Question 1

The fundamental accounting equation is as follows: Assets = Liabilities + Owners' equity.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The purpose of a trial balance is to:

Accepted Answer

A) show whether the figures in the account ledgers are correct and balanced. 
B) prepare a mock up of a real balance sheet. 
C) review the income statement accounts. 
D) meet a reporting requirement of the Securities Exchange Commission (SE
C) .

Question 4

During periods of rising prices,firms that want to report more attractive profits would tend to favour the FIFO technique of inventory valuation.

Accepted Answer

A) True 
 B)False

Question 5

What is the difference between a journal and a ledger? How are journals and ledgers incorporated into the accounting cycle?

Accepted Answer

The answer of What is the difference between a journal...

Question 6

Resources that a firm owns are called:

Accepted Answer

A) revenues. 
B) assets. 
C) equities. 
D) credits.

Question 7

The return on sales ratio measures a firm's use of leverage.

Accepted Answer

A) True 
 B)False

Question 8

Taylor Casual,a chain of retail clothing stores,wants to assure investors and other outsiders that its financial statements are accurate.One way to do so would be to hire a public accounting firm to:

Accepted Answer

A) produce an internal audit. 
B) take over all of its accounting functions. 
C) provide a "generally accepted practices" endorsement. 
D) perform an independent audit.

Question 9

Liquidity refers to how fast an asset can be converted into cash.

Accepted Answer

A) True 
 B)False

Question 10

Readers of financial statements usually have no way of knowing which amortization and inventory valuation methods a firm uses,a fact which makes interpretation of the information very difficult.

Accepted Answer

A) True 
 B)False

Question 11

Juliet has found that her small business needs a better way to maintain accounting records and analyze business opportunities than its current manual system.These days,any off-the-shelf accounting package available at a local software retailer should do an excellent job of meeting her firm's accounting needs.

Accepted Answer

A) True 
 B)False

Question 12

Expenses a firm incurs for insurance,office salaries,and rent would be classified as:

Accepted Answer

A) selling expenses on an income statement. 
B) general expenses on an income statement. 
C) current liabilities on a balance sheet. 
D) general expenses on a cash flow statement.

Question 13

Jeremy operates his own small business,but doesn't want to be bothered with dealing 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.

Accepted Answer

A) True 
 B)False

Question 14

The cost of goods sold reported on an income statement is not affected by the inventory valuation method the firm uses.

Accepted Answer

A) True 
 B)False

Question 15

Taxes are used for what purposes?

Accepted Answer

The answer of Taxes are used for what purposes?...

Question 16

The value of things you own minus the amount of money you owe others is called:

Accepted Answer

A) liabilities. 
B) liquidity. 
C) leverage. 
D) equity.

Question 17

Budget preparation is one aspect of managerial accounting.

Accepted Answer

A) True 
 B)False

Question 18

Assets are economic resources that are owned by a firm.

Accepted Answer

A) True 
 B)False

Question 19

The balance sheet is composed of the following types of accounts:

Accepted Answer

A) revenue,expenses,and earnings. 
B) operating expenses,cash flow,and capital expenditures. 
C) capital,cost,and valuation. 
D) assets,liabilities,and owners' equity.

Question 20

The LIFO method of inventory valuation bases the cost of goods sold on the cost to the firm of the:

Accepted Answer

A) merchandise that has been held in inventory for the longest period of time. 
B) most recent merchandise purchased by the firm. 
C) actual units the customers bought. 
D) merchandise the firm acquired at the lowest cost.

Exam 16: Understanding Accounting and Financial Information

The fundamental accounting equation is as follows: Assets = Liabilities + Owners' equity.

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

The purpose of a trial balance is to:

During periods of rising prices,firms that want to report more attractive profits would tend to favour the FIFO technique of inventory valuation.

What is the difference between a journal and a ledger? How are journals and ledgers incorporated into the accounting cycle?

Resources that a firm owns are called:

The return on sales ratio measures a firm's use of leverage.

Taylor Casual,a chain of retail clothing stores,wants to assure investors and other outsiders that its financial statements are accurate.One way to do so would be to hire a public accounting firm to:

Liquidity refers to how fast an asset can be converted into cash.

Readers of financial statements usually have no way of knowing which amortization and inventory valuation methods a firm uses,a fact which makes interpretation of the information very difficult.

Expenses a firm incurs for insurance,office salaries,and rent would be classified as:

The cost of goods sold reported on an income statement is not affected by the inventory valuation method the firm uses.

Taxes are used for what purposes?

The value of things you own minus the amount of money you owe others is called:

Budget preparation is one aspect of managerial accounting.

Assets are economic resources that are owned by a firm.

The balance sheet is composed of the following types of accounts:

The LIFO method of inventory valuation bases the cost of goods sold on the cost to the firm of the: