Exam 17: Understanding Accounting and Financial Information

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

Accounting provides information about the financial condition and operating performance of a firm.

Which of the following ratios is a liquidity ratio?

As Hector was packing to return to State University after his summer vacation, he realized that he owned many valuable things such as a laptop computer, a stereo system, and a DVD player. An accountant would list all of these as Hector's:

Money received from tickets sold for the Katy Perry concert is recorded as net income on the concert promoter's income statement.

A(n) ___________ is an evaluation and unbiased opinion of the accuracy of a firm's financial statements.

Financial ratios that reflect the degree to which a firm relies on borrowed funds are called ________ ratios.

The balance sheet for Renuvation LLC shows assets totaling $107,000 and liabilities totaling $75,000. Which of the following statements is correct?

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

Budget preparation is one aspect of managerial accounting.

All firms with more than four employees should have a full-time accountant.

Information contained in a firm's annual report largely represents work done by managerial accountants.

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

Churches, schools, and charitable organizations all hire accountants.

Posting is a step in the accounting cycle that involves transferring information from the journal into the appropriate accounts in a ledger.

Accountant Alan Wingspan has just finished working on the balance sheet, income statement, and statement of cash flows for his company. The next step in the accounting cycle involves:

The inventory turnover ratio measures the speed of inventory moving through the firm and its conversion into sales.

Government organizations such as the IRS and other government regulatory agencies are interested in a firm's accounting information in order to help the firm strategize about ways to cut costs in order to minimize net income before taxes.

Referring to an accounting system, inputs refers to events and transactions that occur within the business, while outputs refers to the journal entries and ledger categorization that occurs after the events and transactions are recorded.

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