Deck 1: Introducing Financial Accounting

Question 1

The primary objective of financial accounting is to provide general-purpose financial statements to help external users analyze and interpret an organization's activities.

Answer 1

True

Question 2

Accounting is one way important financial information about businesses is reported to decision makers.

Answer 2

True

Question 3

The business entity assumption requires that a business be accounted for separately from other business entities, including its owner or owners.

Answer 3

True

Question 4

Ownership of a corporation is divided into units called shares or stock.

Question 5

Managerial accounting is an area of accounting that provides internal reports to assist the decision- making needs of internal users.

Question 6

The International Accounting Standards Board (IASB) is the government group that establishes reporting requirements for companies that issue stock to the public.

Question 7

Internal users of accounting information include lenders, shareholders, brokers, and managers.

Question 8

The internal information users of a business include the managers of: research and development, distribution, and human resources.

Question 9

The International Accounting Standards Board (IASB) has the authority to impose its standards on companies around the world.

Question 10

Unlimited liability is an advantage of all sole proprietorships.

Question 11

External auditors audit the financial statements to verify that they are prepared according to generally accepted accounting principles.

Question 12

The Securities and Exchange Commission (SEC) is an agency of the federal government that establishes reporting requirements for companies that issue stock to the public.

Question 13

The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices.

Question 14

Understanding generally accepted accounting principles is not necessary when using and interpreting financial statements.

Question 15

Generally accepted accounting principles are the concepts and rules for preparing financial statements.

Question 16

According to the cost principle, it is preferable for managers to report the most current estimate of an asset's value.

Question 17

Bookkeeping is the sole purpose of accounting.

Question 18

Accounting is an information and measurement system that identifies, records, and communicates financial information to users.

Question 19

Auditors are banned from direct investments with their clients.

Question 20

The Financial Accounting Standards Board is a private group that sets both broad and specific accounting principles.

Question 21

Assets are the resources owned or controlled by a business.

Question 22

Planning refers to defining an organization's ideas, goals, and actions.

Question 23

Owner financing refers to resources contributed by creditors or lenders.

Question 24

Risk is the amount of uncertainty about the return we expect to earn in the future.

Question 25

Revenues are increases in retained earnings from a company's earnings activities.

Question 26

Every business transaction should leave the accounting equation in balance.

Question 27

Retained earnings are increased when cash is received from customers in payment of previously recorded accounts receivable.

Question 28

The statement of cash flows shows the net effect of revenues and expenses for a reporting period.

Question 29

The income statement shows the financial position of a business on a specific date.

Question 30

A balance sheet covers a period of time, such as a month or year.

Question 31

Expenses decrease retained earnings and are the costs incurred to earn revenues.

Question 32

The three major activities of a business are operating, investing, and financing.

Question 33

A net loss arises when revenues exceed expenses.

Question 34

Reebok's net income of $119 million and average assets of $1,400 million results in a return on assets of 8.5%.

Question 35

The balance sheet shows whether or not the firm achieved its primary objective of earning a profit.

Question 36

The accounting equation implies that: Assets + Liabilities = Equity.

Question 37

The accounting equation can be restated as: Assets - Equity = Liabilities.

Question 38

Dividends are expenses of a business.

Question 39

The income statement is a financial statement that shows revenues earned and expenses incurred during a specified period of time.

Question 40

Investing activities are the acquiring and selling of resources that an organization uses in its everyday operations.

Question 41

An asset is:

A) Only acquired with cash.
B) Something the company owns.
C) Only contributed by stockholders.
D) A company's obligation to pay.
E) Is also called contributed capital.

Question 42

Internal users of accounting information always include:

A) Shareholders
B) Managers
C) Lenders
D) Suppliers
E) Customers

Question 43

The statement of cash flows reports on cash flows separated into operating, investing, and financing activities over a period of time.

Question 44

The area of accounting aimed at serving the decision-making needs of internal users is:

A) Financial accounting
B) Managerial accounting
C) External auditing
D) SEC reporting
E) Governmental accounting

Question 45

Which of the following is the primary purpose of accounting?

