Question 1

The income statement reports the difference between a firm's assets and its liabilities as of a certain date.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  debt 
B)  equity 
C)  owner invested capital 
D)  profit 
A)  debt 
B)  equity 
C)  owner invested capital 
D)  profit

Question 3

Blake took a marketing class at the local community college before starting his landscape business. He decided that his time would be better utilized in this class because if he could learn to sell his services well, the revenues and profits would follow. Your assessment of his plan might include which of the following?

Accepted Answer

A)  Blake understands that marketing is the lifeblood of the company, and he is right on track with his approach. 
B)  Blake has elected to operate like a virtual company and leave various parts of the business including accounting, environmental trends scanning, and management to outsourcers. 
C)  Blake knows that increasing revenues will always keep the business profitable and in a positive cash position. 
D)  Blake needs to realize that the ability to understand and interpret financial statements provided by his accountant might enhance his profits. 
A)  Blake understands that marketing is the lifeblood of the company, and he is right on track with his approach. 
B)  Blake has elected to operate like a virtual company and leave various parts of the business including accounting, environmental trends scanning, and management to outsourcers. 
C)  Blake knows that increasing revenues will always keep the business profitable and in a positive cash position. 
D)  Blake needs to realize that the ability to understand and interpret financial statements provided by his accountant might enhance his profits.

Question 4

The most liquid asset is

Accepted Answer

A)  sales. 
B)  cash. 
C)  accounts payable. 
D)  owners' equity. 
A)  sales. 
B)  cash. 
C)  accounts payable. 
D)  owners' equity.

Question 5

It is impossible to run a company effectively without the ability to read and understand basic accounting reports and financial statements.

Accepted Answer

A) True 
 B)False

Question 6

A company's income statement is important to accountants and other stakeholders. It reveals a

Accepted Answer

A)  company's sources of funding. 
B)  company's ability to distribute goods or services in a timely manner. 
C)  company's ability to earn a profit over time. 
D)  company's capitalized value. 
A)  company's sources of funding. 
B)  company's ability to distribute goods or services in a timely manner. 
C)  company's ability to earn a profit over time. 
D)  company's capitalized value.

Question 7

The best way for a firm to avoid serious cash flow problems is to sustain a rapid growth in sales.

Accepted Answer

A) True 
 B)False

Question 8

Today's computerized accounting programs are

Accepted Answer

A)  very helpful for small-business owners who lack strong accounting support within their companies. 
B)  too expensive and complicated for most small businesses. 
C)  a poor investment for small start-up companies due to the fact that these programs are seldom needed unless the firm is considered a mid-sized to large company. 
D)  so sophisticated that they can make most financial decisions without the aid of an accountant. 
A)  very helpful for small-business owners who lack strong accounting support within their companies. 
B)  too expensive and complicated for most small businesses. 
C)  a poor investment for small start-up companies due to the fact that these programs are seldom needed unless the firm is considered a mid-sized to large company. 
D)  so sophisticated that they can make most financial decisions without the aid of an accountant.

Question 9

A bookkeeper's first task is to record the firm's transactions in a journal.

Accepted Answer

A) True 
 B)False

Question 10

A ________ provides a summary of cash coming into and money going out of a firm from operations activities, financing activities, and investing activities.

Accepted Answer

A)  income statement 
B)  statement of cash flows 
C)  cash budget 
D)  cash receivables and payables report 
A)  income statement 
B)  statement of cash flows 
C)  cash budget 
D)  cash receivables and payables report

Question 11

The Internal Revenue Service is responsible for establishing accounting standards used by accountants working in government accounting.

Accepted Answer

A) True 
 B)False

Question 12

Accounting involves both the recording and the interpreting of financial events.

Accepted Answer

A) True 
 B)False

Question 13

The accounting book that provides all the information about a single account in one place is called the ledger.

Accepted Answer

A) True 
 B)False

Question 14

As the burden of taxes grows, the role of the auditor becomes increasingly important to the organization.

