Deck 15: The Role of Accountants and Accounting Information

Question 1

Bookkeeping is a comprehensive system for collecting, analyzing, and communicating financial information.

Answer 1

False
Explanation:Accounting is a comprehensive system for collecting, analyzing, and communicating financial information.

Question 2

Those accountants who are hired by firms as salaried employees, and who specialize in areas such as financial planning, internal auditing, and taxation are called

A) forensic accountants.
B) certified management accountants.
C) private accountants.
D) certified public accountants.
E) fraud examiners.

Answer 2

C
Explanation:C)Large businesses employ specialized private accountants in such areas as budgeting, financial planning, internal auditing, payroll, and taxation. In small businesses, a single person may handle all accounting tasks.

Question 3

Which are the two major fields of accounting?

A) Managerial and forensic
B) Financial and managerial
C) Bookkeeping and advisory
D) Corporate and individual
E) Public and private

Answer 3

B
Explanation:B)The two fields of accounting can be classified according to the users they serve. It is convenient and accurate to classify users as those outside the company and those inside the company.

Question 4

Which of the following areas of the Certified Fraud Examiner (CFE)exam includes theories of fraud prevention?

A) Criminology and ethics
B) Financial transactions
C) Fraud investigation
D) Fraud litigation
E) Legal elements of fraud

Question 5

Which type of accountant uses audits to assist in the investigation of companies, and as litigation support in crimes against companies?

A) Management accountants
B) Private accountants
C) Forensic accountants
D) Financial accountants
E) Controllers

Question 6

Which of the following bodies enforces accounting and auditing rules and procedures?

A) Accounting Disclosure Board
B) Financial Accounting Standards Board
C) Association of Certified Fraud Examiners
D) Securities and Exchange Commission
E) American Institute of Certified Public Accountants

Question 7

Which of the following BEST describes a certified fraud examiner?

A) A specialized managerial accountant concerned with issues of fraud
B) A specialized certified public accountant concerned with issues of fraud
C) A specialized forensic accountant concerned with issues of fraud
D) An accounting agent for the Securities and Exchange Commission concerned with issues of fraud
E) An accounting agent provided by the Sarbanes-Oxley Act of 2002 concerned with issues of fraud

Question 8

Which of the following requires auditor rotation by prohibiting the same person from being the lead auditor for more than five consecutive years?

A) The Association of Certified Fraud Examiners
B) The Securities and Exchange Commission
C) The American Institute of Certified Public Accountants
D) The Financial Accounting Standards Board
E) Sarbanes-Oxley Act of 2002

Question 9

What is the goal of the CPA Vision Project?

A) To eradicate fraud in public companies
B) To increase the role of CPAs in providing consulting services to corporate managers
C) To better identify core competencies needed for noncertified public accountants in the public sector
D) To better define the role of accountants in the world economy
E) To lobby for laws that better support the accounting field and eliminate fraud

Question 10

What do businesses use to identify, record, and retain financial information, and includes the people, reports, procedures and other resources needed to compile transactions?

A) Accounting information systems
B) Financial accounting
C) Bookkeeping
D) Accounting
E) Managerial accounting

Question 11

Which of the following refers to the rules and procedures governing the content and form of financial reports?

A) National bookkeeping standards
B) Core competencies for accounting
C) Accounting and financial rules
D) National guidelines of accounting principles
E) Generally accepted accounting principles

Question 12

Which of the following terms refers to the examination of a company's accounting system to determine whether its financial reports fairly represent its operations?

A) Company-wide analysis
B) Forensic accounting
C) Portfolio analysis
D) Audit
E) Preliminary investigation

Question 13

In addition to help preparing tax returns, what benefit can a tax service offer a business?

A) Tax planning
B) Litigation advice
C) State certification
D) Personal financial planning
E) Advice on corporate mergers

Question 14

Which of the following encourages accounting professionals to create quality internal controls and financial practices within their organizations?

