Deck 17: Financial Information and Accounting Concepts

Question 1

Income statement is a record of a company's total assets and liabilities.

Answer 1

False
Explanation: Income statement is a financial record of a company's revenues, expenses, and profits over a given period of time; also known as a profit and loss statement.

Question 2

Net income refers to profit earned or loss incurred by a firm.

Answer 2

True
Explanation: Net income refers to profit earned or loss incurred by a firm, determined by subtracting expenses from revenues. It is casually referred to as the bottom line.

Question 3

Marketing and distributing expenses are examples of general expenses.

Answer 3

False
Explanation: Marketing and distributing expenses are examples of selling expenses. General expenses are operating expenses incurred in the overall administration of a business. They include such items as professional services (such as accounting and legal fees), office salaries, depreciation of office equipment, insurance for office operations, and supplies.

Question 4

Bookkeeping is the clerical function of recording the economic activities of a business.

Question 5

According to the double-entry bookkeeping method,the accounting equation must be in balance.

Question 6

Transferring net revenue and expense account balances to retained earnings for the period is referred to as closing the books.

Question 7

Most companies in the United States use international financial reporting standards (IFRS)to standardize accounting and financial reporting methods.

Question 8

Cash basis is an accounting method in which revenue is recorded when a sale is made.

Question 9

According to generally accepted accounting principles (GAAP),earnings before interest,taxes,depreciation,and amortization (EBITDA)is the preferred measure of profitability.

Question 10

Financial accounting is concerned with preparing cost analyses,profitability reports,budgets,and other information for insiders such as management and other company decision makers.

Question 11

Owners' equity refers to the total assets of a company.

Question 12

Depreciation is an accounting procedure used for intangible assets.

Question 13

Intellectual property and goodwill are considered liabilities in accounting.

Question 14

Accounts payable is an example of a long-term liability.

Question 15

Sarbanes-Oxley Act prohibits companies from testing their internal financial controls and processes.

Question 16

A fiscal year is a 12-month accounting period that begins on January 1 and ends on December 31.

Question 17

External auditors are independent accounting firms that provide auditing services for public companies.

Question 18

Financial analysis refers to combining accounting and investigating skills to assist in legal and criminal matters.

Question 19

Audit is a formal evaluation of the fairness and reliability of a client's financial statements.

Question 20

Balance sheet presents a firm's financial position on a particular date.

Question 21

Which of the following refers to evaluating a company's performance and the economic implications of strategic decisions such as product pricing,employee benefits,and business acquisitions?

A) financial analysis
B) tax accounting
C) bookkeeping
D) cost accounting
E) forensic accounting

Question 22

Which of the following is a key difference between financial accounting and management accounting?

A) Financial accounting is concerned with preparing cost analyses, whereas management accounting is concerned with creating reports.
B) Financial accounting considers such aspects as profitability, whereas management accounting does not consider profitability.
C) Financial accounting creates information for outsiders, whereas management accounting is for insiders.
D) Management accounting is based on historical data, whereas financial accounting is based on real time data.
E) Accounting knowledge is crucial to perform management accounting, whereas limited accounting knowledge is sufficient for financial accounting.

Question 23

Quick ratio is a measure of a firm's long-term liquidity.

Question 24

________ refers to combining accounting and investigating skills to assist in legal and criminal matters.

A) Financial analysis
B) Tax accounting
C) Bookkeeping
D) Cost accounting
E) Forensic accounting

Question 25

Bookkeeping refers to ________.

A) the cost accounting component of accounting
B) analyzing financial information
C) preparing financial forecasts
D) the clerical aspect of accounting
E) performing profitability analysis for a company

Question 26

Which of the following terms refers to a formal evaluation of the fairness and reliability of a client's financial statements?

A) cost accounting
B) audit
C) control
D) bookkeeping
E) management accounting

Question 27

Public accountants are professionals who provide ________.

A) accounting services to businesses and individuals for a fee
B) accounting services to publically owned firms only
C) financial services to not-for-profit organizations
D) financial services without charging a fee for them
E) financial services to people who trade in the stock market

Question 28

Leverage ratios indicate a company's ability to pay its long-term debts.