A) To establish a business.
B) To identify, record, and communicate business transactions.
C) To earn a large profit.
D) To reduce taxes owed for the business.
E) To establish credit for a company.

Question 46

The purchase of supplies must appear on the statement of cash flows as an investing activity because it involves the purchase of assets.

Question 47

Which of the following accounting principles dictates when expenses are recognized?

A) Revenue recognition principle
B) Monetary unit principle
C) Business entity principle
D) Matching principle
E) Full disclosure principle

Question 48

Which accounting assumption assumes that all accounting information can be reported monthly or yearly?

A) Business entity assumption
B) Monetary unit assumption
C) Value assumption
D) Cost assumption
E) Time period assumption

Question 49

Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business.

Question 50

The primary objective of financial accounting is:

A) To serve the decision-making needs of internal users.
B) To provide financial statements to help external users analyze and interpret an organization's activities.
C) To monitor and control company activities.
D) To provide information on both the costs and benefits of managing products and services.
E) To know what, when and how much to produce.

Question 51

Why are ethics crucial to accounting?

A) Ethical behavior creates the most profit for the business.
B) Ethics are a tool which help the accountants balance the accounting equation.
C) For accounting information to be useful, it must be trusted and therefore the result of ethical decisions.
D) Ethics are important to consider when applying GAAP but do not apply to international accounting issues.
E) Ethics are a way to compute revenues and expenses, but they do not apply to assets, liabilities, and owners' equity.

Question 52

Operating activities include long-term borrowing and repaying cash from lenders and cash investments by owners or dividends to the owner.

Question 53

Which of the following is the correct sequence for the heading for ABC Company's 2013 balance sheet?

A) ABC Company, For the year ended 12/31/13, Balance Sheet
B) For the year ended 12/31/13, Balance Sheet, ABC Company
C) Balance Sheet, 12/31/13, ABC Company
D) 12/31/13, ABC Company, Balance Sheet
E) ABC Company, Balance Sheet, 12/31/13

Question 54

What is the opportunity component of the fraud triangle?

A) A person thinks that there is a way to commit fraud without much chance of getting caught.
B) A person has a really good reason to commit fraud.
C) A person does not think of the fraudulent activity as bad.
D) A person persuades two or more other people to assist with the fraud.
E) A person is concerned about the impact of their actions on society.

Question 55

Internal users of accounting information include:

A) Shareholders
B) Customers
C) Creditors
D) Government regulators
E) Production managers

Question 56

Identifying business activities requires selecting transactions and events relevant to an organization. Which of the following events would be recorded in the accounting records of Acme Car Wash?

A) Acme washes 500 cars.
B) J.B. Smith, a customer, buys lunch at the restaurant next door to Acme while waiting for her car to be washed.
C) Clean Company, a supplier, sells 50 pounds of soap to ABC Company.
D) Sudsey Company, a supplier, goes out of business.
E) Acme hires Andrea as a receptionist.

Question 57

Technological advancement

A) Has replaced accounting.
B) Has not changed the work that accountants do.
C) Has freed accounting professionals to concentrate more on the analysis and interpretation of information.
D) In accounting has replaced the need for decision makers.
E) In accounting is only available to large corporations.

Question 58

FastForward paid $6,000 in dividends. This amount should be included as an expense on the income statement.

Question 59

Which of the following elements are found on the income statement?

A) Cash
B) Accounts receivable
C) Common stock
D) Retained earnings
E) Salaries expense

Question 60

The balance sheet is based on the accounting equation.

Question 61

The International Accounting Standards Board (IASB)

A) Hopes to create harmony among accounting practices of different countries.
B) Is the government group that establishes reporting requirements for companies that issue stock to the public.
C) Has the authority to impose its standards on companies
D) Is the only source of U.S. generally accepted accounting principles (GAAP).
E) Applies only to companies that are members of the European Union.