A) Certified management accountant (CMA)
B) Certified public accountant (CPA)
C) Controller
D) Private accountant
E) Forensic accountant

Question 15

An audit examines whether a firm's financial statement conforms to generally accepted accounting principles.

Question 16

How do certified public accountants ensure a company's financial reports really represent its operations?

A) By reviewing GAAP standards
B) By conducting an audit
C) Through the filing of tax information
D) By acting as consultants to noncertified accountants
E) By acting as advisory to senior management

Question 17

Which of the following terms refers to the recording of financial transactions?

A) Bookkeeping
B) Accounting
C) Controlling
D) Budgeting
E) Auditing

Question 18

Which of the following bodies formulates the generally accepted accounting principles (GAAP)?

A) Accounting Disclosure Board
B) Financial Accounting Standards Board
C) Association of Certified Fraud Examiners
D) Securities and Exchange Commission
E) American Institute of Certified Public Accountants

Question 19

Who is responsible for ensuring the accounting information system provides the reports and statements needed for management planning and decision making?

A) Auditors
B) Controller
C) Fraud examiners
D) Managerial accountant
E) Bookkeepers

Question 20

Which of the following terms refers to the comprehensive system for collecting, analyzing, and communicating financial information?

A) Bookkeeping
B) Accounting
C) Controlling
D) Auditing
E) Budgeting

Question 21

Discuss the role of a private accountant within large and small firms.

Question 22

A company has an assets-to-liabilities ratio of 3:2 and total assets worth $6 million. What is its owners' equity?

A) $1 million
B) $2 million
C) $3 million
D) $9 million
E) $12 million

Question 23

Due to current concerns over accounting fraud, certified public accountants are now licensed by the Securities and Exchange Commission.

Question 24

A company with a very high amount of liabilities will always find it more difficult to secure loans than a company with a very low amount of liabilities.

Question 25

Identify the potential users of accounting information.

Question 26

For what types of organizations do forensic accountants work?

Question 27

Why is a company's owners' equity important for investors and lenders?

A) Owners' equity indicates potential profit.
B) Owners' equity determines how quickly liabilities will increase.
C) Owners' equity determines how much will be paid out as dividends.
D) Owners' equity indicates how much the owner has invested in the company
E) Owners' equity indicates the level of security.

Question 28

A key component of the Sarbanes-Oxley Act of 2002 was increased government oversight over the certification examinations given by the accounting professional organizations such as the Institute of Management Accountants.

Question 29

Which of the following describes a liability?

A) The potential profit from selling a firm's assets and settling all of its debts
B) A debt owed by a firm to an outside organization or individual
C) Any economic resource expected to benefit a firm or an individual who owns it
D) Any economic deficit expected to cost a firm or an individual who owns it
E) The amount of money originally invested in a business by its owners

Question 30

How much profit does a company which has a total of $5 million invested by its owners and $4 million in liabilities need to make in order to have an assets-to-liabilities ratio of 2:1?

A) $2 million
B) $3 million
C) $5 million
D) $7 million
E) $8 million

Question 31

A firm's controller is often the firm's chief accounting officer.

Question 32

In the private accounting field, certified management accountants use accounting to investigate and support litigation in crimes against companies.

Question 33

A tax service can provide management advisory services ranging from personal financial planning to planning corporate mergers.

Question 34

Give three examples of management advisory services.

Question 35

Which of the following terms refers to the amount of money that owners would receive if they sold all of a company's assets and paid all of its liabilities?

A) Asset
B) Owners' equity
C) Inventory
D) Liability
E) Credit

Question 36

The percentage of liabilities in a company's assets plus the percentage of owners' equity in its assets is always equal to 100.

Question 37

In order to increase the quality of current accountants, the CPA Vision Project has re-asserted the ability to use and calculate large amounts of numerical data as a primary competency for accountants.

Question 38

Which of the following represents the accounting equation?

A) Assets = Liabilities + Owners' Equity
B) Owners' Equity = Assets + Liability
C) Liability = Assets + Owners' Equity
D) Assets = Liabilities - Owners' Equity
E) Assets = Liabilities × Owners' Equity

Question 39

It is currently very common that a CPA who is hired to audit a firm's finances will also be hired to help design a more efficient financial information system.

