Deck 1: Introduction to Accounting

Question 1

The primary goal of management accounting is to:

A) provide information that can be quantified in monetary terms.
B) provide information that improves the quality of managers' decisions.
C) provide information that conforms to the accounting regulations.
D) provide information to shareholders.

Answer 1

B

Question 2

The characteristic of accounting information that requires financial reports to be expressed as clearly as possible and to be capable of being understood by those they are addressed to,is known as:

A) understandability.
B) reliability.
C) cost versus benefit test.
D) relevance.

Answer 2

A

Question 3

Briefly explain the meaning of each of the four key qualitative characteristics of accounting information: relevance,reliability,comparability and understandability.Also explain how the cost/benefit test acts as a limit on the application of these characteristics.

Answer 3

Relevance means that accounting information should have the ability to influence decision-making.Relevance may refer to helping to confirm past events or assisting in the prediction of future events.If information is not relevant to decision-making,it is not useful and should not be produced.
Reliability means accounting information should be objective and able to be independently verified.For example,transaction-based information is reliable as it is evidenced by documents such as invoices,cheques,credit notes and contracts.Reliable information should be free from bias and material error.Historical cost information is generally regarded as more reliable than alternatives such as estimated market values.
Comparability means that valid comparisons can be made between accounting reports across a number of accounting periods.For comparisons to be valid,items which are basically the same must be consistently measured and presented in the same manner.
Understandability means that to be most useful,accounting reports should be expressed as clearly as possible and should be capable of being understood by the user groups they are prepared for.
The cost/benefit test provides a limit on the production of relevant,reliable comparable and understandable accounting information as,even if the information has all four qualities,it only makes economic sense to produce it if the benefit of its being available is greater than the cost of providing it.A problem of applying the cost/benefit test is that,in practice,both the costs and the benefits of accounting information are difficult to identify with accuracy.

Question 4

Standardised formats are most relevant to:

A) departmental reports.
B) management reports.
C) external financial reports.
D) internal reports.

Question 5

Which of these is not one of the key qualities of accounting information?

A) Timeliness.
B) Reliability.
C) Control.
D) Relevance.

Question 6

The group of users that is most likely to require accounting information to assess the ability of a business to pay interest and repay a loan is:

A) employees.
B) lenders.
C) customers.
D) taxation department.

Question 7

The best explanation of relevance is:

A) ensuring the benefit of the information is greater than the cost of providing it.
B) ensuring that information is expressed as clearly as possible.
C) ensuring that information is useful for decision-making.
D) ensuring that information is free from bias.

Question 8

Which of these is a reason why achieving the maximum possible profit in a particular year may not be in the best interests of a business?

A) Concentrating on the short-term may have detrimental effects in the long-term.
B) It may be achieved by causing environmental problems, which give the business a bad reputation.
C) If it is achieved with high-risk strategies, such as excessive reliance on borrowings, it could lead to disaster in the longer term.
D) All of the above.

Question 9

The stages of an accounting system are:

A) evaluation, processing, output.
B) identification, recording, analysis, reporting.
C) setting objectives, planning, analysis.
D) none of the above.

Question 10

The quality of accounting information that requires items that are basically the same to be treated in the same manner is:

A) relevance.
B) timeliness.
C) understandability.
D) comparability.

Question 11

When accounting information has the potential to change decision-making it is said to be:

A) consistent.
B) understandable.
C) material.
D) comparable.

Question 12

The best description of the primary purpose of providing accounting information is:

A) to allow the preparation of a taxation return.
B) to assist users in making informed decisions.
C) to calculate the bank account balance.
D) to enable the financial statements to be prepared.

Question 13

The statement concerning the key qualities of accounting information that is untrue is:

A) the qualities are frequently in conflict.
B) relevant information may help to predict future events or confirm past events.
C) relevant information often contains a degree of subjectivity.
D) None of the statements is untrue, i.e., all are true statements.

Question 14

The most important function of an accounting system is to:

A) prepare accounting reports.
B) keep employees from embezzling funds.
C) provide information for decision-making, planning and control.
D) collect and record data.

Question 15

Which statement concerned with establishing the costs and benefits of accounting information is true?

A) It is usually easier to establish the benefits than the costs.
B) It is normally easy to establish both the costs and the benefits.
C) Both the costs and benefits are normally difficult to assess.
D) The costs and benefits should be ignored when deciding on what accounting information should be produced.

Question 16

Four key qualities of accounting information are:

A) control, planning, analysis, and comparability.
B) identification, analysis, reliability, and timeliness.
C) relevance, reliability, comparability, and understandability.
D) understandability, identification, analysis, and relevance.

Question 17

Which statement is correct?

A) Financial reports are prepared for internal users whereas management reports are prepared for external users.
B) Financial reports are produced at more frequent intervals than management reports.
C) Financial reports reflect past performance whereas management reports are concerned with the future as well as the past.
D) Financial reports provide more forecast data than management reports.

