Exam 17: Understanding Accounting and Financial Information

The fundamental accounting equation is as follows: Assets = Liabilities + Owners' equity.

The balance sheet reports revenues and selling costs for a period of time.

The accounting profession is divided into two main fields: bookkeeping and auditing.

FIFO is a method of inventory valuation that assumes the items most recently purchased are also the items that are sold first.

A comparison of bookkeeping and accounting indicates that:

_______ refers to the value that stockholders or owners have in a company.

A __________ is a specialized accounting book, where transactions are categorized according to type. For example, all utility transactions are recorded in the same category.

Your firm is a supplier to a major chain of discount stores. You have heard rumors that this chain of discount stores is in financial difficulty. Which financial ratios would indicate the discount store's ability or inability to pay its short-term debts?

A series of high-profile scandals in the early 2000s put the accounting profession under intense scrutiny.

When creating the income statement, which of the following statements is accurate?

Use the fundamental accounting equation to solve the following: Assets minus liabilities equals:

The Balance Sheet, the Statement of Cash Flows, and the ______________ are three key financial statements prepared by accountants.

The accounting profession is divided into 5 key working areas, two of which are:

Purchasing insurance, paying employees, and using supplies are examples of financial transactions.

A(n) _________ is a yearly published statement of the financial condition, progress and expectations of an organization.

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

Accounting, as the language of business, is solely concerned with providing information useful to managers of profit-seeking firms.

Preferred Pet Care, Inc., successfully took out a loan for $130,000 from Southwest Bank. It used $80,000 of this loan to pay off an existing loan that had a higher interest rate, and purchased X-ray equipment with the remaining funds. These events were noted as financing and investing activities on its balance sheet.

A lower than average inventory turnover ratio indicates excellent inventory management practices.

The job of reviewing and evaluating the records used to prepare a company's financial statements is referred to as auditing.