Exam 17: Understanding Accounting and Financial Information

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

A firm's annual report is a yearly statement of the financial condition, progress, and expectations of the organization during one year.

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 to learn 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:

As a first step in the accounting cycle, involves the recording of business transactions.

Perry is responsible for recording sales transactions at Turncoat Enterprises. Perry's company utilizes , to help minimize entry errors.

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

The income statement computes net income by subtracting liabilities from assets.

Liabilities are reported on the income statement.

An analysis of the statement of cash flows can help a firm prevent cash shortages.

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

Liquidity refers to how fast an asset can be converted to cash.

Keith will graduate from Southern State University this year. He has accumulated $18,000 in student loans during his four years at college. An accountant would classify the loans as:

An income statement reports what a company owns and owes on a certain day.

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.

Accounting is an easy subject for people to understand because almost everyone is exposed to basic accounting concepts in their everyday life.

Given that measuring a firm's financial health is important to its survival, which of the following strategies is good advice for a person just starting a business?

earnings per share measures the amount of profit a firm earns per share of outstanding common stock when preferred stock, stock options, warrants and convertible debt securities are also taken into account.

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

Financial accounting and managerial accounting are similar in that they both provide information intended primarily for people inside the organization.

Stockholders of a company in a risky market environment would expect lower return on equity ratio than stockholders in a less risky market.