Exam 7: Accounting: Decision Making by the Numbers

Balance sheets only reflect the assets and liabilities of the cost of goods sold.

Firms must NOT include notes within financial statements that may disclose facts about the status of a lawsuit against the firm because this type of information is for internal stakeholders only.

The statement of retained earnings shows how retained earnings have changed from one accounting period to the next. By subtracting dividends paid to shareholders from net income, managers will see changes in this statement over time.

Managerial accounting provides information, not intended for the general public, to internal stakeholders such as the managers of specific divisions or departments.

Whether a particular financial ratio is considered good or bad depends, in part, on the industry.

What has the accounting profession adopted to guide the practice of financial accounting in order to provide external shareholders with relevant, reliable, consistent, and comparable financial information?

Activity-based costing is a technique to assign product costs based on links between activities that drive costs and the production of specific products.

At Sips and Chips, a local cybercafé, management is measuring the profit earned on each dollar invested by the shareholders. What are the managers measuring?

If the auditor finds serious problems with a firm's financial statements, which opinion will be reported?

Which ratio, when high, indicates the firm is highly leveraged?

Define the term accounting, and explain how accounting information is used by a variety of stakeholders.

How are earnings per share calculated?

Revenue, expenses, and net income are the key sections found on a statement of cash flows.

Forensic accountants provide standardized reports primarily intended for managers and other decision-makers employed by an organization.

When auditors discover more serious and widespread problems with a firm's statements, they will offer an adverse opinion.

Which ratio measures the extent to which a firm relies on debt to meet its financing needs?

When analyzing a company's financial statements, it is also important to look at which of the following?

Describe the purpose of an income statement. Give the equation that illustrates the logic that explains the way the income statement is organized, and define each one of the equation's terms.

What process would provide shareholders or creditors with information about the overall financial performance of a firm?

Firms that sell goods that spoil easily or quickly become obsolete would want a very low inventory turnover ratio.