Deck 1: The Role of Accounting in Business

Question 1

A creditor is a party that has an ownership interest in a business.

Answer 1

False

Question 2

An investor is someone who lends money to a business.

Answer 2

False

Question 3

An accountant working in public practice may provide management consulting services.

Answer 3

True

Question 4

Outside investors would ordinarily use financial accounting information to decide whether or not to invest in a business.

Question 5

Australian Accounting Standards are exactly the same as the International Financial Reporting Standards (IFRS).

Question 6

Which of the following activities would NOT be included in the role of an accountant in public practice?

A)internal auditing
B)external auditing
C)liquidation
D)tax planning

Question 7

Managerial accounting focuses on information for decision makers outside of the business, such as outside investors and lenders.

Question 8

In Australia, there is both private and public sector involvement in the standard- setting process.

Question 9

Which of the following statements BEST defines financial statements?

A)Financial statements are the verbal statements made to business news organizations by chief financial officers.
B)Financial statements are plans and forecasts for future time periods.
C)Financial statements are the information systems that record and measure business transactions.
D)Financial statements are documents that report on a business in monetary terms, providing information to help people make informed business decisions.

Question 10

The financial examination of a company's financial records is called a(n):

A)audit.
B)financial analysis.
C)appraisal.
D)criminal investigation.

Question 11

Accounting firms in public practice are all large, multinational partnerships.

Question 12

Which of the following are most likely to be users of managerial accounting information?

A)Creditors
B)Potential investors
C)Business managers
D)Customers

Question 13

Accounting is "the language of business."

Question 14

Which of the following is NOT one of the main professional accounting bodies in Australia?

A)Certified Practicing Accountants of Australia
B)Certified Public Accountants of Australia
C)Institute of Chartered Accountants in Australia
D)Institute of Public Accountants

Question 15

The Australian conceptual framework encompasses non- profit organisations as well as for- profit ones.

Question 16

Different users of financial statements (investors, creditors, tax authorities, etc.)all focus on the same parts of the financial statements for the information they need.

Question 17

Accounting is the information system that measures business activity, processes the data into reports, and communicates the results to decision makers.

Question 18

Which of the following statements BEST describes managerial accounting?

A)Managerial accounting focuses on outside investors and lenders.
B)Managerial accounting provides information for the public.
C)Managerial accounting provides information for taxing authorities.
D)Managerial accounting focuses on information for internal decision making.

Question 19

Business owners use accounting information to set goals, evaluate progress toward those goals, and take corrective action when needed.

Question 20

Which of the following are likely to be users of financial accounting information?

A)Tax authorities
B)Potential investors
C)Creditors
D)All of the above

Question 21

In Australia, Accounting standards are formulated by the:

A)ASIC.
B)AASB.
C)IASB.
D)FRC.

Question 22

By definition, which of the following represents the owners of a corporation?

A)Shareholders
B)Employees
C)Creditors
D)Customers

Question 23

There are four major forms of business organisations.

Question 24

A relatively low amount of government regulation is a key advantage of a:

A)proprietorship.
B)partnership.
C)corporation.
D)not- for- profit.

Question 25

An auditor has been offered a gift of golf clubs as a token of appreciation by a manager in the firm being audited. Which of the following principles in the APESB Code of Conduct would be most relevant in deciding whether to accept the gift?

A)Professional competence and due care
B)Confidentiality
C)Integrity
D)Objectivity

Question 26

All business managers are legally bound to comply with the code of ethics developed by the professional accounting bodies.

Question 27

In a limited liability company the business, not the owners, is responsible for the corporation's debts.

Question 28

From a legal perspective, a proprietorship is:

A)an entity separate from its proprietor.
B)subject to regulation by ASIC.
C)not a distinct entity from its proprietor.
D)authorised under state charter.

Question 29

The International Accounting Standards Board is made up of members from the private sector, and has no public sector involvement.

Question 30

A proprietor has unlimited liability for the debts and obligations of the proprietorship.

Question 31

A proprietorship is created by:

A)obtaining a state charter.
B)one individual deciding to start a business.
C)electing a board of directors.
D)issuing shares of stock.

Question 32

The most that a proprietor can lose, as a result of business debts or lawsuits, is limited to the amount he/she has invested in the proprietorship itself.

Question 33

Regarding accounting information and records, a proprietorship is an entity entirely separate from its:

A)vendors.
B)proprietor.
C)customers.
D)shareholders.

Question 34

In a limited liability company, who is responsible for the company's debts?

A)The company itself
B)The individual investors
C)The proprietor
D)The partners

Question 35

The concept of sustainability in terms of business operations means that:

A)the business will keep growing in value indefinitely.
B)the business should endure losses today in order to ensure profits in the future.
C)the business will continue to be profitable in the future as well as the present.
D)the business should consider the needs of society and the environment as being more important than making profits.

Question 36

Codes of ethics govern professional as well as private activities.

