Question 1

Financial accounting standards issued by the FASB are considered generally accepted accounting principles.

Accepted Answer

Financial accounting standards issued by the FASB are recognized as authoritative guidance for financial reporting in the United States and are considered generally accepted accounting principles (GAAP).

Question 2

A statement of cash flows depicts the way profits have changed during a designated period.

Accepted Answer

A statement of cash flows depicts the way cash has changed during a designated period, not profits. It shows the sources and uses of cash in operating, investing, and financing activities.

Question 3

The American Institute of Certified Public Accountants has the legal authority over publicly held corporations to enforce compliance with generally accepted accounting principles.

Accepted Answer

The American Institute of Certified Public Accountants does not have legal authority over publicly held corporations to enforce compliance with generally accepted accounting principles. The responsibility for ensuring compliance with accounting standards falls on regulatory bodies such as the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB).

Question 4

Today,the most authoritative source of generally accepted accounting principles is the American Accounting Association.

Accepted Answer

The most authoritative source of generally accepted accounting principles in the United States is the Financial Accounting Standards Board (FASB). The American Accounting Association is a professional organization for accountants and educators, but it is not responsible for setting accounting standards.

Question 5

Management accounting refers to the preparation and use of accounting information designed to meet the needs of decision makers outside the business organization.

Accepted Answer

Management accounting actually refers to the preparation and use of accounting information designed to meet the needs of decision makers inside the business organization, such as managers and executives.

Question 6

Investors are individuals and other enterprises that have provided equity to the reporting enterprise.

Accepted Answer

This statement is true. Investors are individuals or other enterprises that have invested their equity into a reporting enterprise in exchange for ownership or shares in the company.

Question 7

The IRS tax return is one of the primary financial statements.

Accepted Answer

The IRS tax return is not a financial statement, but rather a form used to report income and calculate taxes owed to the government. Financial statements typically refer to documents such as balance sheets, income statements, and cash flow statements that provide a comprehensive view of a company's financial performance.

Question 8

External users of accounting information have a financial interest in an entity but are not involved with the day-to-day operations of the enterprise.

Accepted Answer

External users of accounting information include investors, lenders, suppliers, customers, and government agencies who have a financial interest in an entity but are not directly involved in its operations. They rely on financial statements and other accounting reports to make informed decisions about their investment, lending, buying, or regulatory activities.

Question 9

Return on investment is the same as return of investment.

Accepted Answer

Return on investment (ROI) refers to the profit or return generated from an investment, while return of investment refers to recouping the initial investment amount. They are not the same thing.

Question 10

The Public Company Accounting Oversight Board is responsible for creating and promoting International Financial Reporting Standards.

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB) is an independent regulatory body established by the Sarbanes-Oxley Act of 2002. Its main responsibility is to oversee and regulate the audits of public companies in order to protect investors and the public interest. The PCAOB does not create or promote International Financial Reporting Standards (IFRS), which are developed by the International Accounting Standards Board (IASB).

Question 11

The content of management accounting reports needs to be presented in conformity with generally accepted accounting principles.

Accepted Answer

While financial accounting reports must be presented in conformity with generally accepted accounting principles, management accounting reports are not subject to the same requirements. The content of management accounting reports is tailored to specific user needs and may include non-financial measures as well as financial information presented in unconventional formats.

Question 12

The Securities and Exchange Commission is instrumental in the development of financial accounting standards.

Accepted Answer

The Securities and Exchange Commission (SEC) oversees and enforces financial regulations, and it works closely with organizations like the Financial Accounting Standards Board (FASB) to develop and implement accounting standards.

Question 13

An accounting practice can become a "generally accepted accounting principle" through widespread use,even if the practice is not mentioned in the official pronouncements of the accounting standard-setting organizations.

Accepted Answer

Generally accepted accounting principles (GAAP) can be established through common and repeated practice, even if they are not explicitly stated by the official standard-setting bodies such as the Financial Accounting Standards Board (FASB) or International Accounting Standards Board (IASB). As long as the practice is widely adopted and recognized as a generally accepted practice in the accounting industry, it can become a part of GAAP.

Question 14

Management accounting information is oriented toward the future while financial accounting information is historical in nature.

Accepted Answer

Management accounting information is used to plan and control the future operations of an organization, while financial accounting information is used to report on past financial transactions and events. Therefore, management accounting information is oriented toward the future, while financial accounting information is historical in nature.

Question 15

Managerial accounting information is designed primarily to assist investors and creditors in deciding how to allocate scarce resources.

Accepted Answer

Managerial accounting information is designed primarily to assist managers within an organization in making decisions about resource allocation, not investors and creditors.

Question 16

The annual financial statements of large corporations such as Microsoft or PepsiCo need not be audited by independent certified public accountants,since these firms maintain large accounting departments as part of their organizations.

Accepted Answer

Even though these firms maintain large accounting departments, they still need to have their financial statements audited by an independent certified public accountant to ensure objectivity and independence in the auditing process.

Question 17

The tailoring of an accounting report to meet the needs of a specific decision maker is more characteristic of financial accounting reports than of management accounting reports.

Accepted Answer

Tailoring accounting reports to meet specific needs is more characteristic of management accounting reports, which are produced for internal decision making, rather than financial accounting reports, which are produced for external stakeholders such as investors and regulators. Financial accounting reports adhere to generally accepted accounting principles and must provide standardized, objective information to be comparable across different companies.

Question 18

One purpose of generally accepted accounting principles is to make accounting information prepared by different companies more comparable.

Accepted Answer

One of the primary purposes of generally accepted accounting principles (GAAP) is to ensure that accounting information is consistent and comparable across different companies. This allows investors, analysts, and other stakeholders to make meaningful comparisons and evaluate the financial performance of different companies. Without GAAP, companies could use different accounting methods and techniques, making it difficult if not impossible to compare financial statements accurately.

Question 19

All internal control systems need to be monitored.

Accepted Answer

Monitoring is a critical element of internal control systems as it helps to identify any weaknesses or gaps in the processes and enables timely corrective actions to be taken. Without monitoring, the effectiveness of the internal controls cannot be ensured.

Question 20

The statement of financial position and the income statement are one and the same.

Accepted Answer

The statement of financial position (aka balance sheet) and the income statement (aka profit and loss statement) are two different financial statements that provide different information about a company's financial performance. The statement of financial position shows a company's assets, liabilities, and equity at a specific point in time, while the income statement shows a company's revenues, expenses, and net income over a period of time.

Quiz 1: Accounting: Information for Decision Making