Question 18

The test to determine if an item of accounting information is worthwhile collecting is the:

A) cost/benefit test.
B) cost test.
C) worthwhile test.
D) validation test.

Question 19

Which of these groups is a user of financial information?

A) Managers.
B) Lenders.
C) Owners.
D) All of the above.

Question 20

The main source of information for shareholders is:

A) departmental reports.
B) management reports.
C) external reports.
D) internal reports.

Question 21

Financial accounting reports concentrate on:

A) current events.
B) current and future events.
C) past events.
D) future events.

Question 22

The statement concerning differences between financial and management accounting which is false is:

A) management accounting is less constrained than financial accounting.
B) managers have much more control over the form and content of their reports.
C) there is no overlap between management accounting and financial accounting.
D) the distinction between the two areas, to some extent, reflects differences in access to financial information.

Question 23

Management reports,compared to financial reports,are:

A) prepared less frequently.
B) prepared more frequently.
C) prepared with the same frequency.
D) prepared infrequently.

Question 24

Businesses tend to resist providing forecast data to those outside the organisation mainly because:

A) of fear of the loss of competitive advantage.
B) it is too difficult.
C) the data is inaccurate.
D) it is too costly.

Question 25

The accounting report that is specifically designed to answer the question,'What cash movements took place over a particular period?' is:

A) the statement of financial position.
B) the statement of cash flows.
C) the statement of comprehensive income.
D) all of the above.

Question 26

Another name for the balance sheet is:

A) profit and loss statement.
B) statement of financial position.
C) statement of financial performance.
D) statement of change in owners' equity.

Question 27

Management accounting reports are principally used by managers to:

A) report to shareholders.
B) reconcile with the financial accounting reports.
C) calculate the amount of taxation owed to the government.
D) control the operations of an entity on a regular basis.

Question 28

An objective of a business could be:

A) financial survival.
B) maximise profit.
C) maximise sales.
D) all of the above.

Question 29

The set of financial reports made available for external publication by an entity is typically produced:

A) fortnightly.
B) daily.
C) weekly.
D) yearly.

Question 30

The commonly accepted overall financial objective of business can best be summed up as:

A) satisfying everyone within the organisation.
B) promoting good corporate relations.
C) enhancing wealth.
D) stabilising profit.

Question 31

Which accounting report is specifically designed to answer the question,'What profit was earned in a particular period?'

A) Statement of comprehensive income.
B) Statement of financial position.
C) Statement of cash flows.
D) All of the above.

Question 32

Financial accounting reports,compared to management reports,tend to be:

A) general purpose.
B) qualitative.
C) unstructured.
D) detailed.

Question 33

A statement of financial position shows:

A) the financial position at the end of the period.
B) the cash movements that took place over a particular period.
C) details of how much profit was earned in the period.
D) the change in financial position over a particular period.

Question 34

Another name for the statement of comprehensive income is:

A) statement of financial position.
B) balance sheet.
C) statement of change in owners' equity.
D) statement of financial performance.

Question 35

Management accounting reports tend to contain:

A) both financial and non-financial information.
B) financial information only.
C) information that complies with the accounting standards.
D) non-financial information only.

Question 36

How many of these are differences between management and financial accounting?
• Nature of reports produced.
• Frequency of reports.
• Level of detail in the reports.
• Degree of regulation.

A) One.
B) Two.
C) Three.
D) Four.

Question 37

The goal of business in relation to profit is generally taken as:

A) profit maximisation.
B) profit planning.
C) profit generation.
D) profit stabilisation.

Question 38

Calculate the cash available at the end of the day if cash at the beginning is $450,receipts from customers are $600 and payments to suppliers are $350.

A) $750.
B) $200.
C) $700.
D) $1,400.

Question 39

Management reports,compared to financial reports,are:

A) summarised.
B) aggregated.
C) standardised.
D) detailed.

Question 40

Which accounting report is prepared at a particular point of time rather than over a period of time?

A) Statement of comprehensive income.
B) Statement of change in owners' equity.
C) Statement of financial position.
D) Both B and C.

Question 41

The planning and control process within an entity means that:

A) business can respond to variances between plans and actual performance.
B) business is only concerned with actual performance.
C) plans are followed rigidly at all times.
D) plans and actual performance do not vary.

Question 42

The three most common types of structures used by businesses in Australia are:

A) partnership, limited company, association.
B) sole proprietor, partnership, limited company.
C) partnership, private company, trust.
D) sole proprietor, limited company, co-operative.

Question 43

Set out the main purpose of each of the three main financial reports - the statement of comprehensive income,the statement of financial position and the statement of cash flows - and briefly explain how each achieves its purpose.

