Chapter 14          USING FINANCIAL INFORMATION AND ACCOUNTING TRUE-FALSE QUESTIONS 1)

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Chapter 14          USING FINANCIAL INFORMATION AND ACCOUNTING

TRUE-FALSE QUESTIONS

1). Accounting is the process of collecting, recording, classifying, summarizing, reporting, and analyzing the financial condition of an organization.

a. True

b. False

 

2. An accounting system should generate both internal and external reports.

a. True

b. False

 

3. Administrative accounting is the term given to the internal workings of the company, such as budgets, sales reports, and analyses of how well marketing strategies are working.

a. True

b. False

 

4. Independent accountants who serve organizations and individuals on a fee basis are called public accountants.

a. True

b. False

 

5. The Sarbanes-Oxley Act redefines the public corporation-auditor relationship and restricts the types of services auditors can provide to clients.

a. True

b. False

 

6. The usual expression of the accounting equation is Assets = Liabilities + Owners' Equity.

a. True

b. False

 

7. Another term for net worth is working capital.

a. True

b. False

.

8. An accounting journal is a chronological list of transactions, each assigned to a particular account.

a. True

b. False

 

9. The five-step process that takes a transaction from being mere raw financial data to its being summarized in the financial statements is called the accounting cycle.

a. True

b. False

 

10. The balance sheet summarizes a firm's financial position over a period of time, for instance 3 months or a year.

a. True

b. False

 

11. The postage stamps and petty cash in the architect’s drawer as well as his drawing table, his office furniture, and money owed to him by clients are all examples of assets.

a. True

b. False

 

12. A current asset is one that can or will be converted into cash within one year.

a. True

b. False

 

13. The $350 charged to the homeowner for electrical work performed one month ago is an example of a note receivable.

a. True

b. False

14. An example of an intangible asset is accounts receivable because the firm does not see or feel it until it is paid in full.

a. True

b. False

 

15. Retained earnings are the amounts left over from profitable operations since the firm’s beginning.  They are equal to total profits minus all dividends paid to stockholders.

a. True

b. False

 

16. The income statement is a snapshot of the firm's financial position at a certain point in time.

a. True

b. False

 

17. Revenues are the dollar amount of sales plus any other income received from sources like interest, dividends, and rent.

a. True

b. False

 

18. The final figure or bottom line on an income statement is called the net revenue.

a. True

b. False

 

19. All publicly held companies must include a statement of cash flows in their financial reports to stockholders.

a. True

b. False

 

20. In a statement of cash flow, the cash flow from investment activities would include special promotions used to sell extra inventory.

a. True

b. False

 

21. The ratio of current assets to current liabilities is called the ownership ratio.

a. True

b. False

 

22. Profitability ratios measure how well a firm uses its assets.

a. True

b. False

 

23. Earnings per share (EPS) is the dollar amount earned by each share, not the actual amount given to stockholders in the form of dividends.

a. True

b. False

 

24. Sarbanes-Oxley allowed accountants to serve as both auditors and advisors for their clients

a. True

b. False

 

25. Recent legislation has decreased the roles of the chief audit executive (CAE).

a. True

b. False

 

MULTIPLE CHOICE QUESTIONS

 

 

1. Accounting involves the _____ of the financial activities for firms.

A. delegating

B. summarizing

C. creation

D. empowering

E. planning

 

2. Accounting provides a framework for looking at:

A. past performance

B. current financial health

C. possible future performance

D. financial performances of different firms

E. all of the above

 

3. Managerial accounting provides all of the following financial information EXCEPT:

A. production reports

B. payroll summaries

C. income statements

D. budgets

E. monthly sales records

 

4. Managerial accounting provides information that would probably be most beneficial to:

A. the IRS

B. financial analysts

C. a lending officer of the bank

D. a middle manager of the company

E. shareholders

 

5. _____ deals with reporting to outsiders.  _____ accounting deals with the internal operations of the firm.