Question 29

A(n)________ is the highest-ranking accountant in a company,responsible for overseeing all accounting functions.

A) inventory manager
B) controller
C) treasurer
D) credit manager
E) cost accountant

Question 30

Samuel works as a finance executive in a United States-based firm.His major task is calculating and analyzing the production and operating expenditures of the organization.The tasks that Samuel performs refer to ________.

A) tax accounting
B) bookkeeping
C) cost accounting
D) auditing
E) forensic accounting

Question 31

AccBiz is a tool used commonly by small businesses.It is a simple application that records financial transactions.It records such transactions as sales,purchases,income,receipts,and payments.However,the software cannot be used for financial analyses or higher-level applications.The functions that AccBiz performs can be referred to as ________.

A) forensic accounting
B) bookkeeping
C) auditing
D) cost analysis
E) cost accounting

Question 32

The accounts receivable turnover ratio is calculated by dividing sales by the average value of accounts receivable for a period.

Question 33

Jefferson Accounting is an independent accounting firm that provides auditing services for public companies.The firm thoroughly evaluates its clients' financial statements and certifies them.The firm is a(n)________.

A) forensic auditor
B) cost accountant
C) external auditor
D) domestic auditor
E) financial analyst

Question 34

The ________ oversees GAAP in the United States.

A) Consumer Financial Protection Agency (CFPA)
B) Financial Management Service (FMS)
C) Securities and Exchange Commission (SEC)
D) Financial Accounting Standards Board (FASB)
E) Office of Terrorism and Financial Intelligence (OTFI)

Question 35

Working capital refers to the amount of cash an organization has in hand.

Question 36

Independent accounting firms that provide auditing services for public companies are called ________.

A) forensic auditors
B) external auditors
C) cost accountants
D) domestic auditors
E) financial analysts

Question 37

Statement of cash flows is a statement of a firm's cash receipts and cash payments.

Question 38

Robert Consultants was incorporated in the year 2010.The company is now performing a formal evaluation to ensure and certify the integrity and reliability of the company's financial statements.This formal evaluation is referred to as ________.

A) cost accounting
B) control
C) bookkeeping
D) audit
E) management accounting

Question 39

Which of the following is generated through management accounting rather than financial accounting?

A) profit and loss statement
B) cash flow statement
C) balance sheet
D) profitability reports
E) statement of retained earnings

Question 40

Generating a(n)________ is a function of financial accounting.

A) organizational budget
B) balance sheet
C) cost analysis
D) profitability report
E) productivity analysis

Question 41

Which of the following is an example of a company's asset?

A) inventory in the warehouse
B) mortgage loans
C) bonds issued by the company
D) short-term loans
E) debt security raised by the company

Question 42

________ is an accounting method in which revenue is recorded when a sale is made,and expense is recorded when it is incurred.

A) Accrual basis
B) Cash basis
C) Profit basis
D) Depreciation
E) Deferral basis

Question 43

Which of the following statements is TRUE of the double-entry bookkeeping system?

A) Depreciation is not considered when recording transactions under this system.
B) Only credit transactions are recorded under this system.
C) The system records only those transactions that bring in revenue.
D) The accounting equation is always kept in balance under the system.
E) A business does not run on a cash basis under the double-entry bookkeeping system.

Question 44

A company has $20,000 cash and $100,000 worth of land.Other assets of the company amount to $300,000.The firm has an outstanding loan of $200,000 and other liabilities adding up to $25,000.What is the owner's equity of the company?

A) $395,000
B) $95,000
C) $195,000
D) $175,000
E) $220,000

Question 45

Identify the legislation that prohibits investment bankers from influencing stock analysts and requires CEOs and CFOs to sign statements attesting to the accuracy of their financial statements.

A) Reconstruction Finance Corporation Act
B) Public Utility Company Act
C) Ethics in Government Act
D) Sarbanes-Oxley Act
E) Financial Services Modernization Act

Question 46

The Sarbanes-Oxley Act outlaws ________.

A) loans by corporations to their own executives
B) the use of external auditors
C) internal financial tests by companies
D) loans obtained through pledging assets
E) having financial experts in the director board

Question 47

A company has the following assets: (1)Fixed assets worth $30,000 and (2)investments worth $6,000.The company's total liabilities amount to $25,000.What is the owner's equity of the company?

