Deck 15: Understanding Accounting and Financial Statements

Question 1

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
A(n)_____ demonstrates his or her accounting knowledge by meeting provincial requirements for education and experience,as well as successfully completing a number of rigorous tests in accounting theory and practice,auditing,law,finance,strategy,and taxation.

Answer 1

a

Question 2

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
A(n)_____ is anything of value owned or leased by a business.

Answer 2

c

Question 3

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
The _____ is a statement of a firm's financial position on a particular date.

Answer 3

g

Question 4

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
_____ represents the owners' initial investment in the business plus profits that were not paid out to owners over time in the form of cash dividends.

Question 5

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
A financial record of a company's revenues,expenses,and profits over a period of time is called the _____.

Question 6

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

Question 7

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
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 8

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

Question 9

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
The basic relationship that states assets equal liabilities plus owners' equity is called the _____.

Question 10

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
A claim against a firm's assets by a creditor is a(n)_____.

Question 11

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
A(n)_____ is a planning and controlling tool that reflects the firm's expected sales revenues,operating expenses,and cash receipts and outlays.

Question 12

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
Proponents of ____________ allow employees to view sensitive financial information so that they better understand how their work contributes to the company's success.

Question 13

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
The _____ was established to promote worldwide consistency in financial reporting practices.

Question 14

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
The _______ are regulations and interpretations adopted by the International Accounting Standards Board.

Question 15

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
Financial statements are prepared according to _____,whose principles encompass the conventions,rules,and procedures for determining acceptable accounting practices at a particular time.

Question 16

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
__________ measure a firm's ability to meet its short-term obligations when they come due

Question 17

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
_____ is primarily responsible for evaluating,setting,or modifying the generally accepted accounting principles.

Question 18

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
The accounting method that records revenues and expenses when they occur is called _____.

Question 19

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
The _____ is the federal law that prohibits Canadian citizens and companies from bribing foreign officials to win or continue business.

Question 20

MATCHING
Complete the following using the terms listed.
a.Chartered Accountant
b.International Financial Reporting Standards
c.Asset
d.Liability
e.owners' equity
f.accounting equation
g.balance sheet
h.income statement
i.Corruption of Foreign Public Officials Act
j.accrual accounting
k.open book management
l.Budget
m.GAAP
n.AcSB
o.profitability ratio
p.International Accounting Standards Committee
q.liquidity ratios
r budget
_____ measures the extent to which a firm relies on debt financing.

Question 21

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

Question 22

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

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

Question 23

Morgan 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 Morgan's job?

A) Investor
B) Systems analyst
C) Accountant
D) Auditor

Question 24

Explain the differences between public accountants and management accountants.

Question 25

Julie is evaluating which state her company will expand into next.She is engaged in the ________ activity.

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

Question 26

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

Question 27

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

A) Managers
B) Statisticians
C) Accountants
D) IRS agents

Question 28

Identify and briefly describe the four categories of financial ratios.

Question 29

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

Question 30

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

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

Question 31

Describe the purpose of budgets in a business.

Question 32

Explain the accounting equation.

Question 33

Define GAAP and explain its purpose.

Question 34

________ activities focus on providing valuable assets to a business.

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

Question 35

Explain the purpose of the Sarbanes-Oxley Act.

Question 36

________ activities focus on selling goods and services.

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

Question 37

The natural progression of a business begins with ________.

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

Question 38

Sri manages the sales force for his company.He is engaged in the ________ activity.

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

Question 39

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

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

Question 40

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

A) evaluate credit risk
B) to make an investment decision
C) in contract negotiations
D) to plan and control

Question 41

All of the following are tangible assets EXCEPT ________.

A) Cash
B) Inventory
C) Building
D) Patents

Question 42

Jackson,chief financial officer for a company,is interested in a summary of all the costs related to producing revenues for the most recent quarter.He can best find this information by consulting the ________ section of the ________.

A) current asset;balance sheet
B) operating;cash flow statement
C) expense;income statement
D) current liability;balance sheet

Question 43

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

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

Question 44

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

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

Question 45

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

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

Question 46

Raphael works as a tax accountant at a mid-sized manufacturing company.Raphael would be considered a ________.

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

Question 47

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

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

Question 48

Makayla is a corporate CPA working on a new budget.When she lists the company's liabilities,which of the following will she include?

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

Question 49

Camden Products buys a $600,000 machine by taking out a bank loan.The company's assets will ________ by $600,000 while its liabilities will ________ by $600,000.

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

Question 50

Which of the following financial statements shows a firm's financial position at a particular date?

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

Question 51

The procedure used by accountants to convert transactions into financial statements is called ________.

A) the accounting cycle
B) processing financial information
C) recording financial information
D) summarizing financial information

Question 52

All of the following are liabilities EXCEPT ________.

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

Question 53

Which of the following represents the accounting equation?

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

Question 54

Which of the following assets would be listed first on the assets side of a balance sheet?

A) Fixed assets
B) Goodwill
C) Accounts receivable
D) Inventory

Question 55

The rules followed by accountants when preparing financial statements are referred to as ________.

A) Generally Accepted Accounting Practices (GAAP)
B) Financial Accounting Standards Board (FASB)
C) the accounting process
D) the accounting system

Question 56

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

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

Question 57

Fayez performs professional services similar to those of a management accountant,while working for the city of Edmonton Fayez can best be described as a ________.

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

Question 58

What is the primary role of a government accountant?

A) Determining how efficiently the organization accomplishes its objectives
B) Determining how much money the organization is taking in
C) Determining the cost of goods and services provided by the organization
D) Preparing the organization's tax return

Question 59

All of the following are assets EXCEPT ________.

A) Inventory
B) bank loans
C) Patents
D) Cash

Question 60

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

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

Question 61

Which of the following is a non-cash expense?

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

Question 62

Daniel 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.Daniel wants to create a(n)________.

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

Question 63

Cash budgets include all of the following EXCEPT ________.

A) a statement of the company's cash inflows and outflows
B) an analysis of interest on cash earned from company profits
C) an indication when the company can invest excess funds in securities
D) a tangible standard against which to compare actual cash inflows and outflows

Question 64

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 65

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 66

The Ming Company 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) either July,August,or September

Question 67

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

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

Question 68

All of the following are profitability ratios EXCEPT ________.

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

Question 69

Companies such as Coca-Cola generate more than half their annual revenues from sales outside the United States,including Europe.If the dollar gets stronger relative to the euro,what will be the financial impact on the company?

A) Overall earnings will decrease
B) Earnings will decrease in euros,but increase in dollars
C) Overall earnings will increase
D) Earnings will increase in euros,but decrease in dollars

Question 70

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

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

Question 71

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

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

Question 72

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

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

Question 73

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

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

Question 74

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

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

Question 75

If Topeka Enterprises has a debt ratio of 40 percent,it means that for every $1 in ________,the firm has 40 cents in ________.

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

Question 76

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

Question 77

________ ratios are designed to indicate how successful a firm is in terms of its earnings as compared with its assets or owners' equity.

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

Question 78

Cash budgets are usually prepared ________.

A) Yearly
B) Weekly
C) Quarterly
D) Monthly

Question 79

Which of the following statements is correct?

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

Question 80

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

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