Accepted Answer

A) True 
 B)False

Question 15

Careful consideration of the use of computers in accounting indicates that computers

Accepted Answer

A)  will soon eliminate all of the accounting functions. 
B)  are tools to help the accountant perform his or her job. 
C)  are of little use to small-business owners that need accounting services. 
D)  have a very limited use in accounting due to inadequate privacy controls. 
A)  will soon eliminate all of the accounting functions. 
B)  are tools to help the accountant perform his or her job. 
C)  are of little use to small-business owners that need accounting services. 
D)  have a very limited use in accounting due to inadequate privacy controls.

Question 16

Mayree is the owner of Spines Books, a small eclectic-style bookstore in a bustling college town. Mayree prides herself in selecting hard-to-find books and magazines that her clientele enjoy. Recently, Mayree is experiencing a cash flow shortage, and she is concerned that she may be purchasing too many copies of each title. Having recently completed a business class, you suggest to Mayree that she calculate the ________ ratio for her store, and then compare it to other stores in her industry.

Accepted Answer

A)  current 
B)  debt to equity 
C)  return on equity 
D)  inventory turnover 
A)  current 
B)  debt to equity 
C)  return on equity 
D)  inventory turnover

Question 17

In order to understand if the results of ratio calculations indicate a financially strong company, the results

Accepted Answer

A)  should be compared to other firms in the same industry. 
B)  are compared to same size firms in the same geographic region of the country. 
C)  are compared to the norms established by generally accepted accounting principles. 
D)  are compared to the largest firms in the country. 
A)  should be compared to other firms in the same industry. 
B)  are compared to same size firms in the same geographic region of the country. 
C)  are compared to the norms established by generally accepted accounting principles. 
D)  are compared to the largest firms in the country.

Question 18

The current ratio is found by dividing the firm's total assets by its total liabilities.

Accepted Answer

A) True 
 B)False

Question 19

Talk Time Communications is considering the purchase of a new satellite. The firm believes the satellite will help generate future earnings. In addition, the firm recognizes the tax benefits of a lower net income provided by the annual ________ of the asset.

Accepted Answer

A)  inventory valuation 
B)  declining balance 
C)  appreciation 
D)  depreciation 
A)  inventory valuation 
B)  declining balance 
C)  appreciation 
D)  depreciation

Question 20

The financial ratios that measure a firm's ability to pay its short-term debts are called

Accepted Answer

A)  leverage ratios. 
B)  liquidity ratios. 
C)  equity ratios. 
D)  profitability ratios. 
A)  leverage ratios. 
B)  liquidity ratios. 
C)  equity ratios. 
D)  profitability ratios.

Exam 17: Understanding Accounting and Financial Information

The income statement reports the difference between a firm's assets and its liabilities as of a certain date.

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

The most liquid asset is

It is impossible to run a company effectively without the ability to read and understand basic accounting reports and financial statements.

A company's income statement is important to accountants and other stakeholders. It reveals a

The best way for a firm to avoid serious cash flow problems is to sustain a rapid growth in sales.

Today's computerized accounting programs are

A bookkeeper's first task is to record the firm's transactions in a journal.

A ________ provides a summary of cash coming into and money going out of a firm from operations activities, financing activities, and investing activities.

The Internal Revenue Service is responsible for establishing accounting standards used by accountants working in government accounting.

Accounting involves both the recording and the interpreting of financial events.

The accounting book that provides all the information about a single account in one place is called the ledger.

As the burden of taxes grows, the role of the auditor becomes increasingly important to the organization.

Careful consideration of the use of computers in accounting indicates that computers

In order to understand if the results of ratio calculations indicate a financially strong company, the results

The current ratio is found by dividing the firm's total assets by its total liabilities.

Talk Time Communications is considering the purchase of a new satellite. The firm believes the satellite will help generate future earnings. In addition, the firm recognizes the tax benefits of a lower net income provided by the annual ________ of the asset.

The financial ratios that measure a firm's ability to pay its short-term debts are called

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

How to Form a Business

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Employeemanagement Issues

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Financial Management

Using Securities Markets for Financing and Investing Opportunities

Money, Financial Institutions, and the Federal Reserve

Appendix: Working Within the Legal Environment

Appendix: Using Technology to Manage Information

Appendix: Managing Risk

Appendix: Managing Personal Finances

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