A. Bookkeeping; Financial accounting

B. Financial accounting; Auditing

C. Auditing; Managerial accounting

D. External accounting; Internal accounting

E. Financial accounting; Managerial accounting

 

6. To ensure accuracy and consistency in the way financial information is reported, accountants follow rules known as:

A. accounting rules and principles

B. principled accounting procedures

C. comparable accounting standards

D. generally accepted accounting principles

E. financial accounting standards

 

 

 

7. The Financial Accounting Standards Board (FASB) is a:

A. private organization that is responsible for establishing financial accounting standards in the United States

B. federal government agency that is responsible for establishing financial accounting standards in the United States

C. United Nations organization that is responsible for establishing financial accounting standards globally

D. federal government agency that is responsible for establishing managerial accounting standards for NAFTA members

E. federal government agency that mediates disputes between accountants and the companies they work for

 

8. International accounting standards:

A. make it easy for an international marketer to rely on global balance sheets and income statements

B. are supervised by a special agency of the United Nations

C. all follow GAAP regulations

D. are required for successful international trade

E. do not exist

 

9. A(n) _____ is a yearly document that describes a firm's financial status and usually discusses a firm’s financial activities during the past year and its prospects for the future.

A. trial balance

B. firm summary

C. annual report

D. earnings report

E. financial analysis

 

10. Which of the following statements about the accounting profession is true?

A. Accountants are typically classified as private or public accountants.

B. Accountants cannot legally offer management consulting services.

C. Private accountants serve individuals and organizations on a fee basis.

D. Public accountants work for local, state, and national agencies.

E. All of the above statement about the accounting profession are true.

 

11. Which of the following statements about the accounting profession is true?

A. Most CPAs first work for public accounting firms and later become private accountants or financial managers.

B. Managerial accountants become a certified management accountant when they meet the requirements of the professional certification program.

C. Public accountants serve individuals and organizations on a fee basis.

D. Private accountants are also called corporate accountants.

E. All of the above statement about the accounting profession are true.

 

12. _____ are independent accountants who serve organizations and individuals on a fee basis.

A. Public auditors

B. Tax reviewers

C. Financial strategists

D. Private accountants

E. Public accountants

 

13. Accountants employed within organizations are called:

A. public accountants

B. public auditors

C. private auditors

D. private accountants

E. tax consultants

 

14. An accountant who has a bachelor's degree, passes a test prepared by the professional organization AICPA, and has a certain number of years of on-the-job training becomes a:

A. certified public accountant

B. certified private accountant

C. professional accountant

D. financial analyst

E. certified tax specialist

 

15. In the accounting field, CMA stands for:

A. certified motivational accountant

B. centralized managerial accountant

C. consolidated monetary auditor

D. certified managerial accountant

E. certified monetary auditor

 

16. The Sarbanes-Oxley Act:

A. set national requirements for becoming a practicing CPA

B. restricts the types of nonaudit services auditors can provide audit clients

C. dealt with accounting issues relevant to NAFTA members

D. mandated the use of international accounting standards

E. made fraudulent financial reporting illegal

 

17. _____ is the system used to record a firm's financial transactions in a routine and clerical process.

A. Accounting

B. Record keeping

C. Bookkeeping

D. Auditing

E. Financial management

 

18. Things of value owned by a firm are called its:

A. intangibles

B. owners' equity

C. tangibles

D. assets

E. liabilities

 

19. Which of the following is an example of a liability that might be owned by an antique mall?

A. an expensive Chinese urn with a small crack

B. the sales prices paid by customers

C. promotional signs

D. money owed to utility companies

E. accounting and inventory software

 

20. Which of the following is an example of an asset that might be owned by a minor league baseball team?

A. salaries owed to its players

B. the cost of getting tickets printed

C. reputation as a winning team

D. the price made for advertising on local radio

E. all of these

 

21. Which of the following is an example of an intangible asset for a manufacturer of padlocks?

A. money owed to them by a do-it-yourself superstore chain

B. a patent on titanium lock mechanism

C. a machine for forming the locks out of sheet metal

D. a warehouse for storing locks

E. an office for company CEO

 

22. Another term for owners' equity is:

A. assets

B. liabilities

C. net worth

D. gross worth

E. gross sales

 

