Deck 1: Introduction to Accounting

Question 1

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.

Answer 1

C

Question 2

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 2

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 3

What is the primary goal of management accounting?

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 3

B

Question 4

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 5

What are the four key qualities of accounting information?

A)Relevance, reliability, comparability and understandability
B)Identification, analysis, reliability and timeliness
C)Planning, control, comparability and analysis
D)Understandability, identification, analysis and relevance

Question 6

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 7

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

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

Question 8

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 9

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

A)Employees
B)Customers
C)Creditors
D)Taxation department

Question 10

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

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

Question 11

Which of the following is the most important function of an accounting system?

A)Provide information for decision-making, planning and control
B)Keep employees from embezzling funds
C)Prepare accounting reports
D)Collect and record data

Question 12

Standardised formats are most relevant to:

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

Question 13

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 14

Which test determines if an item of accounting information is worthwhile collecting?

A)Cost test
B)Cost/benefit test
C)Worthwhile test
D)Validation test

Question 15

Which of these groups is a user of financial information?

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

Question 16

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.

Question 17

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 18

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 19

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 20

The main source of information for shareholders is:

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

Question 21

How frequently is the set of financial reports made available for external publication by an entity typically produced?

A)Fortnightly
B)Yearly
C)Weekly
D)Daily

Question 22

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 23

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 24

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 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

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 27

Calculate the cash available at the end of the day if cash at the beginning is $650, receipts from customers are $400 and payments to suppliers are $300.

A)$750
B)$200
C)$750
D)$1 400

Question 28

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 29

What does a statement of financial position show?

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

Question 30

Why do businesses tend to resist providing forecast data to those outside the organisation?

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

Question 31

Financial accounting reports concentrate on:

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

Question 32

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 33

Which of the following are differences between management and financial accounting?

A)Nature of reports produced
B)Frequency of reports
C)Level of detail in reports
D)All of the above

Question 34

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 35

Management reports, compared to financial reports, are:

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

Question 36

An objective of a business could be:

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

Question 37

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 38

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 39

What is another name commonly used for the balance sheet?

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

Question 40

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

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

Question 41

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

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

Question 42

Budgets are typically set for:

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

Question 43

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 44

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 45

Which financial reports comprise the 'final accounts'?

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

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 47

Which accounting reports are concerned with measuring flows over a period of time?

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 48

Paul commenced business with $150 cash. He purchased goods for $75 that were later sold for $125. The statement of financial position, after the sale, would show a total business wealth of:

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

Question 49

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 50

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 51

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 52

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 53

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

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

Question 54

Which of these is an accounting entity?

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

Question 55

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 56

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 57

Calculate the cash available at the beginning of the day if cash at the end is $950, receipts from customers are $360 and payments to suppliers are $425.

A)$150
B)$160
C)$340
D)$885

Question 58

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 59

The planning role within a company is principally undertaken by:

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

Question 60

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 61

The ALTC's Learning and Teaching Academic Standards Statement for Accounting does NOT include which of the following threshold learning outcomes?

A)Independence
B)Judgement
C)Knowledge
D)Application skills

Question 62

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 63

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 64

The two threshold learning objectives that this book emphasises most are:

A)knowledge and application skills.
B)judgement and self-management.
C)teamwork and communication, and self-management.
D)knowledge and judgement.

Question 65

Which of the following in not one of the reasons for the increasing turbulence in the business environment?

A)The deregulation of domestic markets
B)Rapidly changing technology
C)Increasing volatility of financial markets
D)The development of a more global economy

Question 66

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 67

Which of the following is false?

A)Accounting is conducted in isolation from other disciplines.
B)Accounting can be applied at different levels.
C)Accounting is concerned with the provision of information.
D)Topics included in the body of accounting knowledge include auditing and assurance, taxation law and economics.

Question 68

Which of the following is not a use of accounting information?

A)It helps uses make decisions relating to the business.
B)It reduces uncertainty about the business's financial position.
C)It helps answer questions about availability of funds to meet the business's obligations.
D)It can accurately predict future profits.

Question 69

Sustainability reporting focuses on:

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

Question 70

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 71

Which of the following does NOT inform the body of accounting knowledge?

A)Taxation law
B)Relevant research
C)Professional practice
D)Application

Question 72

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 73

Which of these is not generally regarded as a reason for the spate of dubious accounting practices by public companies which led to the enactment of the Sarbanes-Oxley Act in the USA and similar legislation in other jurisdictions?

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

Question 74

Standards are written from the perspective of:

A)the accounting profession.
B)the taxation authority.
C)securities regulators.
D)corporation law.

Question 75

Business managers, even if not accountants, need familiarity with basic accounting information to help with decisions about:

A)what products to sell.
B)whether or not to invest in certain projects.
C)whether to expand or cease operations.
D)All of the above are correct

Question 76

As a result of increased globalisation:

A)there has been less harmonisation of accounting rules across countries.
B)accounting rules have a more international reach.
C)users of accounting information are more likely to be based in the same county as the business has its base.
D)accountants need less familiarity with accounting rules of other countries.