Deck 1: Accounting: Information for Decision Making

Question 1

The American Institute of Certified Public Accountants has the legal authority over publicly held corporations to enforce compliance with generally accepted accounting principles.

Answer 1

False

Question 2

Management accounting refers to the preparation and use of accounting information designed to meet the needs of decision makers outside the business organization.

Answer 2

False

Question 3

Managerial accounting information is designed primarily to assist investors and creditors in deciding how to allocate scarce resources.

Answer 3

False

Question 4

Public accounting is the segment of the profession where professionals offer audit, tax, and consulting services to clients.

Question 5

The CPA examination is administered by the General Accounting Office of the U. S. Government.

Question 6

Financial accounting standards issued by the FASB are considered generally accepted accounting principles.

Question 7

The IRS tax return is one of the primary financial statements.

Question 8

External users of accounting information have a financial interest in an entity but are not involved with the day-to-day operations of the enterprise.

Question 9

Return on investment is the same as return of investment.

Question 10

One purpose of generally accepted accounting principles is to make accounting information prepared by different companies more comparable.

Question 11

The annual financial statements of large corporations such as Microsoft or PepsiCo need not be audited by independent certified public accountants, since these firms maintain large accounting departments as part of their organizations.

Question 12

The Securities and Exchange Commission is instrumental in the development of financial accounting standards.

Question 13

Today, the most authoritative source of generally accepted accounting principles is the American Accounting Association.

Question 14

An accounting practice can become a "generally accepted accounting principle" through widespread use, even if the practice is not mentioned in the official pronouncements of the accounting standard-setting organizations.

Question 15

Investors are individuals and other enterprises that have provided equity to the reporting enterprise.

Question 16

The statement of financial position and the income statement are one and the same.

Question 17

The content of management accounting reports needs to be presented in conformity with generally accepted accounting principles.

Question 18

Generally accepted accounting principles were established by the American Accounting Association in 1934 and are updated annually by Congress.

Question 19

A statement of cash flows depicts the way profits have changed during a designated period.

Question 20

The tailoring of an accounting report to meet the needs of a specific decision maker is more characteristic of financial accounting reports than of management accounting reports.

Question 21

Which of the following is not characteristic of financial accounting?

A) Information used in financial statements is prepared in conformity with generally accepted accounting principles.
B) The information is confidential and is intended for use only by company management.
C) The information is used in a wide variety of business decisions.
D) The information is developed primarily by "private accountants" that is, accountants employed by business organizations.

Question 22

Management accounting information is oriented toward the future while financial accounting information is historical in nature.

Question 23

The internal control structure of an organization has no relationship to the reliability of accounting information.

Question 24

Financial statements are prepared:

A) Only for publicly owned business organizations.
B) For corporations, but not for sole proprietorships or partnerships.
C) Primarily for the benefit of persons outside of the business organization.
D) In either monetary or nonmonetary terms, depending upon the need of the decision maker.

Question 25

The basic purpose of an audit is to:

A) Assure financial statements are in conformity with GAAP.
B) Provide as much useful information to decision makers as possible, regardless of cost.
C) Record changes in the financial position of an organization by applying the concepts of double entry accounting.
D) Meet an organization's need for accounting information as efficiently as possible.

Question 26

The Code of Ethics of the AICPA calls for a member in public practice to be independent in fact and appearance when providing auditing services.

Question 27

Career opportunities in accounting exist in public accounting, management accounting, governmental accounting and accounting education.

Question 28

The Sarbanes-Oxley Act of 2002 created:

A) The Security and Exchange Commission.
B) The Financial Accounting Standards Board.
C) The Public Company Accounting Oversight Board.
D) The Income Tax Return Overview Board.

Question 29

The Code of Ethics of the AICPA calls for a commitment to ethical behavior but not at the sacrifice of personal advantage.

Question 30

Generally accepted accounting principles:

A) Are based on official decrees only.
B) Are based on tradition only.
C) Are based on an accountant's experience only.
D) May change over time.

Question 31

Overseeing a company's affairs to ensure that the company is managed with the best interest of shareholders in mind is called:

A) Internal control.
B) Financial integrity.
C) Corporate governance.
D) The audit function.

