Question 1

A statement of cash flows summarizes a company's cash receipts and cash payments over a period of time.

Accepted Answer

A) True 
 B)False

Question 2

Sally prepares monthly financial statements for her client, Dent's Auto Body. Now, though, she must summarize the data in the accounting ledgers to determine if the figures are correct and balanced. Sally will prepare a statement of cash flows in order to complete this step of the cycle.

Accepted Answer

A) True 
 B)False

Question 3

A person's pulse rate and blood pressure are indicators of a person's health. Similarly, ________ can help assess the health of a business.

Accepted Answer

A)  financial statements 
B)  production schedules 
C)  transactions 
D)  databases

Question 4

The Internal Revenue Service is responsible for establishing accounting standards used by accountants working in government accounting.

Accepted Answer

A) True 
 B)False

Question 5

The ________ ratio helps determine the ability of a firm to repay its short-term debts even if it has difficulty selling its inventory.

Accepted Answer

A)  acid-test 
B)  cash flow 
C)  diluted current asset 
D)  required reserve

Question 6

Activities of managerial accountants include measuring and reporting the costs of production, marketing, and other functions within the organization.

Accepted Answer

A) True 
 B)False

Question 7

Financial accounting and managerial accounting are similar in that they both provide information intended primarily for people inside the organization.

Accepted Answer

A) True 
 B)False

Question 8

A loan officer at Bigbux Bank is considering a loan application from Portable Pet Care, Inc. He is concerned about the company's ability to make payments on the loan. The loan officer is likely to be interested in Portable Pet Care's statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 9

Diego owns and operates a small business with only four full-time employees and less than $700,000 in annual sales. He currently uses a manual accounting system and relies on a part-time bookkeeper to keep his records in order. In evaluating the possible adoption of a computerized accounting system, Diego will probably discover that

Accepted Answer

A)  the expense of setting up a computerized accounting system would not be affordable at this time. 
B)  he would be better off hiring a full-time accountant. 
C)  he could benefit from adopting such a system, but should also consult with an accountant for advice about what's best. 
D)  a computerized system would be affordable, but that he would have little need for it unless his company became significantly larger.

Question 10

Revenue, minus cost of goods sold =

Accepted Answer

A)  retained earnings. 
B)  fundamental accounting equation. 
C)  gross profit. 
D)  net income.

Question 11

A ________ is a specialized accounting book, where transactions are categorized according to type. For example, all utility transactions are recorded in the same category.

Accepted Answer

A)  journal 
B)  trial balance 
C)  ledger 
D)  balance sheet

Question 12

There are two major financial statements prepared at the completion of the accounting cycle: the journal and the ledger.

Accepted Answer

A) True 
 B)False

Question 13

Financial accounting is used to provide information and analysis managers within the organization can use to assist them in decision making.

Accepted Answer

A) True 
 B)False

Question 14

The books where accounting data are first entered are called ledgers.

Accepted Answer

A) True 
 B)False

Question 15

A firm's ________ reports the profit or loss for the firm over a specified time period.

Accepted Answer

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

Question 16

Both the current ratio and the acid-test ratio are liquidity ratios.

Accepted Answer

A) True 
 B)False

Question 17

Today's computerized accounting programs are

Accepted Answer

A)  very helpful for small-business owners who lack strong accounting support within their companies. 
B)  too expensive and complicated for most small businesses. 
C)  a poor investment for small start-up companies due to the fact that these programs are seldom needed unless the firm is considered a mid-sized to large company. 
D)  so sophisticated that they can make most financial decisions without the aid of an accountant.

Question 18

The current ratio is a type of ________ ratio.

Accepted Answer

A)  leverage 
B)  profitability 
C)  activity 
D)  liquidity

Question 19

Accounting software for small businesses has become so sophisticated that most small business owners will never need to consult with an actual accountant or understand accounting information themselves.

Accepted Answer

A) True 
 B)False

Question 20

Financial accounting involves activities such as preparing budgets and measuring production costs.

Accepted Answer

A) True 
 B)False

Exam 17: Understanding Accounting and Financial Information

A statement of cash flows summarizes a company's cash receipts and cash payments over a period of time.

Sally prepares monthly financial statements for her client, Dent's Auto Body. Now, though, she must summarize the data in the accounting ledgers to determine if the figures are correct and balanced. Sally will prepare a statement of cash flows in order to complete this step of the cycle.

A person's pulse rate and blood pressure are indicators of a person's health. Similarly, ________ can help assess the health of a business.

The Internal Revenue Service is responsible for establishing accounting standards used by accountants working in government accounting.

The ________ ratio helps determine the ability of a firm to repay its short-term debts even if it has difficulty selling its inventory.

Activities of managerial accountants include measuring and reporting the costs of production, marketing, and other functions within the organization.

Financial accounting and managerial accounting are similar in that they both provide information intended primarily for people inside the organization.

A loan officer at Bigbux Bank is considering a loan application from Portable Pet Care, Inc. He is concerned about the company's ability to make payments on the loan. The loan officer is likely to be interested in Portable Pet Care's statement of cash flows.

Revenue, minus cost of goods sold =

A ________ is a specialized accounting book, where transactions are categorized according to type. For example, all utility transactions are recorded in the same category.

There are two major financial statements prepared at the completion of the accounting cycle: the journal and the ledger.

Financial accounting is used to provide information and analysis managers within the organization can use to assist them in decision making.

The books where accounting data are first entered are called ledgers.

A firm's ________ reports the profit or loss for the firm over a specified time period.

Both the current ratio and the acid-test ratio are liquidity ratios.

Today's computerized accounting programs are

The current ratio is a type of ________ ratio.

Accounting software for small businesses has become so sophisticated that most small business owners will never need to consult with an actual accountant or understand accounting information themselves.

Financial accounting involves activities such as preparing budgets and measuring production costs.