Question 37

Similar to partnerships, in a limited- liability company, the members are personally liable for the debts and obligations of the business.

Question 38

One beneficial characteristic of a proprietorship is:

A)the owner does not need to be involved in the day- to- day operations of the business.
B)the owner's interest is separate from the manager's interest.
C)the owner appoints a board of directors to manage the business.
D)that the owner also manages the business.

Question 39

Phillip and Reed have developed a new technology for home computer systems. However, they need to raise a large amount of capital to build the production and support facilities to market their product successfully. Which of the following business types would be best suited to help the company raise the necessary capital to begin production?

A)Partnership
B)Limited liability partnership
C)Corporation
D)Proprietorship

Question 40

If a proprietorship cannot pay its debts, the creditors may make claims against the:

A)employees of the business.
B)assets of the proprietor.
C)state government.
D)assets of the proprietorship only.

Question 41

Which of the following is NOT a characteristic of a traditional partnership?

A)Each partner has the authority to commit the entire partnership to a binding contract.
B)A partnership is owned by shareholders or stockholders.
C)A partnership joins two or more individuals as co- owners.
D)If a partnership cannot pay its debts, lenders can take the owners' personal assets to satisfy the obligations.

Question 42

Lindsey Smith decided to start her own CPA practice as a professional corporation, Smith CPA Ltd. Her corporation purchased an office building for $35 000 which her real estate agent said was worth $50 000 in the current market. The corporation records the building as a $50 000 asset because Lindsey believes that is the real value of the building. Which of the following concepts or principles of accounting is being violated?

A)Profit recognition principle
B)Cost principle
C)Entity concept
D)Going- concern concept

Question 43

Which of the following concepts (or principles)would require that an item be recorded at the amount actually paid rather than at the estimated market value?

A)Profit recognition principle
B)Entity concept
C)Going- concern concept
D)Cost principle

Question 44

The assets and liabilities of Matt Wesley Mechanics are as follows: Cash, $10 000; Accounts receivable, $8 200; Supplies, $1 050; Land, $25 000; Accounts payable, $6 530. What is the amount of owners' equity?

A)$44 430
B)$37 720
C)$21 500
D)$50 780

Question 45

Caleb Brown has been the sole owner of a bicycle sales and repair shop for many years. Which of the following business types would best protect Caleb's personal assets from product liability exposure?

A)Limited liability company
B)Proprietorship
C)Partnership
D)Not- for- profit

Question 46

Which of the following concepts (or principles)would dictate that a person with three different businesses keep three different bank accounts?

A)Cost principle
B)Going- concern concept
C)Entity concept
D)Matching principle

Question 47

Recognising an expense as an asset in the accounting records would result in a(n)(increase/decrease)in profit.

Question 48

The owners' claims to the assets of the business are called:

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

Question 49

GAAP refer to the set of accounting rules for international accounting.

Question 50

Which of the following concepts (or principles)require an assumption that the entity will remain in operation for the foreseeable future?

A)Cost principle
B)Going- concern concept
C)Profit recognition principle
D)Entity concept

Question 51

Bill Rogers has three different businesses. He has only one bank account for transactions relating to all of his various businesses. Which of the following concepts or principles of accounting is Bill violating?

A)Cost principle
B)Entity concept
C)Going- concern concept
D)Profit recgnition principle

Question 52

The conservatism principle requires accountants to record the highest possible profit.

Question 53

Android Electronics received an order for 50 digital radios on 1 June. The customer took delivery of the radios on 15 June. Android Electronics received payment from the customer on 20 June. The customer returned the goods as being unsuitable on 2 August. According to the profit recognition principle, on which date would the income be recorded?

A)20 June
B)The income would not be recorded at all.
C)15 June
D)1 June

Question 54

A corporation possesses all but one of the following characteristics. Which of the following is NOT a characteristic of a corporation?

A)A corporation is owned by shareholders or stockholders.
B)Corporation ownership is divided into shares.
C)If a corporation cannot pay its debts, lenders can take the owners' personal assets to satisfy the obligations.
D)A corporation is a distinct entity in the eyes of the law.

Question 55

David has decided to open an auto- detailing business. He will pick up an automobile from the client, take it to his parents' garage, detail it, and return it to the client. If he does all of the work himself and takes no legal steps to form a special organisation, which type of business organisation, in effect, has he chosen?

A)Corporation
B)Partnership
C)Proprietorship
D)Limited liability company

Question 56

Which of the following is the CORRECT accounting equation?

A)Assets = Liabilities + Owners' equity
B)Assets + Liabilities = Owners' equity
C)Assets + Revenue = Owners' equity
D)Assets + Revenue = Liabilities + Expenses

Question 57

Corporate ownership is a very popular type of ownership in Australia. Which of the following is a major reason that corporate ownership is popular?

A)The life of a corporation is limited by the death of an owner.
B)A corporation is usually managed by the owners.
C)Corporate shareholders have limited liability for the debts of the corporation.
D)Most corporations are small or medium- sized.