Question 32

The Sarbanes-Oxley Act places responsibility on CEOs and CFOs of companies to certify the fairness of company's financial statements. The Act also created the Public Company Accounting Oversight Board which oversees the public accounting profession.

Question 33

Which of the following is not a basic function of an accounting system?

A) To interpret and record the effects of business transactions.
B) To classify the effects of similar transactions in a manner that permits determination of various totals and subtotals useful to management.
C) To ensure that a business organization will be managed profitably.
D) To summarize and communicate information to decision makers.

Question 34

It is the function of management accounting to perform the following activities, except:

A) Financial forecasts.
B) Cost accounting.
C) Internal audits.
D) Audited financial statements.

Question 35

The field of accounting may best be described as:

A) Recording the financial transactions of an economic entity.
B) Developing information in conformity with generally accepted accounting principles.
C) The art of interpreting, measuring, and describing economic activity.
D) Developing the information required for the preparation of income tax returns.

Question 36

Financial accounting information is:

A) Designed to assist investors and creditors.
B) Not used by managers and in income tax returns.
C) Called "special-purpose" accounting information.
D) Not applicable to individuals.

Question 37

The Public Company Accounting Oversight Board is responsible for creating and promoting International Financial Reporting Standards.

Question 38

The accounting systems of most business organizations:

A) Are tailored to meet the organization's needs for accounting information and the resources available for operating the system.
B) Are similar in design to the journals, ledgers, and worksheets illustrated in this text.
C) Utilize data bases, rather than ledger accounts.
D) Are designed by the CPA firm that performs the annual financial audit.

Question 39

The basic purpose of bookkeeping is to:

A) Provide financial information about an economic entity.
B) Develop the types of information best-suited to specific managerial decisions.
C) Record the financial transactions of an economic entity.
D) Determine the taxable income of individuals and business entities.

Question 40

Financial statements must be prepared for which time period?

A) One year.
B) Less than one year.
C) More than one year.
D) Any time period.

Question 41

Financial statements are designed primarily to:

A) Provide managers with detailed information tailored to the managers' specific information needs.
B) Provide people outside the business organization with information about the company's financial position and operating results.
C) Report to the Internal Revenue Service the company's taxable income.
D) Indicate to investors in a particular company the current market values of their investments.

Question 42

A complete set of financial statements for Citywide Company, at December 31, 2009, would include each of the following, except:

A) Balance sheet as of December 31, 2009.
B) Income statement for the year ended December 31, 2009.
C) Statement of projected cash flows for 2009.
D) Notes containing additional information that is useful in interpreting the financial statements.

Question 43

The general purpose financial statements prepared annually by a corporation would not include the:

A) Balance sheet.
B) Income tax return.
C) Income statement.
D) Statement of cash flows.

Question 44

Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the informational needs of:

A) Investors and creditors.
B) Government agencies such as the Internal Revenue Service.
C) Customers.
D) Trade associations and labor unions.

Question 45

Which of the following is generally not considered an external user of accounting information?

A) Stockholders of a corporation.
B) Bank lending officers.
C) Financial analysts.
D) Factory managers.

Question 46

Which organization best serves the professional needs of a CPA?

A) FASB.
B) AICPA.
C) SEC.
D) AAA.

Question 47

The financial statements of a business entity:

A) Include the balance sheet, income statement, and income tax return.
B) Provide information about the cash flow prospects of the company.
C) Are the first step in the accounting process.
D) Are prepared for a fee by the Financial Accounting Standards Board.

Question 48

The designation of CPA is given by:

A) Universities.
B) States.
C) The AICPA.
D) The SEC.

Question 49

The body created by the Sarbanes Oxley Act and charged with oversight of the accounting profession is the:

A) Public Company Accounting Oversight Board.
B) Auditing Standards Board.
C) International Accounting Standards Board.
D) Security and Exchange Commission.

Question 50

In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a management accounting report is more likely to:

A) Be used by decision makers outside of the business organization.
B) Focus upon the operation results of the most recently completed accounting period.
C) View the entire organization as the reporting entity.
D) Be tailored to the specific needs of an individual decision maker.

