positive A firm can maximize its profit only at the expense of cash flow A firm can maximize its cash flow only at the expense of its profit There is no real difference between profit and cash flow

What does a balance sheet show?