Question 40

Which of the following terms refers to any economic resource that is expected to benefit a firm or individual who owns it?

A) Asset
B) Liability
C) Equity
D) Account
E) Deposit

Question 41

What two sources of capital make up owners' equity?

Question 42

Which of the following refers to the financial statement detailing a firm's assets, liabilities, and owners' equity?

A) Income statement
B) Statement of cash flows
C) Balance sheet
D) Expense report
E) Annual budget

Question 43

Which of the following best describes the revenues of an organization?

A) Gross profit compared to operating expenses
B) Value of revenues compared to cost of revenues
C) Yearly receipts and cash payments
D) Cost of obtaining materials needed to produce products
E) Funds that flow into the business from the sale of the goods or services provided

Question 44

What is the accounting equation?

Question 45

Which of the following BEST describes depreciation?

A) The process of increasing the value of fixed assets over time
B) The process of deducting operating expenses from the value of fixed assets
C) The process of reducing the value of fixed assets over time
D) The process of distributing the cost of liabilities over time
E) The process of distributing the cost of intangible assets over time

Question 46

Which of the following BEST demonstrates cash flow from operations?

A) Transactions involved in buying and selling goods and services
B) Net cash used in or provided by investment
C) Cash flow from borrowing or issuing stock
D) Outflows for payments of dividends
E) Inflows of cash that will be used to repay borrowed money

Question 47

What are the major categories within an income statement?

A) Operating costs and profits, investing costs and profits, and financing costs and profits
B) Current revenue, long-term revenue, and net revenue
C) Revenue, sales, and income
D) Assets, liabilities, and owners' equity
E) Revenues, cost of revenues, operating expenses, and net income

Question 48

Owners' equity is net worth minus liabilities.

Question 49

What does a statement of cash flow describe?

A) Gross profit compared to operating expenses
B) Value of revenues compared to cost of revenues
C) Yearly receipts and cash payments
D) Cost of obtaining materials needed to produce products
E) Funds that flow into the business from the sale of the goods or services provided

Question 50

Which of the following describes assets such as land, building, and equipment?

A) Liquid assets
B) Fixed assets
C) Intangible assets
D) Current assets
E) Limited assets

Question 51

Which of the following statements BEST describes the difference between current and long-term liabilities?

A) Current liabilities are debts that need to be paid immediately, whereas long-term liabilities do not.
B) Current liabilities are those which will cost less in debt interest than long-term liabilities.
C) Current liabilities are debts that are settled sooner than long-term debts.
D) Current liabilities are debts on tangible assets, whereas long-term liabilities are debts on intangible assets.
E) Current liabilities are debts on current assets, whereas long-term liabilities are debts on fixed and intangible assets.

Question 52

Which of the following terms refers to the difference calculated by subtracting income taxes from the operating income of an organization?

A) Gross revenue
B) Net income
C) Gross profit
D) Cash flow
E) Leverage

Question 53

Which of the following are the three categories on a company's cash flow statement?

A) Operating activities, purchase activities, taxes
B) Profit inflow, debt outflow, taxes
C) Profitable activities, deficit activities, taxes
D) Operating activities, investing activities, taxes
E) Operating activities, investing activities, financing activities

Question 54

Which of the following documents would MOST likely come from a planning strategy meeting?

A) Income statement
B) Flow of cash statement
C) Balance sheet
D) Budget
E) Statement of projected earnings

Question 55

Which of the following is the difference between revenues and the cost of revenues?

A) Net income
B) Gross profit
C) Accounts payable
D) Interest expense
E) Cash flow

Question 56

Which of the following describes assets such as patents and trademarks?

A) Liquid assets
B) Fixed assets
C) Intangible assets
D) Current assets
E) Limited assets

Question 57

Which of the following terms refers to the amount paid for an existing business beyond the value of its other assets?