Question 51

Which financial statement is primarily concerned with reporting the financial position of a business at a particular time?

A) The balance sheet.
B) The income statement.
C) The statement of cash flows.
D) All three statements are concerned with the financial position of a business at a particular time.

Question 52

Which of the following events is not a transaction that would be recorded in a company's accounting records?

A) The purchase of equipment for cash.
B) The purchase of equipment on account.
C) The investment of additional cash in the business by the owner.
D) The death of a key executive.

Question 53

Investors and creditors are interested in the probability that their original investment or loan will eventually be returned, and that they will receive a reasonable return while their funds are invested or borrowed. These expectations are collectively referred to as:

A) Expected profitability.
B) The objectives of financial reporting.
C) Cash flow prospects.
D) Financial position.

Question 54

Information is cost effective when:

A) The information aids management in controlling costs.
B) The information is based upon historical costs, rather than upon estimated market values.
C) The value of the information exceeds the cost of producing it.
D) The information is generated by a computer based accounting system.

Question 55

Which of the following is a characteristic of financial accounting information?

A) Its preparation requires judgment.
B) It is more about the future than it is about the past.
C) None of it is based on estimates, assumptions, and judgments.
D) Notes and explanations from management are not included.

Question 56

Investors may be described as:

A) Individuals and enterprises that have provided credit to a reporting entity.
B) Individuals and enterprises that own a reporting entity business.
C) Anyone that has an interest in the results of the operations of the reporting entity.
D) Those whose primary economic activity consists of buying and selling stocks and bonds.

Question 57

Which of the following decision makers is least likely to be among the users of management accounting reports developed by Sears Roebuck and Co.?

A) The chief executive officer of Sears.
B) The manager of the Automotive Department in a Sears' store.
C) The manager of a mutual fund considering investing in Sears' common stock.
D) Internal auditors within the Sears organization.

Question 58

The FASB takes on a responsibility to do the following, except:

A) Set the objectives of financial reporting.
B) Describe the elements of financial statements.
C) Judge disputes between management and the CPA.
D) Determine the criteria for deciding what information to include in financial statements.

Question 59

Which financial statement is prepared as of a specific date?

A) The balance sheet.
B) The income statement.
C) The statement of cash flows.
D) The balance sheet, income statement, and statement of cash flows are all for a period of time rather than at a specific date.

Question 60

The principal difference between management accounting and financial accounting is that financial accounting information is:

A) Prepared by managers.
B) Intended primarily for use by decision makers outside the business organization.
C) Prepared in accordance with a set of accounting principles developed by the Institute of Certified Management Accountants.
D) Oriented toward measuring solvency rather than profitability.

Question 61

The measures used by an organization to provide reasonable assurance that the organization produces reliable financial reports, complies with applicable laws and regulations, and conducts its operations in an efficient and effective manner are collectively referred to as:

A) Generally accepted accounting principles.
B) Financial accounting standards.
C) Securities and exchange regulations.
D) The internal control structure.

Question 62

An accounting principle must receive substantial authoritative support to qualify as generally accepted. Among the organizations and agencies that have been influential in the development of generally accepted accounting principles, which of the following has provided the most influential leadership?

A) Internal Revenue Service.
B) Institute of Management Accountants.
C) Financial Accounting Standards Board.
D) New York Stock Exchange.

Question 63

In the phrase "generally accepted accounting principles," the words generally accepted mean that the principles:

A) Have been adopted by Congress or approved by the voters in a general election.
B) Are acceptable to the Internal Revenue Service.
C) Are understood and observed by all the participants in the financial reporting process.
D) Have been approved by a majority of the members of the Financial Accounting Standards Board.

Question 64

Which of the following are not considered "external" users of financial statements?

A) Owners.
B) Creditors.
C) Labor unions.
D) Managers.

Question 65

Which of the following is not considered a return "of" investment?

A) Dividends.
B) Repayment of a loan.
C) Purchase of an asset.
D) Securing a loan.

Question 66

Generally accepted accounting principles are the "ground rules" used in the preparation of:

A) Income tax returns.
B) All accounting reports.
C) Reports to federal and state regulatory agencies.
D) Financial statements.

