Exam 17: Understanding Accounting and Financial Information

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.

Monica noted that she disbursed $6,347 in payments for operations in her travel agency and received $6,189 in cash receipts for services rendered. She had no cash receipts or disbursements from investments or financing activities. Thus, Monica had a:

During a period of rising prices, if a firm desires to report a low gross profit figure in hopes of reducing their income tax liability, the firm will use the __________ inventory valuation method.

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

The current ratio is used to evaluate a firm's ability to pay its short-term debts.

Cash flow difficulties are unlikely for a firm that is profitable.

Retailers attempt to sell older merchandise before more recently acquired merchandise is sold. The assumptions made by the __________ method of inventory valuation are most consistent with this approach.

At present, accounting software packages have proven to be too complex and expensive to be useful for owners of small businesses.

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

In the course of their jobs, bookkeepers:

Hendry, Inc., has recorded its unpaid bill for supplies under a current liabilities account on the balance sheet. This payment will be due to the supplier in less than a year.

As mentioned in the Adapting to Change box, accountants that search for fraudulent activities are called forensic accountants.

Jeremy operates his own small business, but he doesn't want to be bothered with accounting information. He tells his friends, "All I need accounting for is to prepare my income tax return for my business. I'll hire someone to do that for me." Jeremy's attitude would be disastrous if he managed a large firm, but is a reasonable view for a small business owner.

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

Depreciation is a systematic write-off of the cost of a tangible asset that is listed on ___________.

A firm's financial statements represent a health report regarding the condition of the firm.

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

Good decisions are based on good information. Organizations need accounting-to provide good financial information.

After recording a business's transactions, bookkeepers usually classify the recorded transactions into groups with common characteristics.

Becky Hunter is an accountant employed by FAF Enterprises. Recently she has spent much of her time working on defining measures of costs for the production department and checking to ensure that various departments are staying within their budgets. Becky is a: