Question 1

It is impossible to run a company effectively without the ability to read and understand basic accounting reports and financial statements.

Accepted Answer

A) True 
 B)False

Question 2

The current ratio is a type of ________ ratio.

Accepted Answer

A)  leverage 
B)  profitability 
C)  activity 
D)  liquidity 
A)  leverage 
B)  profitability 
C)  activity 
D)  liquidity

Question 3

A balance sheet lists assets in order of their _______________.

Accepted Answer

A)  dollar value, from smallest to largest 
B)  date of acquisition, with the most recently acquired assets listed first 
C)  liquidity, with the most liquid assets listed first 
D)  income generating ability 
A)  dollar value, from smallest to largest 
B)  date of acquisition, with the most recently acquired assets listed first 
C)  liquidity, with the most liquid assets listed first 
D)  income generating ability

Question 4

Which of the following is an example of a financial transaction?

Accepted Answer

A)  A firm purchases a fire insurance policy. 
B)  An internal auditor discovers an error in a firm's inventory valuation. 
C)  A potential customer accesses a firm's web page. 
D)  A manager reviews the financial statements prepared by an accountant. 
A)  A firm purchases a fire insurance policy. 
B)  An internal auditor discovers an error in a firm's inventory valuation. 
C)  A potential customer accesses a firm's web page. 
D)  A manager reviews the financial statements prepared by an accountant.

Question 5

The Sarbanes-Oxley Act prohibits accounting firms from providing certain nonauditing work (such as consulting services) to companies they audit.

Accepted Answer

A) True 
 B)False

Question 6

Financial accounting is used to provide information and analysis managers within the organization can use to assist them in decision making.

Accepted Answer

A) True 
 B)False

Question 7

An important difference between accounting and other business functions, such as marketing and management, is that:

Accepted Answer

A)  accounting functions must be performed by an outsider, rather than by an employee of the business, in order to avoid conflicts of interest. 
B)  accounting offers us insight into whether the business is financially sound. 
C)  accounting involves mainly clerical activities and thus requires very little analysis. 
D)  accounting deals exclusively with numbers. 
A)  accounting functions must be performed by an outsider, rather than by an employee of the business, in order to avoid conflicts of interest. 
B)  accounting offers us insight into whether the business is financially sound. 
C)  accounting involves mainly clerical activities and thus requires very little analysis. 
D)  accounting deals exclusively with numbers.

Question 8

The _______ ratio helps determine the ability of a firm to repay its short-term debts even if it has difficulty selling its inventory.

Accepted Answer

A)  acid-test 
B)  cash flow 
C)  diluted current asset 
D)  required reserve 
A)  acid-test 
B)  cash flow 
C)  diluted current asset 
D)  required reserve

Question 9

The cash a firm raised from issuing new debt or equity capital would be reported on a statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 10

Cash flow statements identify three sources of cash receipts and disbursements: assets, liabilities and owners' equity.

Accepted Answer

A) True 
 B)False

Question 11

Cash revenues from the sale of new cars at Pete's Auto Emporium would be listed as a cash inflow from operations on Pete's statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 12

Olivia is a public accountant. She prepares monthly financial statements for her client, Chick's Auto Body Shop. Presently, though, she must summarize the data in the accounting ledgers to determine if the figures are correct and balanced. Olivia will prepare a statement of cash flows in order to complete this step of the cycle.

Accepted Answer

A) True 
 B)False

Question 13

An individual who provides accounting services to individuals and businesses on a fee basis is referred to as a private accountant.

Accepted Answer

A) True 
 B)False

Question 14

Kelley's Kloset, LLC, has applied for a business loan. Her prospective banker has requested information concerning the financial condition of her business. Which accounting discipline is responsible for providing accounting information to outside stakeholders?

Accepted Answer

A)  Management accounting. 
B)  Financial accounting. 
C)  Tax accounting. 
D)  Certified bookkeeping. 
A)  Management accounting. 
B)  Financial accounting. 
C)  Tax accounting. 
D)  Certified bookkeeping.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

FIFO and LIFO are two common methods used to compute the depreciation of tangible assets.

Accepted Answer

A) True 
 B)False

Question 17

FIFO and LIFO are two common:

Accepted Answer

A)  depreciation strategies. 
B)  ways to structure a balance sheet. 
C)  inventory valuation methods. 
D)  current ratios. 
A)  depreciation strategies. 
B)  ways to structure a balance sheet. 
C)  inventory valuation methods. 
D)  current ratios.

Question 18

The acid-test ratio emphasizes the ability to convert inventory quickly into cash.

Accepted Answer

A) True 
 B)False

Question 19

Gross profit represents profit after the deduction of cost of goods sold, and before the deduction of all other selling expenses, general expenses, and tax expense.

Accepted Answer

A) True 
 B)False

Question 20

Independent audits are prepared by accountants within the organization to ensure that proper accounting procedures are followed.

Accepted Answer

A) True 
 B)False

Exam 17: Understanding Accounting and Financial Information

It is impossible to run a company effectively without the ability to read and understand basic accounting reports and financial statements.

The current ratio is a type of ________ ratio.

A balance sheet lists assets in order of their _______________.

Which of the following is an example of a financial transaction?

The Sarbanes-Oxley Act prohibits accounting firms from providing certain nonauditing work (such as consulting services) to companies they audit.

Financial accounting is used to provide information and analysis managers within the organization can use to assist them in decision making.

An important difference between accounting and other business functions, such as marketing and management, is that:

The _______ ratio helps determine the ability of a firm to repay its short-term debts even if it has difficulty selling its inventory.

The cash a firm raised from issuing new debt or equity capital would be reported on a statement of cash flows.

Cash flow statements identify three sources of cash receipts and disbursements: assets, liabilities and owners' equity.

Cash revenues from the sale of new cars at Pete's Auto Emporium would be listed as a cash inflow from operations on Pete's statement of cash flows.

An individual who provides accounting services to individuals and businesses on a fee basis is referred to as a private accountant.

Kelley's Kloset, LLC, has applied for a business loan. Her prospective banker has requested information concerning the financial condition of her business. Which accounting discipline is responsible for providing accounting information to outside stakeholders?

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

FIFO and LIFO are two common methods used to compute the depreciation of tangible assets.

FIFO and LIFO are two common:

The acid-test ratio emphasizes the ability to convert inventory quickly into cash.

Gross profit represents profit after the deduction of cost of goods sold, and before the deduction of all other selling expenses, general expenses, and tax expense.

Independent audits are prepared by accountants within the organization to ensure that proper accounting procedures are followed.

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

How to Form a Business

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Union and Employeemanagement Issues

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Financial Management

Using Securities Markets for Financing and Investing Opportunities

Money, Financial Institutions, and the Federal Reserve

Managing the Marketing Mix: Product, Price, Place and Promotion

Extension: Working Within the Legal Environment

Extension: Using Technology to Manage Information

Extension: Managing Risk

Extension: Managing Personal Finances

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