Deck 15: Understanding Accounting and Financial Statements

Question 1

A claim against a firm's assets by creditors is called _________________________.

A) a freehold
B) an asset
C) a liability
D) owners' equity

Answer 1

C

Question 2

The __________ is a set of activities in converting information and individual transactions into financial statements.

A) accounting equation
B) accounting cycle
C) accounting process
D) accounting audit

Answer 2

B

Question 3

Assets do not include _________________________________________.

A) trademarks
B) goodwills
C) accounts receivable
D) wages

Answer 3

D

Question 4

Which type of accountant is called upon to provide unbiased advice about a firm's financial condition?

A) government accountant
B) public accountant
C) certified public accountant
D) management accountant

Question 5

Why are more firms moving to International Financial Reporting Standards (IFRS)?

A) GAAP is out of date.
B) Using IFRS allows firms with worldwide operations to standardize their accounting records.
C) IFRS is easier to understand than GAAP.
D) IFRS is more complicated than GAAP but provides a more transparent picture of the firm's value.

Question 6

Approximately how many countries currently require, permit the use of, or have a policy of convergence with IFRS?

A) 30
B) 90
C) 120
D) 150

Question 7

Why is accounting not considered an activity of business?

A) Accountants are employed by outside firms, not directly by the company being audited.
B) Accountants report the results of business activities performed by others.
C) Accounting is not a creative function.
D) Accountants only look at past transactions; activities are current events.

Question 8

The IFRS are the standards and interpretations adopted by the IASB.

Question 9

The procedure by which accountants convert data about individual transactions to financial statements is called _________________________________________.

A) the accounting cycle
B) an asset
C) a liability
D) form utility

Question 10

Because of the increasing amount of worldwide trade, many Canadian firms are moving from _______ to ________ when constructing financial statements.

A) GAAT; IRS
B) IFRS; GAAT
C) GATT; IFRS
D) GAAP; IFRS

Question 11

Which of these business activities involve accounting statements?

A) marketing
B) human resources
C) information technology
D) operations

Question 12

__________ accountants focus on potential fraud in a variety of organizations.

A) Criminal
B) Forensic
C) Private
D) Auditing

Question 13

In Canada, ________ is primarily responsible for evaluating, setting, or modifying accounting guidelines.

A) GAAT
B) IRS
C) AcSB
D) IFRS

Question 14

Accounting plays a key role in all of the following except:

A) financing activities to provide necessary funds to start and expand a business.
B) investing activities to provide valuable assets required to run a business.
C) interpreting macro and micro analyses to report changes in the economy.
D) operating activities that focus on selling goods and services, along with ensuring sound financial management.

Question 15

A CPA certification only requires a certain level of management experience.

Question 16

Because of the boom in worldwide trade, there is a need for comparability and _______ in international accounting rules.

A) uniformity
B) cash balance
C) trade control
D) exchangeability

Question 17

Accounting is the process of _________________________________________.

A) analyzing financial statements for investing
B) collecting all the income and spending for tax purposes
C) comparing a company's financial statements to its competitors
D) measuring, interpreting and communicating financial information

Question 18

To provide reliable, consistent, and unbiased information to decision makers, accountants follow guidelines, or standards, known as ____________________________.

A) Accounting Standards Board (AcSB).
B) Generally Accepted Accounting Principles (GAAP).
C) business transactions.
D) financial statements.

Question 19

The basic accounting equation is ________________________________.

A) Assets + Liabilities = Owners' equity
B) Assets = Liabilities + Owners' equity
C) Owner's equity - Assets = Liabilities
D) Debt + Assets = Equity

Question 20

The not-for-profit sector is one of the fastest growing segments of accounting practice.

Question 21

Double-entry booking states that every accounting transaction must have an offsetting transaction.

Question 22

A cash budget is usually prepared once a ______.

A) day
B) week
C) month
D) year

Question 23

The Macro Corporation has purchased land for $100,000 and has financed 50% of the cost using long-term debt. The effect on its balance sheet is _______________________________.

A) an increase in assets of $50,000; an increase in liabilities of $50,000
B) an increase in assets of $100,000; a decrease in owners' equity of $100,000
C) an increase in assets of $100,000; an increase in liabilities of $50,000
D) a decrease in assets of $50,000; a decrease in owners' equity of $50,000

Question 24

Chase is a forensic accountant who has been hired by the local district attorney to investigate a possible case of embezzlement. He found boxes of records that suggest several thousands of dollars of vendor payments might have been falsified. The effect of those false transactions would probably show up as ___________________________________.

A) higher expenses on the income statement
B) lower assets on the statement of owner's equity
C) higher owners' equity on the balance sheet
D) lower revenue on the income statement

Question 25

A firm's ability to meet its short-term obligations is measured by __________________.

A) liquidity ratios
B) activity ratios
C) the profitability ratio
D) debt ratios

Question 26

The financial statement that describes the firm's financial performance over a specified period of time is _______________________________________.

A) the balance sheet
B) the statement of cash flows
C) a description of owners' equity
D) the income statement

Question 27

A(n) _______ shows the change in equity from the end of last fiscal year to the end of the current one.

A) income statement
B) statement of changes in equity
C) statement of cash flows
D) P&L statement

Question 28

How do stockholders and potential investors use accounting information?

A) to plan and control
B) to evaluate credit ratings
C) to make investment decisions
D) to evaluate tax liabilities

Question 29

The ________ budget tracks the firm's cash inflows and outflows.

A) sales
B) transaction
C) capital expenditures
D) cash

Question 30

An accounting method that records revenues and expenses when they occur, not when cash actually changes hands, is called which of the following?

A) cost accounting
B) accrual accounting
C) asset based accounting
D) present value accounting

Question 31

While financial ratios allow a business to make comparisons with the historical performance of that business, they do not help in attempting to compare performance with competitors.

Question 32

Inventory turnover describes how efficiently a firm is managing its sales and purchases of inventory. This is an example of a(n) ________ ratio.

A) efficiency
B) equity
C) current
D) activity

Question 33

________ ratios measure how effectively management uses the firm's resources.

A) Activity
B) Leverage
C) Profitability
D) Financing

Question 34

Many former owners of failed firms blame ______ for their company's failure.

A) GAAP rules
B) inaccurate budgeting
C) inadequate cash flows
D) excessive government regulation

Question 35

An international firm's consolidated financial statements must show which of the following?

A) gains or losses due to changes in exchange rates
B) the breakdown of how much they earned in each country
C) the names of the head of each of the firm's country divisions
D) all the statements must be converted into US dollars

Question 36

The financial document that shows the company's finances at a particular point in time is called a(n) ____________________________________.

A) balance sheet
B) income statement
C) annual report
D) statement of cash flow

Question 37

Technology has had little effect on the way businesses budget.

Question 38

________ ratios describe the extent to which the firm relies on debt to finance its operations.

A) Activity
B) Leverage
C) Profitability
D) Financing

Question 39

________ is anything of value owned or leased by a business.

A) A liability
B) Owner's equity
C) Profit
D) An asset

Question 40

How is a cash budget different from the accrual system?

A) Cash budgets reflect the timing of actual cash inflows and outflows; the accrual system matches expenses to the period when they occur.
B) Cash budgets are governed by SEC rules; the accrual system is a managerial accounting function.
C) The accrual system is more accurate than cash budgets.
D) The cash budget is more accurate; accrual accounting overstates the effect of non-cash expenses.