23. Which of the following calculations is a formal expression of the accounting equation?

A. assets + liabilities = owners' equity

B. assets  liabilities = retained earnings

C. assets - owners' equity = liabilities

D. assets = liabilities + owners' equity

E. assets/liabilities = owners’ equity

 

24. In accounting, every transaction must be recorded as two entries.  This system is called:

A. accounting-cycle bookkeeping

B. double-entry bookkeeping

C. dual-notation bookkeeping

D. double-decker bookkeeping

E. tandem record keeping

 

25. Which of the following is NOT one of the six steps in the accounting cycle?

A. analyzing business transaction documents

B. recording business transactions in journal

C. preparing a trial balance

D. paying accounts payable

E. preparing the financial statements

 

26. The first step in the accounting cycle is to:

A. analyze business transaction documents

B. prepare financial statements

C. analyze financial statements

D. prepare trial balance

E. post entries to ledger

 

27. The last step in the accounting cycle is to:

A. analyze business transaction documents

B. prepare financial statements

C. analyze financial statements and management reports

D. prepare trial balance

E. post entries to ledger

 

28. Computers can enhance accounting by:

A. preparing tax returns

B. handling general ledger functions

C. controlling purchase orders

D. providing a means to control inventory

E. doing all of these

 

29. The _____ summarizes an organization's financial status at the end of an accounting period.

A. trial balance

B. income statement

C. cash flow statement

D. balance sheet

E. accounts payable ledger

 

 

30. Which of the following is the BEST example of a current asset for a university bookstore?

A. the building in which the store is located

B. accounting software used to control store's inventory

C. credit card charges by book buyers

D. money paid for rent and utilities

E. salary paid to student employees

 

31. _____ are temporary investments of excess cash in bonds and stocks that can readily be converted into cash.

A. Accounts receivable

B. Owners' net contribution margins

C. Notes payable

D. Marketable securities

E. Marketable receivables

 

32. Amounts owed to the firm by customers who bought goods and services on credit are called:

A. accounts receivable

B. owners' equity

C. notes payable

D. marketable receivables

E. accounts payable

 

33. Current assets, such as marketable securities and inventory, usually are expected to be turned into cash within:

A. one month

B. five years

C. one year

D. eighteen months

E. two years

 

34. Fixed assets are property and buildings that a firm expects to use for more than:

A. one month

B. six months

C. one year

D. two years

E. five years

 

35. Which of the following assets is NOT an example of a fixed asset for a manufacturer of road building equipment?

A. employee parking lot

B. production equipment for assembling engines

C. shipping area for finished goods and receiving area for component parts

D. cans of yellow paint for refurbishing equipment

E. warehouse building for storing finished equipment

 

36. _____ is the process of distributing the original cost of a long-term asset over the years of its useful life.

A. Depreciation

B. Appreciation

C. Accountable life

D. Cost distribution

E. Amortization

 

37. _____ is the company's ability to expense fixed assets over their useful life.

A. Amortization

B. Acceleration

C. Depreciation

D. Capital budgeting

E. Maturation

 

38. Sullins Cleaning Service has purchased a new pressure washer for $18,000.  Sullins Cleaning is allowed to charge a portion of the company’s cost during its useful life against the profits it generates.  This practice is called:

A. amortization

B. deceleration

C. acceleration

D. depreciation

E. appreciation

 

39. For which of the following assets would a wholesale company use depreciation?

A. gasoline used to power its delivery trucks

B. its patented computer tracking equipment

C. its warehouses

D. its accounts receivable

E. its inventory of unsold merchandise

 

40. _____ are debts that are to be paid within twelve months.

A. Fixed liabilities

B. Current assets

C. Fixed assets

D. Current liabilities

E. Intangible liabilities

 

 

 

 

41. A short-term loan from a bank, supplier, or others that must be repaid within a year is a(n):

A. account payable

B. note payable

C. account receivable

D. note receivable

E. prepaid payable

 

42. Trademarks, franchises, patents, and copyrights are carried on the company's books as:

A. tangible assets

B. intangible assets

C. owners' equity

D. long-term assets

E. goodwill

 

43. Toys "R" Us was founded in 1948.  The iconic mascot Geoffrey the Giraffe was introduced in February 1960.  Geoffrey used in all ads and promotions used by the retail toy chain is an example of a(n) _____ because it does not have a physical existence.

