Deck 16: Understanding Accounting and Financial Information

Question 1

Brianne is a bookkeeper for Kitty Creations Limited.Part of her job would be to take the firm's transactions and record them in books or computer programs referred to as:

A)debit programs.
B)asset databases.
C)credit accounts.
D)journals.

Answer 1

D

Question 2

Keith will be graduating from Acadia University this year.He has accumulated $18,000 in student loans during his four years at college.An accountant would classify the loans as:

A)liabilities.
B)intangibles.
C)assets.
D)owners' equity.

Answer 2

A

Question 3

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

A)liability
B)performance
C)liquidity
D)leverage

Answer 3

C

Question 4

As an accountant,Joe Billings would be most likely to be involved in:

A)summarizing and interpreting financial information needed by his firm's managers.
B)developing plans to help his company establish a supply chain.
C)setting prices for specific goods.
D)developing a fringe benefit program that improves employee morale.

Question 5

The use of computers in accounting has:

A)made it possible for most firms to operate without the expense of hiring or consulting with accountants.
B)reduced the pressure on managers in making financial decisions.
C)created an environment in which accounting has become nothing more than glorified bookkeeping,as all accountants are required to do is enter data into the system and monitor the results the program generates.
D)allowed firms to have continuous auditing ability so that they can continuously track financial problems and quickly spot problems like cash flow difficulties.

Question 6

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

A)cash reserves.
B)gross margin.
C)owners' equity.
D)net income.

Question 7

Careful consideration of the use of computers in accounting indicates that computers:

A)cannot handle the increasing data demands of accounting.
B)have a very limited use in accounting due to inadequate privacy controls.
C)will soon eliminate all of the accounting functions.
D)are tools to help the accountant perform his or her job.

Question 8

Once a trial balance has been prepared,the next step of the accounting cycle involves:

A)completing ratio analysis.
B)posting the information to the correct ledger accounts.
C)preparing major financial statements such as the balance sheet.
D)classifying the transactions into logical categories.

Question 9

Leondra works for a textbook publishing firm preparing budgets and reporting production costs.She works in the field of:

A)tax accounting.
B)financial accounting.
C)managerial accounting.
D)auditing.

Question 10

Over the past month,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:

A)negative cash flow.
B)bad debt allowance.
C)tax credit payment.
D)positive disbursement.

Question 11

The supplier of coffee beans to the local coffee shop now demands to be paid on a cash basis for all purchases.The supplier has done this because:

A)the coffee shop now stays open 24 hours a day.
B)the coffee shop has been very slow in paying for previous purchases.
C)the coffee shop is over 50 miles away from the supplier.
D)the coffee shop's purchases are growing.

Question 12

On December 31,2001,Saskatoon Laboratories had assets of $235,000 and owners' equity of $84,000.We can conclude that Saskatoon Laboratories must have:

A)suffered a net loss of $151,000.
B)experienced a cash inflow of $319,000.
C)paid a dividend of $3.00 per share.
D)total liabilities of $151,000.

Question 13

Inventory turnover is a(n)ratio.

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

Question 14

A(n)is an evaluation and unbiased opinion of the accuracy of a firm's financial statements.

A)independent audit
B)annual report
C)certified audit
D)internal audit

Question 15

Which of the following refers to items that can be converted into cash within one year?

A)Current assets
B)Current liabilities
C)Owners' equity
D)Fixed assets

Question 16

How many professional accounting designations does Canada have?

A)One
B)Two
C)Three
D)Four

Question 17

A bookkeeper's first task is to:

A)interpret and report data to the firm's management.
B)classify and summarize the firm's financial data.
C)prepare the firm's financial statements.
D)divide all of the firm's transactions into meaningful categories.

Question 18

Financial accounting information about a firm is useful:

A)to managers,owners,creditors,employees,and the government.
B)only to managers within the firm.
C)only to the tax authorities and other government agencies that regulate the firm.
D)only to creditors and stockholders of the firm.

Question 19

Accounting includes information related to financial transactions.

A)buying
B)distributing
C)interpreting
D)selling

Question 20

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

A)liquidity
B)performance
C)leverage
D)liability

Question 21

The main reason an accountant would conduct a trial balance would be to:

A)determine whether account figures in ledgers are correct and balanced.
B)ensure the audit was done correctly.
C)obtain an estimate of the amount of taxes the firm owes.
D)verify the validity of last year's balance sheet before beginning the next accounting cycle.

Question 22

Jose just graduated from college with a bachelor's degree in accounting.He plans to go to work for the Canadian Cancer Society as an accountant.Jose will be a(n):

A)independent accountant.
B)forensic accountant.
C)public accountant.
D)private accountant.