A) $24,000
B) $36,000
C) $5000
D) $30,000
E) $11,000

Question 48

Transferring net revenue and expense account balances to retained earnings for the period is referred to as ________.

A) multiple-entry bookkeeping
B) matching the account
C) closing the books
D) single-entry bookkeeping
E) measuring current balance

Question 49

GAAP aims to ________.

A) prohibit firms from documenting their internal financial controls and processes
B) give companies the freedom to determine the salaries of its employees
C) prevent firms from using internal auditors to audit operations
D) enable outsiders to make confident analyses and comparisons
E) provide the users with business intelligence to make informed decisions

Question 50

You are planning to invest in a real estate firm.You want to analyze the firm's financial strengths in terms of the overall assets and liabilities.Which of the following reports is best suited to estimate this on a particular date?

A) long-term expense report
B) profit and loss statement
C) balance sheet
D) cash flow statement
E) short-term expense report

Question 51

The Sarbanes-Oxley Act requires ________.

A) the board of directors to be comprised of at least fifteen members
B) external auditors to provide nonaudit services also
C) directors and executives to avail loans from the corporate
D) companies to publicize operational budgets
E) corporate lawyers to report evidence of financial wrongdoing

Question 52

________ is an accounting procedure for systematically spreading the cost of a tangible asset over its estimated useful life.

A) Profit basis
B) Accrual basis
C) Cash basis
D) Depreciation
E) Deferral basis

Question 53

Most countries outside of the United states use ________ to standardize their accounting practices.

A) international financial reporting standards (IFRS)
B) generally accepted accounting principles (GAAP)
C) earnings before interest, taxes, depreciation, and amortization (EBITDA)
D) internationally accepted accounting protocols (IAAP)
E) country-specific principles of accounting (CSPOA)

Question 54

Which of the following is a key difference between depreciation and amortization?

A) Amortization is applicable for long-term assets, whereas depreciation is applicable for short-term assets.
B) Depreciation applies to tangible assets, whereas amortization applies to intangible assets.
C) Amortization is calculated for liabilities, whereas depreciation is calculated for assets.
D) Amortization is calculated for assets, whereas depreciation is calculated for liabilities.
E) Depreciation is applicable for long-term assets, whereas amortization is applicable for short-term assets.

Question 55

Rambo Footwear is a Chinese shoe manufacturing company.The company spends a large amount to buy machinery for a new plant that it has set up.Instead of adding this in the current year's expense the company's accounting spreads the cost over a period of fifteen years.This accounting practice of spreading costs is called ________.

A) accrual basis
B) depreciation
C) amortization
D) cash basis
E) cash balancing

Question 56

The ________ requires that expenses incurred in producing revenues be deducted from the revenue they generated during the same accounting period.

A) principle of prudence
B) deferral principle
C) materiality principle
D) matching principle
E) principle of continuity

Question 57

________ is an accounting method in which revenue is recorded when payment is received and expense is recorded when money is paid.

A) Accrual basis
B) Profit basis
C) Cash basis
D) Depreciation
E) Deferral basis

Question 58

Charles Associates is an accounting firm that provides accounting services to many companies across the United States.The company follows an accounting system where it records revenue only when the money is actually received.Identify the accounting system that this company is using.

A) depreciation
B) deferral basis
C) accrual basis
D) profit basis
E) cash basis

Question 59

Assets - Liabilities = ________.

A) variable cost
B) fixed cost
C) liquidity
D) business cost
E) owner's equity

Question 60

Jacob is the CEO of Drabo Associates,a firm that offers financial consulting to firms in the U.S.Drabo Associates gives Jacob an unguaranteed personal loan of $500,000.Which of the following legislations has outlawed such a transaction?

A) Reconstruction Finance Corporation Act
B) Public Utility Company Act
C) Ethics in Government Act
D) Sarbanes-Oxley Act
E) Financial Services Modernization Act

Question 61

A U.S.company issues bonds to generate money for expanding its business to China.The company generates a sum of $50,000 in this fashion.This money is an example of a(n)________.

