Deck 15: Understanding Accounting and Financial Statements

Question 1

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
_____ represents the proprietors' claims (those of stockholders,in the case of a corporation)against the firm's assets.

Answer 1

E

Question 2

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
Proponents of _____ allow employees to view sensitive financial information so that they better understand how their work contributes to the company's success.

Answer 2

K

Question 3

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
The claims of a company's creditors are a(n)_____.

Answer 3

D

Question 4

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
The _____ are regulations and interpretations adopted by the International Accounting Standards Board.

Question 5

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
A(n)_____ is anything of value owned or leased by a business.

Question 6

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
The accounting method that records revenues and expenses when they occur is called _____.

Question 7

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
A(n)_____ requires a minimum of a bachelor's degree;150 hours of education and experience;and the completion of a number of rigorous tests in accounting theory and practice,auditing,law,and taxes.

Question 8

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
The _____ is primarily responsible for evaluating,setting,or modifying the generally accepted accounting principles.

Question 9

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
The _____ was established to promote worldwide consistency in financial reporting practices.

Question 10

Explain the differences between public accountants and management accountants.

Question 11

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
The basic relationship that states assets equal liabilities plus owners' equity is called the _____.

Question 12

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
_____ measure the extent to which a company relies on debt financing.

Question 13

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
A financial record of a company's revenues,expenses,and profits over a specific period of time is called the _____.

Question 14

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
In the United States,the Financial Accounting Standards Board (FASB)is primarily responsible for evaluating,setting,or modifying _____.

Question 15

What is accounting? Provide examples of tasks that accountants perform.

Question 16

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
The _____ is a statement of a company's financial position on a particular date.

Question 17

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
A(n)_____ is employed by a business other than a public accounting firm.

Question 18

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
A(n)_____ is a planning and controlling tool that reflects a company's expected sales revenues,operating expenses,and cash receipts and outlays.

Question 19

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
The _____ created the Public Accounting Oversight Board to handle well-known cases of accounting fraud and respond to questions about the independence of auditors.

Question 20

Complete the following using the terms listed.
a.certified public accountant
b.International Financial Reporting Standards
c.asset
d.liability
e.Owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Sarbanes-Oxley Act (SOX)
j.accrual accounting
k.open book management
l.budget
m.generally accepted accounting principles (GAAP)
n.Financial Accounting Standards Board (FASB)
o.profitability ratios
p.International Accounting Standards Committee (IASC)
q.Leverage ratios
r
management accountant
An organization's overall financial performance is measured by its _____,which evaluates the ability to generate revenues in excess of operating costs and other expenses.

Question 21

Explain how exchange rates influence international accounting practices.Why was the International Accounting Standards Committee established?

Question 22

Brown manages the sales force for his company.He is engaged in the _____ activity.

A)operating
B)accounting
C)financing
D)investing

Question 23

Discuss how forensic accounting helps fight crime in today's business world and illustrate using examples.

Question 24

Describe the purpose of budgets in a business.

Question 25

_____ activities focus on providing valuable assets to a business.

A)Marketing
B)Investing
C)Selling
D)Operating

Question 26

Mitchell works for a travel agency.Her job involves preparing financial reports and interpreting those reports to provide information for decision making.Which title is appropriate for Mitchell's job?

A)Market researcher
B)Systems analyst
C)Investor
D)Accountant

Question 27

_____ activities provide the necessary funds to start a business and to expand it after it begins operations.

A)Selling
B)Financing
C)Operating
D)Investing

Question 28

The natural progression of a business begins with _____.

A)operating
B)investing
C)financing
D)selling

Question 29

Professionals who are responsible for gathering,recording,reporting,and interpreting the financial information of an organization are known as _____.

A)statisticians
B)accountants
C)IRS agents
D)IRS agents' managers

Question 30

Walker is a loan officer for a bank and is reviewing the financial statements of a prospective borrower.As a user of accounting information,Walker is most interested in using this information _____.

A)to plan and control daily operations
B)in contract negotiations
C)to make an investment decision and estimate its future returns
D)to evaluate financial soundness of potential clients

Question 31

Discuss the responsibilities of accountants and auditors.

Question 32

What is the purpose of the balance sheet? Explain how it is organized.

Question 33

Rivera owns a business and is reviewing her company's current financial statements.As a user of accounting information,Rivera is most interested in using this information to _____.

A)evaluate credit risk
B)approve new issues of stocks and bonds
C)plan and control activities
D)evaluate tax liabilities

Question 34

All organizations perform three basic business activities.List and describe these activities.

