Deck 15: Understanding Accounting and Financial Statements

Question 1

Public accountants are typically employees of the firm for which they are providing services.

Answer 1

False

Question 2

Investing activities focus on selling goods and services, but they also consider cost control as an important element of sound financial management.

Answer 2

False

Question 3

Daily business decisions are generally unaffected by accounting information; long-term decisions, however, are affected by accounting information and the interpretation of financial reports.

Answer 3

False

Question 4

Most companies refuse to share any financial information with employees.

Question 5

A public accountant provides accounting services to individuals or business firms for a fee.

Question 6

Few not-for-profit organizations publish financial information since they are NOT required by law to do so.

Question 7

Financing activities focus on providing valuable assets required to run a business.

Question 8

Not-for-profit organizations use only public accountants.

Question 9

The natural progression of a business begins with operating the business.

Question 10

Accounting is the language of business.

Question 11

A public accounting firm is prohibited from providing both consulting services and audit services to the same firm.

Question 12

Monica is involved in obtaining new funds to run and expand the business. She is engaged in an investing activity.

Question 13

Camille is an accountant who works for a firm providing auditing services to other businesses. Camille is a public accountant.

Question 14

Accountants play fundamental roles in not only business but also other aspects of society.

Question 15

A management accountant is responsible for collecting and recording financial transactions and preparing of financial statements used by the firm's managers in decision making.

Question 16

An accountant employed by a business other than an accounting firm is called a management accountant.

Question 17

Accountants play a role in all three business activities: financing, investing, and operating.

Question 18

Since publicly traded companies are required to report their financial information, anyone can find out how much Tim Horton's made during the past three months.

Question 19

Miles is an accountant and works for a firm that provides tax planning and preparation services to other businesses. Miles is a management accountant.

Question 20

Accounting information can be as important to those outside the organization as it is to those inside the organization.

Question 21

A firm has $15 million in assets and $5 million in owner's equity. Therefore, the firm must also have $15 million in liabilities.

Question 22

Tangible assets consist of equipment, buildings, patents, and inventories.

Question 23

Double-entry bookkeeping refers to the process by which accounting transactions are recorded.

Question 24

The three principal financial statements are the balance sheet, income statement, and the statement of retained earnings.

Question 25

Assets can include intangible possessions such as patents and trademarks.

Question 26

Government and not-for-profit accountants assess an organization's operational efficiency.

Question 27

A firm's balance sheet shows its financial position over a period of time.

Question 28

The primary role of government accountants is to determine how efficiently their organizations have accomplished their objectives.

Question 29

On a balance sheet, total assets must always equal the sum of liabilities and owners' equity.

Question 30

The balance sheet is based on the accounting equation.

Question 31

Reporting the current market value of plant, property, and equipment on the balance sheet is optional when using International Financial Reporting Standards (IFRS).

Question 32

The left side of the balance sheet lists claims against assets.

Question 33

The accounting cycle involves converting information and individual transactions into financial statements. Summarizing transactions is the first step in the accounting cycle.

Question 34

The Canadian Security Intelligence Service is an example of a governmental agency that hires accountants.

Question 35

Assume a company buys a machine worth $1 million and pays for it by borrowing the funds from a bank. The firm's assets will rise by $1 million and its liabilities will decrease by $1 million.

Question 36

It is mandatory for companies that trade on a public stock exchange to use IFRS (International Financial Reporting Standards).

Question 37

The not-for-profit sector is one of the fastest growing segments of accounting practice.

Question 38

The GAAP standard of relevance ensures that one firm's financial statements can be compared with those of similar businesses.

Question 39

Management accountants are employed by public accounting firms.

Question 40

Assets are shown in descending order of liquidity.

Question 41

A firm has $12 million in current assets, of which $8 million is inventory. If the company has $4 million in current liabilities, then its current ratio equals 1.0.

Question 42

If a firm has an asset turnover ratio of 2.00, it means that it needs $2 in assets to generate a $1 in sales.

Question 43

Companies often focus more on increasing revenue than on controlling costs. If the company can increase its revenue, it can remain in business for a long time.

Question 44

An owner withdraws capital through the repurchase of existing shares. On the company's 'statement of changes in equity', the amount of equity will increase.

Question 45

Current ratio is an example of liquidity ratios. It's calculated by dividing total liabilities by total assets.

Question 46

A budget is essentially a long-term financial plan.

Question 47

Return on equity is a profitability ratio.

Question 48

Profitability ratios measure a firm's ability to meet its short-term obligations.

Question 49

When examining a statement of cash flows, investors obtain relevant information about a firm's cash receipts and payments for its operations, investments, and financing during an accounting period.

Question 50

Cash budgets are typically prepared on a weekly basis.

Question 51

A company's overall operating budget is a composite of many individual budgets for separate units of the firm.

Question 52

A firm's acid-test ratio can NEVER be higher than its current ratio.

Question 53

Inventory ratio is the most frequently used activity ratio. It is the cost of sold goods divided by average inventory.

Question 54

The budget establishes the standards with which actual performance may be compared.

Question 55

A debt ratio of 20 percent means that the firm is relying more on borrowed money than owners' equity.

Question 56

Ratios assist managers by interpreting actual performance and making comparisons with what should have happened.

Question 57

Accrual accounting recognizes revenues and expenses when cash changes hands.

Question 58

The current ratio is a leverage ratio.

Question 59

Depreciation is reported as an expense on the firm's income statement, but does NOT involve any actual cash.

Question 60

Two commonly used liquidity ratios are the inventory turnover ratio and the leverage ratio.

Question 61

An international firm's consolidated financial statements must show any gains or losses caused by changes in exchange rates during specific periods of time.

Question 62

The complexity of the budgeting process varies with the size and complexity of the organization.

Question 63

______ activities focus on selling goods and services.

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

Question 64

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

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

Question 65

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 66

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

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

Question 67

If a Canadian company has substantial operations in Europe, and the value of the euro falls relative to the Canadian dollar, the company's profits, stated in Canadian dollars, will also fall.

Question 68

______ activities focus on providing valuable assets to a business.

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

Question 69

Which of the following are NOT users of accounting information within an organization?

A) managers
B) union officials
C) it personnel
D) consumer groups

Question 70

An international firm's consolidated financial statements must reflect any gains or losses due to changes in exchange rates during specific periods of time.

Question 71

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

Question 72

______ 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 73

The natural progression of a business begins with ______.

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

Question 74

A Canadian company with a subsidiary in France must restate the Canadian operations from Canadian dollars to euros.

Question 75

A firm's cash budget is usually prepared annually.

Question 76

Financial statements that cover operations in two or more countries do NOT need to treat fluctuations consistently.

Question 77

A management accountant should be able to provide answers to the following important questions, EXCEPT

A) where is the company going?
B) what opportunities are in the company's future?
C) will the training of new employees on the use of information technology enhance production?
D) does the firm's information system provide detailed and timely information to all levels of management?

Question 78

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 79

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

A) managers
B) statisticians
C) accountants
D) CRA agents

Question 80

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