A. tangible expense

B. hidden asset

C. retained asset

D. intangible asset

E. intangible revenue

 

44. In 2006, the retail industry voted the Bike Gallery as one of the top 100 bicycle retailers in the United States.  It recently purchased a truckload of Thule brand bike racks from the manufacturer.  Until the Bike Gallery pays the bill, the purchase will be carried on Thule's books as a(n):

A. account receivable

B. intangible asset

C. account payable

D. current asset

E. fixed liability

 

45. Ennis Worth has a six-month loan for $7,500 that he used to refurbish the fishing boat he uses to earn his living.  This loan is an example of:

A. a current liability

B. owners' equity

C. a long-term liability

D. a current asset

E. a fixed asset

 

 

 

46. _____ are bills that have accumulated and must be paid at a specified future date within the year although no bill has been received by the firm.

A. Accounts payable

B. Marketable securities

C. Notes receivable

D. Accounts receivable

E. Accrued expenses

 

47. Which of the following terms equals the total profits of a company minus all dividends (distributions of profits) to stockholders?

A. owners' equity

B. net worth

C. net earnings

D. retained earnings

E. current equity

 

48. A(n) _____ is a summary of what a company has earned and spent over a given period.

A. balance sheet

B. trial balance

C. income statement

D. cash flow statement

E. annual stockholders’ report

 

49. The dollar amount of sales plus any other income received from sources like interest and dividends is called:

A. equities

B. intangible assets

C. capital

D. revenues

E. gross profit

 

50. Gross sales for Nevada Silver, a retailer of silver jewelry was $120,000 for the month of May.  Sales discounts amounted to $18,000.  There were no returns.  The difference, $102,000, is Nevada Silver’s:

A. gross profit

B. cost of goods sold

C. gross revenues

D. net sales

E. gross sales

 

51. Net sales:

A. is determined by adding total sales for the accounting period

B. is calculated once profit after all expenses are paid

C. is determined once profit after cost of goods sold is deducted

D. deducts sales discount and returns and allowances from gross sales deducting sales discount and returns and allowances from gross sales

E. is calculated by deducting revenues from gross sales

 

52. The sporting goods store sold $75,000 worth of merchandise in June.  The retailer gave no discounts and had no returns.  Which of the following statements accurately describes the information seen on the company’s income statement?

A. Gross sales exceed net sales.

B. Cost of goods sold exceeds gross sales.

C. Gross sales equal net sales.

D. Liabilities equal assets.

E. Net sales exceed gross sales.

 

53. There are two types of expenses recorded on the income statement.  They are:

A. cost of goods sold and production costs

B. production costs and sales expense

C. operating expenses and administrative expenses

D. sales expense and cost of goods sold

E. cost of goods sold and operating expenses

 

54. Haley Optics manufactures lens used in cameras, binoculars, and scientific equipment.  It had sales of $300,000 during the last quarter.  Its gross profit sold was $120,000.  On an income statement, an accountant would classify the remaining $180,000 as:

A. operating expenses

B. production income

C. cost of production

D. cost of goods sold

E. net production costs

 

55. In manufacturing, all costs directly related to production including raw materials, labor, and factory overhead are classified as:

A. operating expenses

B. inventory expenses

C. cost of goods sold

D. intangible profits

E. administrative expenses

 

56. Which of the following is NOT an example of a cost of goods sold for a manufacturer of electric fans?

A. housing in which to put the fan motors

B. overtime hours needed to fill a large summer order

C. wood and glass for barometers

D. factory utilities

E. sales commissions

 

 

 

57. The difference between net sales and cost of goods sold is:

A. net income

B. net revenues

C. gross profit

D. general income

E. gross revenues

 

58. U.S. Carburetion Inc. makes natural gas and gasoline powered generators.  Assume the company had $100,000 in net sales for the week of September 11^th.  Cost of goods sold was $42,000.  On an income statement, the remaining $58,000 would be classified as:

A. gross revenues

B. net income

C. general income

D. net revenues

E. gross profit

 

59. The two main types of operating expenses are:

A. production and general and administrative

B. production and selling

C. selling and general and administrative

D. office and selling

E. maintenance and production

 

60. _____ are those expenses related to marketing and distributing of a company's products.