Question 35

Identify and briefly describe the four categories of financial ratios.

Question 36

What is accrual accounting? How does depreciation affect net income and cash flow?

Question 37

_____ activities focus on selling goods and services.

A)Marketing
B)Operating
C)Financing
D)Investing

Question 38

Reese works as a tax accountant at a mid-sized manufacturing company.Reese would be considered a _____.

A)management consultant
B)public accountant
C)management accountant
D)government accountant

Question 39

Define GAAP and explain its purpose.

Question 40

Explain the accounting equation.

Question 41

The procedure used by accountants to convert data about individual transactions to financial statements is called _____.

A)the cash flow method
B)the statement of owners' equity
C)the accounting cycle
D)the balance sheet

Question 42

The _____ was created by the Sarbanes-Oxley Act of 2002.

A)Securities & Exchange Commission
B)Public Accounting Oversight Board
C)GAAP
D)FASB

Question 43

Who appoints the members of the Public Company Accounting Oversight Board?

A)FASB
B)American Association of CPAs
C)Federal Trade Commission
D)Securities and Exchange Commission

Question 44

A(n)_____ is a financial statement that is directly based on the accounting equation.

A)balance sheet
B)income statement
C)statement of cash flows
D)statement of changes in retained earnings

Question 45

The rapidly growing field of _____ involves investigating white-collar crimes such as business fraud,improper financial reporting,and illegal investment schemes.

A)budgeting
B)public accounting
C)forensic accounting
D)internal auditing

Question 46

Haley is a corporate certified public accountant (CPA)working on a new budget.When she lists the company's liabilities,which of the following will she include?

A)Computer software
B)Owners' equity
C)Marketable securities
D)Employees' wages and salaries

Question 47

All of the following are tangible assets EXCEPT _____.

A)cash
B)patents
C)building
D)inventory

Question 48

All of the following are liabilities EXCEPT _____.

A)accumulated profits not paid in dividends
B)accounts payable
C)bank loans
D)wages payable

Question 49

Which of the following represents the accounting equation?

A)Assets + Liabilities = Owners' Equity
B)Assets = Liabilities + Owners' Equity
C)Liabilities = Assets + Owners' Equity
D)Owners' Equity - Liabilities = Assets

Question 50

All of the following are assets EXCEPT _____.

A)inventory
B)cash
C)patents
D)bank loans

Question 51

Milwaukee Fabrication has $80 million in assets and $50 million in owners' equity.How much does the firm have in liabilities?

A)$80 million
B)$50 million
C)$30 million
D)$20 million

Question 52

Roger has been hired to collect and record financial transactions and prepare financial statements for a Christian organization affiliated to a church,which makes him a _____.

A)not-for-profit accountant
B)government accountant
C)public accountant
D)management accountant

Question 53

Public accountants typically perform all of the following tasks for a business client EXCEPT _____.

A)tax planning
B)reviewing a firm's financial statements
C)developing the firm's marketing strategy
D)management consulting

Question 54

Frank,chief financial officer for a company,wants to take a look at the summary of expenses,revenues,and profits of the firm for the most recent quarter.He can best find this information by consulting the _____.

A)balance sheet
B)cash flow statement
C)statement of owners' equity
D)income statement

Question 55

Jayce Products buys a $500,000 machine by taking out a bank loan.The company's assets will _____ by $500,000 while its liabilities will _?____?? by $500,000.

A)rise;rise
B)fall;fall
C)rise;fall
D)fall;rise

Question 56

Which of the following financial statements shows a company's financial position on a particular date?

A)Statement of changes in retained earnings
B)Income statement
C)Statement of cash flows
D)Balance sheet

Question 57

Preston performs professional services similar to those of a management accountant while working for the city of Portland.Preston can best be described as a _____.

A)public accountant
B)cost accountant
C)tax accountant
D)government accountant

Question 58

To provide reliable,consistent,and unbiased information to decision makers,accountants follow guidelines,or standards,known as _____.

A)the accounting process
B)the accounting system
C)generally accepted accounting principles (GAAP)
D)Financial Accounting Standards Board (FASB)

Question 59

Maxwell is not an employee of the Edith Corporation,but he was hired as a management consultant to provide unbiased advice about Edith Corporation's financial condition.Maxwell is a(n)_____.

