Deck 17: Understanding Accounting and Financial Information

Question 1

Accounting is an easy subject for people to understand because almost everyone is exposed to basic accounting concepts in their everyday life.

Answer 1

False

Question 2

Government organizations such as the IRS and other government regulatory agencies are interested in a firm's accounting information in order to help the firm strategize about ways to cut costs in order to minimize net income before taxes.

Answer 2

False

Question 3

Although managers who work for large firms must know something about accounting, people who run small businesses only need to know the basics of bookkeeping.

Answer 3

False

Question 4

Inputs to the accounting system include sales documents.

Question 5

Referring to an accounting system, inputs refers to events and transactions that occur within the business, while outputs refers to the journal entries and ledger categorization that occurs after the events and transactions are recorded.

Question 6

A firm's financial statements represent a health report regarding the condition of the firm.

Question 7

With increased computer technology, the ability to read and understand financial statements is no longer an important skill for managers.

Question 8

Jeremy operates his own small business, but he doesn't want to be bothered with accounting information. He tells his friends, "All I need accounting for is to prepare my income tax return for my business. I'll hire someone to do that for me." Jeremy's attitude would be disastrous if he managed a large firm, but is a reasonable view for a small business owner.

Question 9

A business manager who keeps his/her customers satisfied can be successful without having a great deal of knowledge about accounting practices.

Question 10

The sole purpose of accounting is to help managers evaluate the financial condition of the firm so that they may make better pricing decisions.

Question 11

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

Question 12

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

Question 13

The U.S. government is a user of a firm's accounting information.

Question 14

Accounting involves both the recording and the interpreting of financial events.

Question 15

As noted in the story about the Bakery Barn, CPA Sean Perich's small business venture, trying to be everything for your business is often an impossible task. Due to the fact that solid accounting procedures are one of the lifelines for your business, it makes sense to hire an accountant even if you are knowledgeable about that functional unit of the business.

Question 16

Accounting provides information about the financial condition and operating performance of a firm.

Question 17

Accounting provides financial information that can be useful to owners, creditors, suppliers, employees, and competitors of an organization.

Question 18

Accountants do the work involved in recording financial events and transactions, but the actual classifying and interpreting of this data is left to financial managers.

Question 19

There are five key working areas in accounting: financial accounting, managerial accounting, auditing, tax accounting, and government and not-for-profit accounting.

Question 20

Good decisions are based on good information. Organizations need accounting-to provide good financial information.

Question 21

Budget preparation is one aspect of managerial accounting.

Question 22

A tax accountant is responsible for preparing tax returns and developing tax strategies.

Question 23

Financial accounting and managerial accounting are similar in that they both provide information intended primarily for people inside the organization.

Question 24

An independent audit is an evaluation and unbiased opinion about the accuracy of a company's financial statements.

Question 25

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

Question 26

Financial accounting involves activities such as preparing budgets and measuring production costs.

Question 27

All firms with more than four employees should have a full-time accountant.

Question 28

Financial accountants prepare reports for owners, creditors, suppliers, and others outside of the organization.

Question 29

An accountant who has a bachelor's degree, two years of experience in internal auditing and who has passed an exam by the Institute of Internal Auditors can become recognized as a certified internal auditor.

Question 30

The Internal Revenue Service is responsible for establishing accounting standards used by accountants working in government accounting.

Question 31

A firm's annual report is a yearly statement of the financial condition, progress, and expectations of the organization during one year.

Question 32

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

Question 33

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

Question 34

The work of a certified management accountant is intended to enable people outside of the organization to make investment decisions.

Question 35

Churches, schools, and charitable organizations all hire accountants.

Question 36

Activities of managerial accountants include measuring and reporting the costs of production, marketing and other functions within the organization.

Question 37

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

Question 38

Citizens and special interest groups often have interest in the information generated by government accounting.

Question 39

Accounting information is not relevant for nonprofit organizations.