A. Functional costs

B. Administrative expenses

C. Distribution costs

D. Selling expenses

E. Revenue expenses

 

61. What type of expense would be shown on an income statement when the owner of a dirt racing track promoted an upcoming race by purchasing advertising time on a local radio station?

A. functional

B. incidental

C. operating

D. revenue

E. communication

 

62. On an income statement, operating expenses that cannot be linked to cost of goods sold or to sales are called _____ expenses.

A. functional

B. revenue-producing

C. miscellaneous

D. incidental

E. general and administrative

 

63. On an income statement, expenses, such as professional salaries, utilities, office supplies, rent, and insurance, are called _____ expenses.

A. general and administrative

B. functional

C. managerial

D. miscellaneous

E. basic office

 

64. After all expenses have been subtracted from revenues on an income statement, the final figure or bottom line is called the _____ when it is a positive number.

A. gross profit

B. net revenue

C. net profit

D. owners’ equity

E. net sale

 

65. After all expenses have been subtracted from revenues on an income statement, the final figure or bottom line is called the _____ when it is a negative number.

A. negative liability

B. net liability

C. net loss

D. owners’ negative equity

E. net expense

 

66. Larry's Kite Shack operates on the Florida beaches during the tourist season.  Last year, Larry sold $25,000 worth of kites.  His cost of goods was $7,000, and he paid himself a salary of $20,000.  On an income statement, Larry's business would have a(n):

A. negative retained earning

B. net loss

C. gross expense

D. negative revenue

E. net profit

 

67. A(n) _____ is a summary of the money flowing into and out of a firm.

A. balance sheet

B. short-term budget

C. income statement

D. statement of cash flows

E. annual stockholders’ report

 

68. A(n) _____ is the financial statement that is used to assess the sources and uses of cash flow during the year.

A. statement of cash flows

B. income statement

C. balance sheet

D. trial balance

E. profitability statement

 

69. On a statement of cash flows for a manufacturer of digital thermometers, the cash flows from operating activities would include:

A. the money borrowed from the bank to start the company

B. the sale of land adjacent to the manufacturer’s administrative office building

C. repayment of long-term loan by a wholesaler of weather-related items

D. purchase of new $25,000 copying machine

E. increases in the manufacturer’s inventory

 

70. On a statement of cash flows for a provider of tutoring services, the cash flows from financing activities would include:

A. the flashcards used to tutor math students

B. the promotional sign at the entrance to the building where the tutoring takes place

C. the money borrowed to purchase the furniture in the tutorial area and the interest owed on that debt

D. the reputation of the tutors working for the service

E. the students who benefit from the service

 

71. On a statement of cash flows for a manufacturer of digital thermometers, the cash flows from investment activities section would include:

A. the money borrowed from the bank to start the company

B. the sale of land adjacent to the manufacturer’s administrative office building

C. repayment of long-term loan by a wholesaler of weather-related items

D. purchase of new box of copy paper

E. increases in the manufacturer’s inventory

 

72. On a statement of cash flows for a pizza restaurant, the cash flows from investment activities section would include:

A. the brick oven stove used to cook the pizzas

B. the aprons the employees wear

C. the table linens

D. the recipes used by the restaurant

E. the delivery service provided by the restaurant

 

 

73. _____ involves calculating and interpreting financial ratios taken from the firm’s financial statements in order to assess its condition and performance.

A. Organizational performance appraisal

B. Performance analysis

C. Financial reporting

D. Ratio analysis

E. Benchmarking

 

74. Which of the following is NOT a type of ratio analysis used by managers to interpret the numbers in financial statements?

A. operating

B. profitability

C. debt

D. liquidity

E. activity

 

75. The ratios that are of special interest to the firm's creditors and measure the firm's ability to pay short-term debts as they come due are called _____ ratios.