A)public accountant
B)government accountant
C)internal auditor
D)management accountant

Question 60

Elena works for a mid-sized manufacturing company.Her responsibility is to examine the company's financial practices to ensure that records include accurate data and that the company's operations are in compliance with federal,state,and local laws and regulations.Elena is a(n)_____.

A)government accountant
B)cost accountant
C)tax accountant
D)internal auditor

Question 61

Weston wants to assess his firm's ability to meet its short-term obligations.Which of the following ratios are the most relevant?

A)Activity ratios
B)Debt ratios
C)Liquidity ratios
D)Profitability ratios

Question 62

If Perry Enterprises has a debt ratio of 40%,it means that for every $1 in _____,the firm has 40 cents in _____.

A)owners' equity;liabilities
B)assets;liabilities
C)owners' equity;assets
D)assets;owners' equity

Question 63

Using the following balance sheet information,find the firm's acid-test ratio.

A)0.60
B)1.00
C)1.40
D)2.00

Question 64

All of the following are profitability ratios EXCEPT _____.

A)inventory turnover
B)return on equity
C)net profit margin
D)gross profit margin

Question 65

_____ ratios are designed to evaluate a firm's ability to generate revenues in excess of operating costs and other expenses.

A)Activity
B)Liquidity
C)Profitability
D)Debt

Question 66

If a firm has a current ratio of 2.5,it means that for every $2.50 in _____ it has $1.00 in _____.

A)current assets;current liabilities
B)total assets;total liabilities
C)current assets;total liabilities
D)total assets;current liabilities

Question 67

Last year,a firm had a current ratio of 2.0 and an acid-test ratio of 1.0.This year the firm's current ratio is 2.5 and its acid-test ratio is 1.5.This firm's _____ has _____.

A)profitability;improved
B)profitability;deteriorated
C)liquidity;improved
D)liquidity;deteriorated

Question 68

An asset turnover ratio of 2.5 means that for every $1 in assets,the firm generates _____ in sales.

A)$0.50
B)$2.00
C)$2.50
D)$3.00

Question 69

Diana asked her accountant to prepare a summary of the company's "bottom line." What specific information is Diana interested in?

A)Comparison of assets and liabilities
B)The company's financial position for that week
C)Net income after taxes
D)Statement of owners' equity

Question 70

Which of the following is true of Mint.com?

A)It is an online tool for managing personal finances.
B)It tracks a company's cash inflows and outflows.
C)It is a complex and sophisticated budgeting system.
D)It promotes worldwide consistency in financial reporting practices.

Question 71

Which of the following do companies prepare on a monthly basis?

A)Shareholders' equity
B)Credit statement
C)Cash budget
D)Statement of cash flows

Question 72

Melissa is the Executive Director of a local food bank and is assessing the financial situation of her not-for-profit organization.Melissa uses a(n)_____ to determine whether revenues from contributions and other sources will cover operating costs.

A)statement of cash flows
B)income statement
C)balance sheet
D)accrual accounting

Question 73

Expenses that have been incurred (such as wages)but have yet to be paid are reported on the balance sheet as _____.

A)accruals
B)accounts receivable
C)accounts payable
D)notes payable

Question 74

If a company has an acid test ratio of 1.00,$5 million in inventory,and $10 million in current liabilities,what are its total current assets?

A)$5 million
B)$10 million
C)$15 million
D)$20 million

Question 75

Which of the following statements is correct?

A)Budgets are limited to projecting cash inflows and outflows.
B)Budgets serve as a planning and control tool.
C)GAAP standards are used in budget development.
D)Budgets serve as a standard by which estimated performance is compared.

Question 76

Which of the following current assets is NOT included when calculating the acid-test ratio?

A)Inventory
B)Marketable securities
C)Cash
D)Accounts receivable

Question 77

Zane Corporation sells $1,000 worth of goods on July 25 on credit.The customer sends the company a check on August 15.The customer receives the goods on September 1.Assuming the company uses accrual accounting,the sale will be recorded in _____.

A)August
B)July
C)September
D)October

Question 78

A firm has total assets of $50 million and owner's equity of $40 million.What is the firm's debt ratio?

A)70%
B)50%
C)30%
D)20%

Question 79

Shane wishes to create a financial blueprint for a future period that reflects such items as expected sales revenues,operating expenses,and cash receipts and disbursements.Shane wants to create a(n)_____.

A)sales forecast
B)statement of cash flows
C)income statement
D)budget

Question 80

Which of the following is a noncash expense?

A)Depreciation
B)Operating costs
C)Income taxes
D)Cost of goods sold