Deck 17: Understanding Accounting and Financial Information

Question 1

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 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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 10

Inputs to the accounting system include sales documents.

Question 11

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

Question 12

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.

Question 13

In an effort to maintain a competitive advantage, firms do not share accounting information with people outside of the firm.

Question 14

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 15

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 16

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

Question 17

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 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

Accounting information is not relevant for nonprofit organizations.

Question 31

Churches, schools, and charitable organizations all hire accountants.

Question 32

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

Question 33

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

Question 34

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

Question 35

Budget preparation is one aspect of managerial accounting.

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

As mentioned in the Adapting to Change box, accountants that search for fraudulent activities are called forensic accountants.

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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 53

According to the Adapting to Change box, the SEC is determined to crack down on and punish those accused of fraud. However, so many auditors and CPAs are trained in how to search for fraud that there are too many cases to prosecute.

Question 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

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 59

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 60

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

Question 61

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

Question 62

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

Question 63

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

Question 64

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

Question 65

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

Question 66

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

Question 67

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

Question 68

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

Question 69

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

Question 70

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

Question 71

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

Question 72

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

Question 73

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

Question 74

One advantage of the double-entry method of bookkeeping is that it helps to identify mistakes made in recording financial transactions.

Question 75

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

Question 76

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 77

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

Question 78

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

Question 79

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

Question 80

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