Exam 17: Understanding Accounting and Financial Information

The debt to owners' equity ratio is a common type of liquidity ratio.

Ernesto borrowed money from a friend to acquire a liquor license for his new pub, and gave him a written promise to repay the amount within six months. Ernesto should list this business debt as an operating expense on his pub's balance sheet.

Both the current ratio and the acid-test ratio are liquidity ratios.

Taxpayers and special interest groups often have interest in the information generated by government accounting.

The purpose of a trial balance is to prepare a practice balance sheet.

Accountants not only provide financial information to the firm, they

A tax accountant is responsible for preparing tax returns and developing tax strategies.

Many businesses now use computers and accounting software to simplify the mechanical aspects involved in accounting.

At this point in time, Barkatorium Pet Supplies' balance sheet shows $100,000 in assets and $90,000 in liabilities. The company's accounting system will show the owners' equity as $190,000.

Diego owns and operates a small business with only four full-time employees and less than $700,000 in annual sales. He currently uses a manual accounting system and relies on a part-time bookkeeper to keep his records in order. In evaluating the possible adoption of a computerized accounting system, Diego will probably discover that

A journal is where the initial record of a day's transactions is entered.

Generally, a high ________ ratio could lead investors and creditors to view the company as being very risky.

The steps in the accounting cycle do not need to be followed in the order stated. Monthly financial statements can be prepared with a good amount of accuracy, prior to posting in the ledger or preparing the trail balance.

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

Activity ratios measure the effectiveness of the firm's management in using its various resources to achieve profits.

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

The ________ account on the balance sheet shows profits that the firm has reinvested in the company.

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?

Isabel created Waterfront Sports at a nearby lake resort. She wanted to combine her accounting degree with her love of the outdoors and kayaking. One of her first business purchases was a computerized accounting program. She learned in her college classes that a good software system will eliminate accounting cycle steps and the time it takes for her to interpret the results. As she put it, "It should make the decisions for me!"

Inputs to the accounting system include sales documents.