A. profitability

B. earnings

C. liquidity

D. current

E. activity

 

76. Liquidity ratios measure:

A. earnings per share

B. long-term financial stability

C. short-term financial stability

D. annual sales and profits

E. ability to pay dividends

 

77. The ratio of total current assets to current liabilities is called the _____ ratio.

A. profitability

B. activity

C. net margin

D. net worth

E. current

 

78. A kennel designed for boarding small dogs has current assets of $8,000, current liabilities of $2,000, and fixed assets of $25,000. The small company has a current ratio of:

A. 2.5

B. 4

C. 8

D. 25

E. 40

 

 

79. The _____ ratio is a measure of the firm's ability to pay its current liabilities once inventory is subtracted from current assets.

A. inventory

B. net worth

C. net margin

D. profitability

E. acid-test

 

80. Assume a company has inventory valued at $50,000, its total current assets, including this inventory, total $90,000.  Its total current liabilities total $20,000.  Its quick ratio is:

A. 1

B. less than 1

C. .5

D. 2

E. 1.8

 

81. _____ is arrived at by subtracting current liabilities from current assets.

A. Net margin

B. Owners’ equity

C. Net profit

D. Retained earning

E. Net working capital

 

82. Which of the following is NOT really a financial ratio though it is often used to measure a firm’s overall liquidity?

A. earnings per share

B. net profit margin

C. return on equity

D. net working capital

E. current ratio

 

83. Holiday Confections has the following balance sheet figures for the year ending December 31, 2018:

 

             Cash                                                            $1,000

             Marketable securities                           5,000

             Inventory                                                   3,000

                                                                                   $9,000

 

             Accounts payable                                  $2,000

             Notes payable                                          1,000

                                                                                   $3,000

 

Its net working capital is:

A. $1,000

B. $3,000

C. $6,000

D. $9,000

E. cannot be calculated from the information provided

 

84. The ratio of net profit to total owners' equity is called return on:

A. sales

B. earnings

C. equity

D. margin

E. inventory

 

85. Assume the net profit for manufacturer of mountain bikes was $1,000,000 last year.  The firm paid out $40,000 in dividends and has 200,000 shares of common stock outstanding.  Its earnings per share (EPS) was:

A. $2

B. $2.50

C. $4

D. $5

E. $10

 

86. The ratio of net profit to the number of shares of common stock outstanding is called the:

A. equity earnings

B. earnings per share

C. earnings for profit

D. stock-to-earnings ratio

E. profitability index

 

87. Profitability ratios are used to:

A. show the speed with which resources can be converted to cash

B. measure of the firm's ability to pay its current liabilities

C. determine how efficiently a company is being managed

D. measure the degree and effect of a firm's use of borrowed funds on its operation

E. determine how efficiently a company's manages its retained earnings

 

88. _____ ratios reflect the speed with which resources are converted to cash or sales.

A. Profitability

B. Equity

C. Leverage

D. Activity

E. Liquidity

 

89. A company that specializes in planning parties for children had $7,000 worth of inventory on January 1, 2018, and it had $5,000 worth of inventory on December 31, 2018.  If its cost of goods sold for that period was $3,000, and its net profit was $9,000, what was its inventory to turnover ratio?

A. 1 time

B. 1.5 times

C. 2 times

D. 3 times

E. 9 times

 

90. A small company that trains executives on how to act when working in Japan had $70,000 worth of inventory on January 1, 2018, and it had $50,000 worth of inventory on December 31, 2018.  If its cost of services provided for that period was $30,000, and its net profit was $90,000, what was its inventory to turnover ratio?

A. 1 time

B. 1.5 times

C. 2 times

D. 3 times

E. 9 times

 

91. By dividing cost of goods sold by the average inventory to measure the speed with which inventory moves through the firm and is turned into sales, the _____ ratio is calculated.

A. profitability

B. price-earnings

C. total asset

D. inventory turnover

E. sales to inventory

 

92. The acceptable turnover ratio is:

A. once every ninety days

B. once every thirty days

C. once per year

D. once every sixty days

E. different for each industry

 

 

 

93 _____ ratios measure the degree and effect of the firm's use of borrowed funds to finance its operations.

