Exam 7: Accounting: Decision Making by the Numbers

Which ratio measures how effectively a firm uses its assets to generate revenue?

What are managers, shareholders, employees, and creditors?

Companies that have the option to follow IFRS develop their own set of financial accounting rules and modify them whenever the market changes.

What is a balance sheet? What is the accounting equation? Define each term in the accounting equation.

Revenues are increases in a firm's assets resulting from the sale of goods, the provision of services, or other activities intended to earn income.

The cash balance reported at the bottom of the statement of cash flows should equal the amount of cash reported for a balance sheet prepared at the end of the same accounting period.

Which of the following best describes the notes to financial statements included in an annual report?

In order to compute a firm's gross profit on the income statement, its cost of goods sold is subtracted from which of the following?

Explain average collection period ratio. What does it measure? How is it computed? What is considered a good or positive result?

The International Accounting Standards Board is constantly modifying, clarifying, and expanding IFRS as business practices evolve and new issues arise.

What would a firm's debt ratio be if it financed one quarter of its assets with debt and three quarters with owner's equity?

The accounting equation is based on the fact that the value of a firm's assets is, by definition, exactly equal to the financing provided by creditors and by owners for the purchase of those assets.

As a result of the accounting scandals of the late 1990s and early 21st century, many countries have imposed new ethics-related requirements on accountants.

What is the term for what the firm owes its creditors?

Describe the four basic types of ratios managers rely on. Briefly explain what each type of ratio tells the financial manager.

Which ratio measures the ability to pay short-term liabilities as they come due?

Which of the following items would be listed on an income statement?

Activity-based costing is a much simpler and easier method to implement than the direct labour method.

Which of the following would be listed in the liabilities section of the balance sheet?

When analyzing financial statements, what should you make sure to read because it can be very revealing?