Question 58

Which of the following is TRUE for a proprietorship?

A)The proprietor is not personally liable for the debts of the proprietorship.
B)A proprietorship has a single owner.
C)A proprietorship has an indefinite life.
D)A proprietorship joins two or more individuals as co- owners.

Question 59

Accountants often refer to GAAP. What do the letters GAAP represent in accounting?

A)Generally accredited accounting policies
B)Globally accepted and accurate policies
C)Global accommodation accounting principles
D)Generally accepted accounting principles

Question 60

Assets are $150 000 and total liabilities are $90 000. Total owners' equity will be:

A)$60 000.
B)$180 000.
C)$240 000.
D)$300 000.

Question 61

Martin Supply Service received $1 000 cash from a customer which was owed to the business from the previous month. What is the effect of the cash receipt on the accounts of the business?

A)Cash increases; Accounts payable decreases.
B)Accounts payable increases; Owner's capital account decreases.
C)Cash account increases; Accounts receivable decreases.
D)Accounts receivable decreases; Owner's capital account decreases.

Question 62

Hamilton Lawn Service earned $1 000 for services rendered. The customer promised to pay at a later time. What is the effect on accounts?

A)Accounts receivable decreases; Owner's capital increases.
B)Cash and Accounts receivable both increase.
C)Accounts receivable increases; Owner's capital increases.
D)Cash account increases; Accounts receivable decreases.

Question 63

Hamilton Lawn Service earned $1 000 for services rendered and collected cash from its customer. What is the effect on accounts?

A)Cash account increases; Accounts receivable increases.
B)Cash account increases; Supplies account decreases.
C)Cash account increases; Owner's capital account increases.
D)Cash account increases; Accounts payable increases.

Question 64

Martin Supply Service paid $350 cash to a materials supplier that it owed from the previous month. What is the effect of the cash payment on accounts of the business?

A)Cash account decreases; Accounts payable decreases.
B)Materials account increases; Owner's capital account decreases.
C)Accounts payable increases; Owner's capital account decreases.
D)Cash account decreases; Accounts payable increases.

Question 65

A debt that a business owes to an outside party is called:

A)shareholders' equity.
B)revenue.
C)an asset.
D)a liability.

Question 66

A business owner starts a new business and invests $6 000 of capital. This transaction results in an increase in the business's liabilities.

Question 67

Items such as buildings and land are:

A)assets.
B)liabilities.
C)equity.
D)revenues.

Question 68

Hamilton Lawn Service incurred an $800 repair expense and paid the repair company in cash. Which account, besides Cash, decreased?

A)Equipment
B)Accounts payable
C)Owner's capital
D)Accounts receivable

Question 69

Hamilton Lawn Service earned $1 000 for services rendered. The customer promised to pay at a later time. Which of the following accounts increased?

A)Accounts payable
B)Cash
C)Supplies
D)Accounts receivable

Question 70

There are relatively few types of revenue. Which of the following in NOT a type of revenue?

A)Sales
B)Interest
C)Service
D)Capital

Question 71

The balance sheet of a business represents the account balances as of a particular date in time.

Question 72

Bill purchased office supplies for $500 cash. What is the effect on accounts?

A)Supplies account increases; Cash account decreases.
B)Cash account increases; Supplies account increases.
C)Supplies account increases; Owner's capital account increases.
D)Cash account increases; Accounts payable increases.

Question 73

Assets are $270 000 and owners' equity is $90 000. Liabilities will be:

A)$270 000.
B)$360 000.
C)$180 000.
D)$60 000.

Question 74

Martin Supply Service received $1 000 cash from a customer which was owed to the business from the previous month. Which of the following accounts decreases?

A)Accounts payable
B)Cash
C)Owner's capital
D)Accounts receivable

Question 75

Martin Supply Service paid $350 cash to a materials supplier that it owed from the previous month. Which of the following accounts decreases?

A)Accounts receivable
B)Accounts payable
C)Rent expense
D)Owner's capital

Question 76

Joe purchased office equipment for $1 250 cash. What is the effect on accounts?

A)One asset account increases; one owners' equity account increases.
B)Two asset accounts increase.
C)One asset account increases; another asset account decreases.
D)One asset account increases; one liability account increases.

Question 77

Tim contributes capital into his business. The two accounts affected are:

A)an asset and an owners' equity.
B)a liability and an owners' equity.
C)two asset accounts.
D)an asset and a liability.

Question 78

By looking at a statement of changes in equity, you can evaluate the effect of drawings on the ending balance in owners' equity.

Question 79

An individual asset has increased. Which of the following is possible?

A)There is an equal decrease in owners' equity.
B)Both liabilities and owners' equity decrease.
C)There is an equal decrease in another asset.
D)There is an equal decrease in a liability account.

Question 80

Owners' equity is $150 000 and total liabilities are $90 000. Total assets would be:

A)$300 000.
B)$240 000.
C)$60 000.
D)$180 000.