Question 23

One of the most important performance ratios is what?

A)GAAP
B)P/E
C)P and L
D)EPS

Question 24

A(n)provides a summary of money coming in to and money going out of a firm in a given time period.

A)income statement
B)cash flow statement
C)receivables and payables report
D)cash budget

Question 25

Which of the following is NOT an area of importance in accounting?

A)recording information about financial transactions.
B)summarizing information about financial transactions.
C)setting prices for goods and services sold by the organization.
D)analyzing financial information.

Question 26

One of the major financial statements prepared in the fifth step of the accounting cycle is the:

A)cash flow statement.
B)general journal.
C)social audit.
D)asset summary.

Question 27

For the last several years,Bill Havers has gone to accountant Chelsea Jones for help in preparing his personal income tax forms.He heard about Chelsea from his boss,who said she had done a good job helping the business design a new accounting system.Bill has been happy with Chelsea's work and feels that the fees she charges are quite reasonable.Chelsea would be classified as a(n):

A)accounting broker.
B)public accountant.
C)independent auditor.
D)private accountant.

Question 28

There standard inventory turnover ratio that applies to any company in any industry is what?

A)0
B)-1
C)1
D)There is no standard

Question 29

The "bottom line" of an income statement shows the firm's:

A)owners' equity.
B)net income or net loss.
C)retained earnings.
D)gross margin.

Question 30

If the total assets of a business are $107,000 and its liabilities are $75,000,which of the following statements is correct?

A)The current assets are worth $32,000.
B)The owners' equity is $32,000.
C)The net income for the period is $32,000.
D)The owners' equity equals $182,000.

Question 31

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

A)forecasting and logistical accounting.
B)auditing and managerial accounting.
C)inventory control and budgeting.
D)income accounting and expenditure accounting.

Question 32

McCartney Consulting Group is a management-consulting firm that provides its expertise to businesses that employ its services.Since it does not hold an inventory of goods or produce any goods itself:

A)its balance sheet will not record any current assets.
B)its revenue will equal its net income.
C)it is unlikely to have any operating expenses.
D)its gross profit could be identical to its net revenue.

Question 33

Ralph owns a small business.Some friends have suggested that he should switch from his current manual accounting system to one that is computerized.Ralph is not certain he wants to use computers in his small firm's accounting system.He is concerned about the time it would take in learning the system,and wonders whether the benefits will justify the costs of setting up the system.As a small business owner,Ralph would probably find that:

A)today's accounting software tends to be very complex,so only people with extensive accounting experience can understand its features and use it effectively.
B)even though it is not yet cost effective,he should go ahead and adopt a computerized system,because government regulations will require most business functions to be computerized in the near future.
C)such systems actually reduce costs,because they eliminate the need to ever consult with an accountant.
D)computer software tends to be very helpful to small business owners who lack strong accounting support within their companies.

Question 34

Carlisle Communications is preparing its cash flow statement.Among other things,this statement will show:

A)cash inflows and cash outflows that resulted from financing activities.
B)net income from operations after taxes.
C)general expenses and operating expenses.
D)the total owners' equity for the firm.

Question 35

Stockholders of the Sasha Deal Company are concerned about irregularities in the firm's accounting system.One approach to identify problems in the records of the company would be to have a(n)performed.

A)certified audit
B)internal audit
C)independent audit
D)GAAP analysis

Question 36

The sixth step in the accounting cycle involves:

A)preparing the income statement.
B)performing a trial balance to verify that the accounting statements are internally consistent.
C)auditing the books to ensure that they were prepared according to generally accepted accounting principles.
D)analyzing major accounting statements to evaluate the financial condition of the firm.

Question 37

Taylor Casual,a chain of retail clothing stores,wants to assure investors and other outsiders that its financial statements are accurate.One way to do so would be to hire a public accounting firm to:

A)provide a "generally accepted practices" endorsement.
B)take over all of its accounting functions.
C)produce an internal audit.
D)perform an independent audit.

Question 38

Which financial statement represents what the company owns and owes as of a specific date?

A)income statement
B)trial balance
C)cash flow statement
D)balance sheet

Question 39

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

A)tax accounting.
B)informational accounting.
C)financial accounting.
D)managerial accounting.

Question 40

The current ratio is found by dividing the firm's current assets by its _.

A)total liabilities
B)current liabilities
C)debt
D)equity

Question 41

Bookkeepers would normally be involved with:

A)recording business transactions.
B)preparing financial statements.
C)interpreting accounting data.
D)approving decisions about major expenditures.