Question 44

Paul commenced business with $100 cash.He purchased goods for $50 that were later sold for $150.The statement of financial position,after the sale,would show a total business wealth of:

A) $150.
B) $50.
C) $100.
D) $200.

Question 45

The financial reports comprising the 'final accounts' are the:

A) statement of cash flows and statement of comprehensive income.
B) statement of comprehensive income and statement of financial position.
C) statement of comprehensive income, statement of financial position, statement of cash flows and statement of change in owners' equity.
D) statement of financial position, statement of cash flows and statement of comprehensive income.

Question 46

The accounting reports concerned with measuring flows over a period of time are:

A) statement of comprehensive income and statement of financial position.
B) statement of comprehensive income and statement of cash flows.
C) statement of cash flows and statement of financial position.
D) statement of comprehensive income, statement of cash flows and statement of financial position.

Question 47

Which statement is incorrect?

A) A budget defines precise targets, e.g., level of sales, levels of inventory.
B) A budget is expressed in monetary terms.
C) A budget is a short-term plan.
D) A budget summarises past information.

Question 48

A business that is not a legal entity,where there is one owner who is fully liable for all debts,is:

A) a proprietary company.
B) a partnership.
C) a sole proprietorship.
D) none of the above.

Question 49

Calculate the cash available at the beginning of the day if cash at the end is $540,receipts from customers are $630 and payments to suppliers are $250.

A) $150.
B) $160.
C) $340.
D) $920.

Question 50

The most complete description of the planning process for a business is:

A) setting objectives and short-term plans.
B) setting objectives, long-term plans, and short-term plans.
C) setting objectives and detailed budgets.
D) setting long-term objectives and long-term plans.

Question 51

The planning role within a company is principally undertaken by:

A) consultants.
B) managers.
C) shareholders.
D) lenders.

Question 52

The financial statement which shows all the changes in the owners' interest in the net assets of the business is:

A) statement of changes in owners' equity.
B) statement of cash flows.
C) statement of comprehensive income.
D) none of the above.

Question 53

Knowledge of the objectives or mission of a business will be most useful in assisting users of financial reports in understanding:

A) the liquidity position of the business.
B) why it is taking longer than it should to collect money from accounts receivable.
C) the financial reporting cycle.
D) what the business is trying to achieve.

Question 54

Budgets are typically set for:

A) a decade.
B) one year.
C) one month.
D) five years.

Question 55

The term that describes differences between actual and budgeted results is:

A) divergence.
B) discrepancy.
C) mistake.
D) variance.

Question 56

The business most likely to operate as a sole proprietorship is:

A) private hospital.
B) medical specialist.
C) bank.
D) airline.

Question 57

Advantages of operating as a sole proprietor are:

A) total control by the owner over all decisions.
B) low start-up costs.
C) limited liability.
D) Both A and B.

Question 58

Which statement is true?

A) The statement of cash flows explains the changes between the statement of comprehensive income and the statement of financial position.
B) The statement of financial position links two statements of comprehensive income.
C) The statement of cash flows summarises the movements in the bank account over an accounting period.
D) None of the statements is true.

Question 59

Control is best defined as:

A) making events conform to plan.
B) making the directors perform according to plan.
C) making the employees work harder.
D) giving orders.

Question 60

Which of these is an accounting entity?

A) Sole proprietor.
B) Partnership.
C) Company.
D) All of the above.

Question 61

Which of the following is not an aspect of accounting and finance potential managers need to understand?

A) Reading and interpreting financial reports.
B) The design of the accounting information system.
C) How investment decisions are made.
D) How businesses are financed.

Question 62

Sustainability reporting focuses on:

A) financial aspects.
B) environmental and social factors.
C) customer satisfaction.
D) Both A and C.

Question 63

An advantage of a partnership compared to a sole proprietorship is:

A) mutual agency.
B) sharing of profits.
C) greater access to funds.
D) Both B and C.

Question 64

In comparison to a company,a disadvantage of operating as a partnership is:

A) unlimited liability.
B) limited life.
C) mutual agency.
D) all of the above.

Question 65

The principle whereby each partner is responsible for the business actions of all other partners when the actions are carried out in the normal course of business,is known as:

A) the rule in Garner versus Murray.
B) unlimited liability.
C) mutual agency.
D) perpetual life.

Question 66

A common aspect of questionable figures in financial reports is:

A) overstating figures for income and assets.
B) overstating figures for income and understating figures for assets.
C) understating figures for income and expenses.
D) overstating figures for expenses and liabilities.

Question 67

Which of these is not generally regarded as a reason for the recent spate of dubious accounting practices by large companies?

A) Pressure on managers to meet investors' unrealistic expectations for continually rising profits.
B) Greed by executives.
C) Lack of accounting standards.
D) Too rapid growth financed by borrowing, which leads to a liquidity crisis.