A) short-term finance
B) long-term liability
C) owners' equity
D) accrued expense
E) payable account

Question 62

________ is a statement of a firm's financial position on a particular date and is known as a statement of financial position.

A) Cash flow statement
B) Balance sheet
C) Income statement
D) Expense report
E) Profit and loss statement

Question 63

Which of the following is an example of an activity ratio?

A) inventory turnover ratio
B) acid-test ratio
C) debt-to-equity ratio
D) current ratio
E) debt-to-assets ratio

Question 64

Accrued expenses are expenses that ________.

A) are likely to be incurred at a future time in a different financial year
B) have been incurred but for which bills have not yet been received
C) are long-term liabilities that have been incurred in a financial year
D) have been incurred and for which the bills have been received
E) are likely to be incurred at a future time in the same financial year

Question 65

Which of the following is an example of a current asset?

A) accounts receivable
B) goodwill
C) land
D) equipment
E) intellectual property

Question 66

The ________ is a financial record that represents a company's revenues,expenses,and profits over a given period of time.

A) statement of current assets
B) income statement
C) balance sheet
D) cash flow statement
E) statement of financial position

Question 67

A firm has $30,000 cash and other current assets amount to $55,000.Total amount of current liabilities add up to $50,000.Calculate the total working capital of this firm.

A) $20,000
B) $5,000
C) $30,000
D) $85,000
E) $35,000

Question 68

________ ratio is calculated by dividing current assets by current liabilities.

A) Debt-to-equity
B) Current
C) Quick
D) Acid-test
E) Inventory turnover

Question 69

Which of the following statements is TRUE of the order in which assets are listed in the balance sheet?

A) Assets such as property and plant are mentioned first in a balance sheet.
B) Fixed assets are listed before current assets in a balance sheet.
C) Current assets are not generally mentioned in a balance sheet.
D) Assets are listed in descending order by liquidity in the balance sheet.
E) Current and fixed assets are listed in no particular order in a balance sheet.

Question 70

Expenses incurred through marketing and distributing a product are referred to as ________ expenses.

A) organization
B) permanent
C) general
D) selling
E) administration

Question 71

Which of the following is classified as a general expense?

A) promotional expenses
B) wages of salespeople
C) legal fees paid
D) advertising costs
E) depreciation costs of showroom

Question 72

Which of the following ratios is used to measure a firm's short-term liquidity?

A) accounts receivable turnover ratio
B) inventory turnover ratio
C) quick ratio
D) debt-to-equity ratio
E) equity-to-debt ratio

Question 73

Which of the following is an example of a fixed asset?

A) transportation equipment
B) money-market funds
C) cash in hand
D) accounts receivable
E) short-term investments

Question 74

A firm's current liabilities amount to $30,000.It does not have any marketable securities and receivables amount to $20,000.Calculate the acid-test ratio of the firm if it has $40,000 cash in hand.

A) 2.0
B) 0.5
C) 1.0
D) 1.67
E) 1.5

Question 75

Activity ratios analyze ________.

A) how well a company is making use of its assets
B) a firm's ability to pay its short-term obligations
C) a firm's ability to pay its long-term obligations
D) the leverage status of a company in question
E) the extent to which a business is financed by debt

Question 76

The profit earned or loss incurred by a firm,determined by subtracting expenses from revenues,is referred to as the ________.

A) working capital
B) current asset
C) net income
D) net sales
E) gross income

Question 77

Which of the following expenses is classified as accounts payable?

A) electricity charges
B) sales commissions
C) employee salaries
D) interest on bonds
E) loans from banks

Question 78

Which of the following reports is best suited to analyze an organization's profitability over a period of time?

A) statement of financial position
B) balance sheet
C) cash flow statement
D) income statement
E) statement of current assets

Question 79

Robex Woodworks is a furniture manufacturer.The company has purchased timber worth $5,000 from one of its suppliers and has not paid them yet.This amount is recorded as ________ in the balance sheet.

A) accrued expense
B) owners' equity
C) supplier's equity
D) accounts payable
E) deferred expense

Question 80

Net sales - cost of goods sold = ________.

A) working capital
B) current asset
C) gross profit
D) net profit
E) current liability