A) Goodwill
B) Excess compensation
C) Licensing
D) Asset promotion
E) Liability deduction

Question 58

If a company's assets exceed its liabilities, owners' equity is negative.

Question 59

Assets are categorized by the capacity in which they benefit the company.

Question 60

What distinguishes the two most commonly used categories of owners' equity?

A) The amount of equity within each type of asset-current versus fixed and intangible
B) The financial form of the equity-cash investments versus stock and bond investments
C) The source of the equity-investments versus earnings
D) The use of the equity-invested versus saved
E) The age of the equity-older investments and earnings versus newer investments and earnings

Question 61

What type of ratio measures a firm's ability to generate cash to meet current obligations by selling inventory and collecting revenue?

A) Earnings per share
B) Debt
C) Revenue recognition
D) Current
E) Activity

Question 62

The most liquid asset for a firm is marketable securities that can be sold very quickly.

Question 63

Explain fixed assets and how accountants spread the cost of an asset over the years of its useful life.

Question 64

Which of the following requires managers to share information about events inside the company and explain certain transaction?

A) Earning cycle reports
B) Revenue recognition
C) Statement of cash flow
D) Solvency ratios
E) Full disclosure

Question 65

Why is the long-term solvency ratio important for stakeholders?

A) It may indicate excessive inventories that cannot be sold.
B) It indicates the earnings per share a stakeholder can expect to receive.
C) It indicates the efficiency with which a firm uses resources.
D) It indicates the firm's ability to generate cash.
E) It may indicate collapse or takeover opportunities.

Question 66

Retained earnings are net profits minus dividend payments to stockholders.

Question 67

Which of the following ratios evaluates management's use of resources?

A) Short-term solvency ratio
B) Long-term solvency ratio
C) Activity ratio
D) Profitability ratio
E) Equity ratio

Question 68

What is the statement of cash flow required by the SEC and why is it required?

Question 69

Which of the following ratios measures a firm's potential earnings?

A) Short-term solvency ratio
B) Long-term solvency ratio
C) Profitability ratio
D) Activity ratio
E) Equity ratio

Question 70

Which of the following terms refers to the formal recording and reporting of revenues in financial statements?

A) Full disclosure
B) Revenue recognition
C) Compliance
D) Ethical practice
E) Materiality

Question 71

Explain what is covered by GAAP and why it is important to use these standards.

Question 72

Revenue from the earnings of a particular transaction is able to be reported as soon as the product or service is delivered.

Question 73

Which of the following ratios measures a firm's ability to meet its current debt obligations?

A) Short-term solvency ratio
B) Long-term solvency ratio
C) Profitability ratio
D) Activity ratio
E) Equity ratio

Question 74

What is the term for the amount a firm will pay shareholders, based on the size of their investment in the company?

A) Leverage per share
B) Earnings per share
C) Solvency return
D) Current ration return
E) Profitability ratio

Question 75

Discuss the principle known as full disclosure.

Question 76

Which of the following indicates a firm will be able to pay its bills in a satisfactory manner?

A) A debt to equity ratio of 1:1 or higher
B) An activity ratio of 5:1 or less
C) A net income to common shares outstanding ratio of 1:1 or less
D) A current ratio of 2:1 or higher
E) A profitability ratio of 5:1 or higher

Question 77

Current assets are all assets that are able to be liquidated in a short amount of time.

Question 78

The primary goal for the standard practices and principles in accountant reporting is to ensure external users that the information is accurate and has meaning.

Question 79

Financial statements that do not include interpretation and explanation by management are in violation of which GAAP principle?

A) Principle of sincerity
B) Principle of continuity
C) Principle of full disclosure
D) Principle of regularity
E) Principle of prudence

Question 80

When might high debt levels be a benefit to an organization?

A) When trying to make otherwise unaffordable investments
B) When trying to prevent a leveraged buyout
C) When determining earnings per share on common stock
D) When calculating the current ratio to determine short-term solvency
E) When the firm's short run credit risk is strong