Exam 17: Understanding Accounting and Financial Information

According to generally accepted accounting principles (GAAP), a firm must use the inventory valuation method that most accurately reflects the actual movement of goods through its inventory.

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:

The inventory turnover ratio for all firms should be greater than 2 times.

Net income is simply the difference between revenue and cost of goods sold.

Preferred Pet Care, Inc., has recorded the following on its income statement for the period ending December 31, 2016: The return on sales = 34%. This return is outstanding and there is no need to compare this return to competitors in the veterinary services industry.

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

What is the difference between a profit (net income after taxes) on an income statement and the cash balance reflected at the bottom of the statement of cash flows?

The work of a certified management accountant is intended to enable people outside of the organization to make investment decisions.

One of the key financial statements prepared in the fifth step of the accounting cycle is:

Explain the differences between managerial and financial accounting, and give examples of the types of problems and issues examined by each of these areas of accounting.

Rent, salaries, insurance and depreciation are examples of the cost of goods sold.

Skilled professionals who are responsible for the development of strategies to minimize taxes are called:

__________ involves the review and evaluation of the records that are used to prepare the organization's financial statements.

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

The main reason an accountant would conduct a trial balance is to:

An accountant who works for a single business or government agency is referred to as a:

The two major classes of operating expenses are current expenses and long-term expenses.

Accounting transactions are very important to a firm's operations. Which of the following activities would affect the firm's account balances?

Martha is a member of a conservative political group that wants to identify and publicize examples of wasteful government spending. The type of accounting information Martha and her group will follow most closely is provided by certified public accountants.

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.