A. Equity

B. Liquidity

C. Income

D. Profitability

E. Debt

 

94. The _____ ratio measures the relationship between the amount of debt financing and the amount of equity financing.

A. liability-to-asset

B. sales-to-ownership

C. debt-to-revenue

D. liability-to-ownership

E. debt-to-equity

 

95. The Art Institute, a school for training artists to be financially self-sufficient, has a debt-to-equity ratio of 120 percent.  This means the school has:

A. excessive liquidity

B. more debt than equity

C. surplus retained earnings

D. high accrued expenses

E. more equity than debt

 

96. How has the Sarbanes-Oxley Act affected accountants?

A. It has made financial statements reviewable by the SEC.

B. It has allowed companies to replace accountants with accounting software.

C. It has made in possible for a U.S.-trained accountant to pursue his or her craft in all countries of the world.

D. It requires accountants to conduct an environmental scan for all customers.

E. It has eliminated many nonauditing tasks they use to provide for their customers.

 

97. The Financial Accounting Standards Board (FASB) is currently:

A. pushing for major changes in GAAP

B. creating international accounting regulations

C. calling for the repeal of Sarbanes-Oxley

D. encouraging accountants to serve as their clients' advisors

E. lobbying to change the format of the balance sheet so it can reflect a more ethical environment

 

 

FILL-IN-THE-BLANK QUESTIONS

 

1. _____ accounting provides financial information for managers within the firm to manage, budget, and analyze the progress of the firm.

 

2. _____ accounting focuses on preparing the financial reports used by managers and outsiders to track the firm's performance and compare it with other firms.

 

3. _____ is the process of reviewing the records used to prepare financial statements and issuing a formal repot indicating whether the statements have been prepared in accordance with accepted accounting rules.

 

4. _____ are things of value owned by the firm, such as cash, equipment, and buildings.

 

5. The _____ refers to the process of generating financial statements, beginning with a business transaction and ending with the preparation of the report.

 

6. A _____ is the financial statement that is based on the accounting equation and summarizes a firm's financial position at a specific point in time.

 

7. _____ are items on the balance sheet that can be converted into cash within the next twelve months.

 

8. ______ are amounts owed to the firm by customers who bought goods and services on credit.

 

9. Land, buildings, machinery, equipment, and furniture are called __________ assets.

 

10. ______ are bills and claims that will have to be paid within the next twelve months.

 

11. _____ earnings are the amounts left over from profitable operations since the firm's beginning.

 

12. The _____ summarizes the firm's revenues and expenses over some period and shows its total profit or loss.

 

13. _____ are the dollar amounts of sales plus any other income received from sources like interest, dividends, or rent.

 

14. ______ is the final figure or bottom line of an income statement.

 

15. The _____ is a summary of the money flowing into and out of a firm.  It is used to assess the sources and uses of cash during a certain period of time

 

16. The ratio of total current assets to total current liabilities is called the _____ ratio.

 

17. _____ is the calculation and interpretation of financial ratios using data taken from the firm's financial statements in order to assess its condition and performance.

 

18. _____ is the ratio of net profit to net sales.

 

19. _____ ratios are ratios that measure how well a firm uses its assets.

 

 

SHORT ANSWER QUESTIONS

 

1. What is accounting?

 

2. What are the two types of reports generated by accounting systems?

 

3. Why do U.S. accountants follow generally accepted accounting principles (GAAP)?

 

4. What is the accountant’s term used to describe the $1 million a mining company borrowed in order to purchase new equipment?

 

5. What is the first step in the accounting cycle?

 

6. What does it mean when a small business owner has low liquidity?

 

7. How would the building, the parking lot, and the land owned by a superstore be listed on the store’s balance sheet?

 

8. How would the monthly charges that customers make at a hardware store be classified on the store’s balance statement?

 

9. What kind of a financial statement shows revenues, gross sales, and net sales?

 

10. What are the two types of expenses that are shown on a company’s income statement?

 

11. What the two main types of operating expenses?

 

12. List three measures of a company’s liquidity.

 

13. What is another name for the ratio of net profit to net sales?

 

14. What do inventory turnover ratios measure?

 

15. What do debt ratios measure?

 

16. Briefly describe the major change in the business environment caused by the passing of Sarbanes-Oxley.