Question 42

Horst works as an accountant for a mid-sized retail store.He has just completed a trial balance that turned up no unexpected problems.Horst's next major task is likely to be:

A)taking a well-deserved vacation,since he has just finished the last step in the accounting cycle for the current period.
B)preparing the store's balance sheet and other major financial statements.
C)preparing a tax return for the company.
D)conducting the full audit.

Question 43

The individuals in a firm that are responsible for the development of strategies to minimize taxes are called:

A)certified public accountants.
B)certified management accountants.
C)tax accountants.
D)certified internal auditors.

Question 44

Rent,amortization,and salaries are all examples of:

A)expenses.
B)owners' equity.
C)liabilities.
D)assets.

Question 45

Patents and copyrights would be classified as:

A)intangible assets.
B)current assets.
C)owners' equity.
D)fixed assets.

Question 46

The value of things you own minus the amount of money you owe others is called:

A)leverage.
B)equity.
C)liquidity.
D)liabilities.

Question 47

A cash flow statement reports cash receipts and disbursements for a firm that results:

A)from its operations,investments,and financing.
B)only from its operations.
C)from both its operations and investments,but not from its financing.
D)only from its investments.

Question 48

Which key provision of the Sarbanes-Oxley act should minimize the opportunity for public accountants to minimize conflict of interest?

A)Establish a maximum fees chargeable by public accountants to firms they do work for
B)Strengthens the protection for whistleblowers
C)Having the CEO's and CFO's certify the accuracy of financial reports
D)Prohibits accounting firms to provide consulting services and audit the same firm

Question 49

Return on sales divides ____ by _.

A)net income after tax;total owners' equity
B)net income;net sales
C)income;number of shares outstanding
D)net income;taxes

Question 50

Hap owns and operates a small business with only four full time employees and less than $500 thousand in annual sales.He currently uses a manual accounting system and relies on a part-time bookkeeper to keep his records in order.In evaluating the possible adoption of a computerized accounting system,Hap will probably discover that:

A)a computerized system would be affordable,but that he would have little need for it unless his company grew and became significantly larger.
B)he would be better off hiring a full time accountant.
C)he could benefit greatly from adopting such a system,but should also consult with an accountant for advice.
D)the expense of setting up a computerized accounting system would be beyond his financial ability at this time.

Question 51

April works in the accounting department at Henson's Tire & Auto.She is concerned that the company has been placing too many orders for office supplies and wants to look at all of the transactions involving the purchase of office supplies for the past several months.April could find such information by looking at the supplies account in the:

A)cash flow statement.
B)journal.
C)account debit book.
D)ledger.

Question 52

is the dollar value of what is received for goods sold,services rendered,and money received from other financial sources.

A)Gross margin
B)Cost of goods sold
C)Net income
D)Revenue

Question 53

Liquidity refers to how fast a(n)can be converted to cash.

A)asset
B)liability
C)equity
D)debt

Question 54

On a balance sheet,what a firm owes to creditors would be listed under:

A)expenses.
B)liabilities.
C)owners' equity.
D)contra-assets.

Question 55

As Hector was packing to return to Simon Fraser University after his summer vacation,he realized that he owned many valuable things such as a laptop computer,stereo system,and DVD player.An accountant would list all of these as Hector's:

A)liabilities.
B)assets.
C)owners' equity.
D)intangibles.

Question 56

Jim works in the accounting department at the Brunswick Sunflower Corporation,where it is his job to record all transactions into journals.After completing this task,the next step in the accounting process is to:

A)prepare the firm's financial statements.
B)determine the tax liability of the firm.
C)balance the difference between assets and liabilities.
D)post the information into ledgers.

Question 57

The accounting statement that reports cash receipts and disbursements for a business is called the:

A)balance sheet.
B)income statement.
C)cash flow statement.
D)cash basis trial balance.

Question 58

Return on equity divides ____ by _.

A)income;number of shares outstanding
B)net income;net sales
C)net income after tax;total owners' equity
D)net income;taxes

Question 59

Perry is responsible for recording all sales transactions that take place at Turncoat Enterprises.He must be careful that his recording is both accurate and thorough.Perry's work involves tasks associated with:

A)auditing.
B)revenue assessment.
C)capital budgeting.
D)bookkeeping.

Question 60

All of the following are steps included in the accounting cycle EXCEPT:

A)forecasting of expenses and revenues.
B)preparing a trial balance.
C)posting journal information into ledgers.
D)recording information into journals.

Question 61

Jill wants to start her own business,but knows little about how to set up an accounting system or interpret financial information."I'm not worried about accounting," she tells her friends."I'll just hire a part-time bookkeeper to handle all that type of stuff,and focus my attention on what I like-finding ways to satisfy my customers." Which of the following is the best response to Jill's comments?