Question 67

The basic purpose of audited financial statements is to:

A) Provide the reporting company with assurance that all assets are protected from theft or embezzlement.
B) Prepare financial statements for companies that do not have their own accounting departments.
C) Provide users of the financial statements with assurance that the statements are reliable and are presented in conformity with generally accepted accounting principles.
D) Provide both the reporting company and the users of the statements with a written guarantee that the statements are error-free.

Question 68

The accounting standards and concepts used in the preparation of financial statements are called:

A) Certified principles of accounting (CPA).
B) Generally accepted accounting principles (GAAP).
C) Federal accounting standards and bylaws (FASB).
D) Standards enforcing consistency (SEC).

Question 69

The Financial Accounting Standards Board is:

A) Responsible for the review and audit of federal income tax returns.
B) Primarily concerned with the preparation of the annual federal budget.
C) A private group that conducts research and issues Statements that represent authoritative expressions of generally accepted accounting principles.
D) A government agency with legal authority to approve or disapprove the financial statements of corporations that sell their securities to the public.

Question 70

A strong internal control structure:

A) Contributes to the accuracy and reliability of the accounting records.
B) Will prevent a business from operating at a loss.
C) Assures that a business will remain solvent.
D) Will prevent fraud, theft, and embezzlement.

Question 71

The auditor's report on the published financial statements of a large corporation should be viewed as:

A) The opinion of independent experts as to the overall fairness of the statements.
B) The opinion of the corporation's chief accountant as to the overall fairness of the statements.
C) A guarantee by a firm of certified public accountants that the statements are accurate.
D) A guarantee by the Financial Statements Insurance Board that the statements do not overstate assets or net income.

Question 72

Audits of financial statements are performed by:

A) The controller of the reporting company.
B) The Financial Accounting Standards Board (FASB).
C) The management of the reporting company.
D) Independent certified public accountants (CPAs).

Question 73

Which of the following is not an objective of generally accepted accounting principles?

A) To minimize the amount of income taxes owed.
B) To ensure that both preparers and users of financial statements understand the concepts and assumptions used in presenting information within these statements.
C) To enhance the relevance and reliability of information contained in financial statements.
D) To increase the comparability of financial statements prepared by different companies.

Question 74

Which of the following is considered a return "on" investment?

A) Dividends.
B) Repayment of a loan.
C) Purchase of an asset.
D) Securing a loan.

Question 75

Generally accepted accounting principles are intended to assist accountants in preparing financial statements that:

A) Are relevant, reliable, comparable, and understandable.
B) Show the business to be both solvent and profitable.
C) Comply with all income tax rules and regulations.
D) Are ideally suited to the specific needs of each user of the financial statements.

Question 76

The basic purpose of generally accepted accounting principles is to:

A) Minimize the possibility of a business becoming insolvent.
B) Provide a framework for financial reporting that is understood by both the preparers and the users of financial statements.
C) Ensure that financial statements include the type of information that is best suited to every type of business decision.
D) Eliminate the need for professional judgment in preparing financial statements.

Question 77

In the phrase "generally accepted accounting principles," the words accounting principles refers to:

A) The standards, assumptions, and concepts that serve as "ground rules" for financial reporting.
B) Ethical standards that prohibit fraudulent or misleading financial reporting.
C) The steps in the accounting cycle.
D) The accounting practices authorized by the Financial Accounting Standards Board (FASB).

Question 78

The set of standards, assumptions, and concepts that form the "ground rules" for financial reporting in the United States is termed:

A) The conceptual framework.
B) Generally accepted accounting principles.
C) Statements of Financial Accounting Concepts.
D) American standards for certified public accountants.

Question 79

Statements of Financial Accounting Standards are developed by:

A) The Financial Accounting Standards Board.
B) Certified public accountants.
C) The Securities and Exchange Commission.
D) The Internal Revenue Service.

Question 80

Which of the following is not recognized as a source of generally accepted accounting principles?

A) Widespread and long-term use of a particular practice.
B) The Financial Accounting Standards Board (FASB).
C) The American Institute of Certified Public Accountants (AICPA).
D) Statements of the Committee of Sponsoring Organizations (COSO).