Question 40

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

Question 41

Derek has a bachelor's degree in accounting and additional training in tax law. He is responsible for preparing tax returns and developing tax strategies for his employer, and has done so for the past seven years. Derek is a certified government accountant.

Question 42

As a certified public accountant (CPA), Kay might become involved in helping clients select appropriate accounting computer software for their firm.

Question 43

The Sarbanes-Oxley Act strengthens the protection for whistleblowers who report wrongful actions of company officers.

Question 44

As the burden of taxes grows, the role of the auditor becomes increasingly important to the organization.

Question 45

Recent accounting scandals raised serious questions about the legitimacy of an accounting firm performing both auditing and consulting work for the same company.

Question 46

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

Question 47

Citywide Insurance Corporation's internal accountants can prepare an audit for the company.

Question 48

As a certified public accountant, you would be working in the area of managerial accounting.

Question 49

In large companies, certified internal auditors are usually responsible for preparing tax returns and developing tax strategies for businesses.

Question 50

According to the "Legal Briefcase" box in Chapter 17, a forensic accountant investigates company records for evidence of fraud.

Question 51

Accounting is not important for nonprofit organizations since financial data is not critical to their success.

Question 52

Because each business is unique, the accounting profession recognizes that the accounting principles followed by one company may need to be completely different from the accounting principles followed by another firm.

Question 53

The Financial Accounting Standards Board only sets standards for accountants in the private sector; however, government accountants have no universally accepted procedures that they must follow.

Question 54

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

Question 55

Martha is a member of a conservative political group that wants to identify and publicize examples of wasteful government spending. The type of accounting information Martha and her group will follow most closely is provided by certified public accountants.

Question 56

Information contained in a firm's annual report largely represents work done by managerial accountants.

Question 57

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

Question 58

Managers who are concerned about keeping costs under controlshould be very interested in the information and advice provided by their company's managerial accountants.

Question 59

GAAP refers to a set of standards concerning accounting principles that were established by the Financial Accounting Standards Board.

Question 60

Jamal is an accountant employed full-time by The Barkley Company. Jamal is an example of a public accountant.

Question 61

There are two major financial statements prepared at the completion of the accounting cycle: the journal and the ledger.

Question 62

Posting is a step in the accounting cycle that involves transferring information from the journal into the appropriate accounts in a ledger.

Question 63

Double-entry bookkeeping can help identify a recording error made by a bookkeeper.

Question 64

One of the statements prepared in the accounting cycle is the statement of cash flows.

Question 65

Accounting software has proven to be especially helpful for small business owners.

Question 66

Double-entry bookkeeping requires that every transaction be recorded in two places.

Question 67

A bookkeeper's first task is to record the firm's transactions in a journal.

Question 68

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

Question 69

Carol has worked as a bookkeeper for a small clothing store for almost three years. Her old boss recently retired and a new manager took over. The new manager frequently asks her for information and advice about how to interpret the information she records. Carol's experience as a bookkeeper means she is qualified to provide this type of advice.

Question 70

Many businesses now use computers and accounting software to simplify the mechanical aspects involved in accounting.

Question 71

The purpose of a trial balance is to prepare a practice balance sheet.

Question 72

A major part of a bookkeeper's job is to interpret financial data and suggest strategies for improving the firm.

Question 73

The accounting book that provides all the information about a single account in one place is called the ledger.

Question 74

The accounting cycle usually involves the work of both the bookkeeper and the accountant.

Question 75

At present, accounting software packages have proven to be too complex and expensive to be useful for owners of small businesses.

Question 76

Bookkeeping is part of the accounting cycle, but accounting goes far beyond the activities involved in bookkeeping.

Question 77

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

Question 78

Accounting software for small businesses has become so sophisticated that most small business owners will never need to consult with an actual accountant or understand accounting information themselves.

Question 79

After recording a business's transactions, bookkeepers usually classify the recorded transactions into groups with common characteristics.

Question 80

The books where accounting data are first entered are called ledgers.