Question 62

Recording the items on the financial statements in dollars is done because of the:

A) Objectivity principle
B) Monetary unit principle
C) Revenue recognition principle
D) Going-concern principle
E) Cost principle

Question 63

The private board that currently has the authority to establish U.S. generally accepted accounting principles is the:

A) APB
B) FASB
C) AAA
D) AICPA
E) SEC

Question 64

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the amount of cash or cash equivalent given in exchange is the:

A) Accounting equation
B) Cost principle
C) Going-concern principle
D) Realization principle
E) Business entity principle

Question 65

The objectivity principle:

A) Means that information is supported by independent, unbiased evidence.
B) Means that information can be based on what the preparer thinks is true.
C) Means that financial statement should contain information that is optimistic.
D) Means that a business may not recognize revenue until cash is received.
E) Means the assets acquired must be recorded at what the company paid for them.

Question 66

A corporation:

A) Is a legal entity separate and distinct from its owners.
B) Must have many owners.
C) Has shareholders who have unlimited liability for the acts of the corporation.
D) Is the same as a limited liability partnership.
E) Does not have to pay taxes.

Question 67

Generally Accepted Accounting Principles:

A) Focus on the review of a situation.
B) Do not require financial statements.
C) Never change.
D) Intend to make information on the financial statements relevant, reliable, and comparable.
E) Oversees Security and Exchange Commission.

Question 68

Businesses can take all of the following forms except:

A) Sole proprietorship
B) Common stock
C) Partnership
D) Corporation
E) Limited liability corporation

Question 69

A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000, and purchased for $137,000. The land should be recorded in the purchaser's books at:

A) $95,000
B) $137,000
C) $138,500
D) $140,000
E) $150,000

Question 70

The Maximum Experience Company acquired a building for $500,000. Maximum Experience had an appraisal done and found that the building was worth $575,000. The seller had paid $300,000 for the building six years ago. Which accounting principle would prescribe that Maximum Experience record the building on its records at $500,000?

A) Monetary unit principle
B) Going-concern principle
C) Cost principle
D) Business entity principle
E) Revenue recognition principle

Question 71

The organization that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the:

A) AICPA
B) FASB
C) CAP
D) SEC
E) IASB

Question 72

Ethical behavior requires:

A) That an auditor's pay not depend on the figures in the client's reports.
B) Auditors to invest in businesses they audit.
C) Analysts to report information favorable to their companies.
D) Managers to use accounting information to benefit themselves.
E) That an auditor provides a favorable opinion.

Question 73

Which of the following statements best describes the relationship of U.S. GAAP and IFRS?

A) They are identical.
B) They are entirely different conceptual frameworks.
C) They are similar but not identical.
D) Neither has anything to do with accounting.
E) They both relate only to publicly traded companies.

Question 74

The principle prescribing that financial statements reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

A) Going-concern principle
B) Business entity principle
C) Objectivity principle
D) Cost principle
E) Monetary unit principle

Question 75

The principle that (A) requires revenue to be recognized at the time it is earned, (B) allows the inflow of assets associated with revenue to be in a form other than cash, and (C) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services is called the:

A) Going-concern principle
B) Cost principle
C) Revenue recognition principle
D) Objectivity principle
E) Business entity principle

Question 76

Which of the following elements are found on the balance sheet?

A) Service revenue
B) Net income
C) Operating activities
D) Utilities expense
E) Retained earnings

Question 77

Social responsibility:

A) Is a concern for the impact of one's actions on society as a whole.
B) Is a code that helps in dealing with confidential information.
C) Is required by the SEC.
D) Requires that all businesses conduct social audits.
E) Is mandated by the federal government.

Question 78

To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the:

A) Objectivity principle
B) Realization principle
C) Business entity principle
D) Going-concern principle
E) Revenue recognition principle

Question 79

The question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the:

A) Revenue recognition principle
B) Going-concern principle
C) Objectivity principle
D) Business entity principle
E) Cost principle

Question 80

The accounting guideline prescribing that financial statement information be supported by independent, unbiased evidence other than someone's belief or opinion is the:

A) Business entity principle
B) Monetary unit principle
C) Going-concern principle
D) Objectivity principle
E) Full disclosure principle