A)Jill has a good plan.Only managers of large firms require knowledge of accounting.Owners and managers of small businesses can easily get away with just a part-time bookkeeper.
B)Although Jill can hire someone for bookkeeping,she'll still need to know how to read,understand,and interpret basic accounting reports in order to make good business decisions.
C)Jill should make sure the bookkeeper she hires knows how to use a database,since this type of software is the heart of any efficient accounting system.
D)Most entrepreneurs would agree with Jill's opinion.The work done by accountants is mainly clerical in nature,so time spent by business owners on accounting tends to take them away from more important tasks.

Question 62

The basic earnings per share ratio does not take what into account?

A)stock options
B)net income
C)taxes
D)number of shares outstanding

Question 63

This morning,Evelyn will be transferring information in her company's journals and posting them to the:

A)ledgers.
B)working papers.
C)balance sheet.
D)income statement.

Question 64

As Canadian firms focus on cutting costs in order to stay competitive with producers in low-wage countries,will gain importance.

A)auditing
B)financial accounting
C)managerial accounting
D)tax accounting

Question 65

The balance sheet is composed of the following types of accounts:

A)assets,liabilities,and owners' equity.
B)revenue,expenses,and earnings.
C)capital,cost,and valuation.
D)operating expenses,cash flow,and capital expenditures.

Question 66

The fundamental accounting equation states that assets equal _.

A)liabilities plus owners' equity
B)liabilities plus receivables
C)liabilities minus owners' equity
D)payables plus cash equivalents

Question 67

The preparation of financial statements for people outside the firm (creditors,unions,suppliers,and others)is the goal of:

A)cost accounting.
B)auditing.
C)financial accounting.
D)managerial accounting.

Question 68

Accountant Alan Wingspan has just finished working on the balance sheet,income statement,and statement of cash flows for his company.The next step in the accounting cycle will involve:

A)analyzing the firm's financial statements to evaluate the financial condition of the firm.
B)placing the data used to construct the statements into an archive known as a data warehouse.
C)posting the results of these statements to the appropriate journal.
D)conducting forensic tests of the data to ensure its accuracy.

Question 69

The reports and financial statements prepared by accountants:

A)have lost much of their relevance as firms have moved into a more global environment.
B)are much more useful for profit-seeking businesses than for non-profit organizations.
C)are mainly used to help the firm complete its tax forms.
D)provide information that can be used by decision-makers both inside and outside the organization.

Question 70

The calculation revenue minus cost of goods sold will give the firm its:

A)gross margin.
B)net income.
C)fundamental accounting equation.
D)retained earnings.

Question 71

Our Gang Transfer Company has shown consistent profits over the past five years.However,the company has recently found itself in financial trouble due to cash shortages.This indicates that:

A)an accounting profit does not guarantee a positive cash flow.
B)the state of the economy is less important than financial control techniques.
C)the accountants apparently made a mistake when they prepared the trial balance.
D)it's not always important to prepare financial statements.

Question 72

involves the recording of business transactions.

A)Auditing
B)Marketing
C)Economics
D)Bookkeeping

Question 73

The is a six step procedure that results in the preparation and analysis of the major financial statements.

A)accounting cycle
B)financial performance appraisal
C)double-entry method
D)financial management process

Question 74

The three key financial statements of a business are the:

A)revenue summary,expense summary,and consolidation statement.
B)ledger,journal,and trial balance.
C)balance sheet,income statement,and cash flow statement.
D)cash budget,capital budget,and master budget.

Question 75

Expenses a firm incurs for insurance,office salaries,and rent would be classified as:

A)general expenses on an income statement.
B)selling expenses on an income statement.
C)current liabilities on a balance sheet.
D)general expenses on a cash flow statement.

Question 76

is the accounting practice of recording every transaction in two places.

A)Entry duplication
B)Double-entry bookkeeping
C)Trial balancing
D)Account matching

Question 77

Debts that are due in one year or less are classified as:

A)current liabilities.
B)callable debts.
C)debit items.
D)immediate expenses.

Question 78

The most liquid asset is:

A)owners' equity.
B)cash.
C)accounts payable.
D)sales.

Question 79

In reviewing the financial results for the past month,the president of the company is surprised at how low the sales amount is.She is wondering if all sales for the month have been properly recorded.When asked to investigate this issue,the accountant would refer to the:

A)ledger.
B)trial balance.
C)balance sheet.
D)income statement.

Question 80

A summarizes all the data in the account ledgers to verify that they balance.

A)balance sheet
B)statement of cash flows
C)ledger statement
D)trial balance