Accounting Exam 1

Accounting information measures the___________and___________of resource usage.

efficiency, effectiveness

Investors and creditors are examples of individuals with a______________interest in a company that benefit from an understanding of accounting measurements.

financial

When accountants prepare______________ ______________they are describing in financial terms certain attributes of the enterprise that they believe fairly represent its financial activities.

financial statements

Financial accounting information is used for so many different purposes that it is often referred to as__________-___________accounting.

general-purpose

The most general objective of external financial reporting is to provide information that is useful in making__________and__________.

investment, credit

Financial accounting information is useful in deciding where to place scarce_____________resources

investment, economic, or captial

Two groups are considered the primary users of financial reporting, including financial statements:______________and____________.

investors and creditors

All asset accounts normally have______________balances.

debit

The_____________ _______________calls for offsetting expenses against revenue on the basis of cause and effect.

matching principle

Owners' equity is separated into two parts: capital stock and____________ _____________

retained earnings

A business succeeds or fails based on its ability to earn_________in excess of its___________.

revenue, expenses

Which term describes a decrease in the value of a monetary unit over time? Multiple choice question. a. constant dollar accounting b. inflation c. purchasing power parity d. deflation

b

Retained earnings equals the cash available for distribution to owners. True false question. a. True b. False

b (Retained earnings equals the accumulated earnings of previous years that remain within the enterprise)

Any decrease in total assets is necessarily accompanied by a corresponding______________in liabilities or owners' equity.

decrease

Fill in the blanks to complete the sentence. The record used to keep track of the increases and decreases in financial statement items is termed a(n)_____________account

ledger

Liabilities represent______________future cash flows for the enterprise.

negative

The term___________ __________ (or ___________ ____________)is simply the difference between all of an enterprise's revenues and expenses for a designated period of time.

net income, net loss

______________ _______________ ______________is an amount that approximates the cash that is expected to be received when the receivable is collected.

net realizable value

If a company bought a $60,000 piece of equipment on July 1, and the useful life of the equipment is 5 years, the equipment's depreciation expense for the month of August is_____________.

1,000

A limitation of recording assets at historical cost is that Multiple choice question. a. the monetary unit or dollar is not always stable. b. it is cheaper to determine the fair value of an asset than its cost. c. cost is sometimes difficult to determine. d. appraised value is more relevant than cost for all assets.

a

An income statement is prepared for a period of time. True false question. a. True b. False

a

Because the balance sheet, income statement, and statement of cash flows are derived from the same underlying financial information they relate closely to each other. True false question. a. True b. False

a

In every transaction that is recorded, Multiple choice question. a. debits must equal credits. b. debits must exceed credits if the business is losing money. c. credits must exceed debits. d. debits must exceed credits.

a

The purpose of management accounting information is to help in running the business. True false question. a. True b. False

a

Assets may have or represent Multiple select question. a. definite physical characteristics. b. valuable legal claims or rights. c. a clearly defined market value. d. permanent economic value.

a,b

Which of the following are types of accounting information widely used in business community? Multiple select question. a. Financial accounting b. Tax accounting c. Management accounting d. Human resource information

a,b,c

A company purchased a $30,000 piece of equipment by paying $10,000 cash and issuing a note payable for the unpaid balance. This transaction required a: Multiple select question. a. debit to Equipment of $30,000 b. credit to Notes Payable of $20,000 c. debit to Notes Payable of $20,000 d. credit to Cash of $10,000

a,b,d

Which of the following are examples of liabilities? Multiple select question. a. accounts receivable b. notes payable c. equipment d. accounts payable e. supplies f. salaries payable

b,d,f

The__________ __________ is a financial position statement that shows where the company stands in the financial terms at a specific date.

balance sheet

To record the cash purchase of buildings requires a debit entry to______________and a credit entry to_____________.

buildings, assets

An advantage of cost over fair value is that cost is more Multiple choice question. a. relevant. b. meaningful. c. objective. d. important.

c

If an expense will not be paid until after it is incurred, then Multiple choice question. a. assets are increased. b. liabilities are decreased. c. liabilities are increased. d. assets are decreased.

c

Primary external users of accounting information include Multiple choice question. a. suppliers. b. governmental agencies. c. creditors. d. labor unions.

c

The entry to record the issuance (sale) of stock to investors in exchange for cash, requires a____________to Cash, and a______________to Capital Stock.

debit, credit

A company made an error by recording too much revenue. To correct this error, the Revenue account should be______________.

debited

Revenue is recognized when a business has completed the______________process.

earnings

Revenues result in positive cash flows—either__________,____________,or__________

past, present, or future

The income statement is an activity statement that shows details and results of the company's_____________-_____________activities for a period of time.

profit-related

Owners' equity is a(n)___________ ____________.

residual amount

The statement of cash flows is a(n)__________statement.

activity

In terms of predicting future cash flows to themselves, Investors are generally most interested in which financial statement? Multiple choice question. a. income statement b. balance sheet c. statement of cash flows d. statement of owners' equity

a

The cash effects of purchasing and selling assets are included in which section of the statement of cash flows? Multiple choice question. a. investing b. operating c. business d. financing

a

What effect does earning revenue have on the accounting equation? Multiple choice question. a. Owners' equity increases. b. Assets decrease. c. Liabilities increase. d. Cash flow from investing increases.

a

When a company's expenses exceed its revenue, its income statement will report Multiple choice question. a. a net loss. b. more liabilities than assets. c. more assets than liabilities. d. a decrease in cash.

a

Which asset lacks physical form but provides a valuable legal claim or right? Multiple choice question. a. patents b. building c. equipment d. supplies

a

Which financial statement is described as "an activity statement"? Multiple choice question. a. income statement b. statement of net assets c. balance sheet d. statement of financial position

a

Each account has a Multiple select question. a. credit side. b. title. c. financial statement link d. debit side.

a,b,d

Information provided by the management accounting system is of useful for which of the following reasons? Multiple select question. a. to help the enterprise achieve its goals b. to motivate employees, including management c. to inform external investors and creditors d. to motivate management

a,b,d not c: Management accounting information is used within the organizations rather than informing external investors and creditors

The heading of the financial statement includes which of the following? Multiple select question. a. the name of the statement b. the date c. monetary units d. units e. the name of the business

a,b,e

Identify the characteristics of externally reported information. Multiple select question. a. usefulness enhanced via explanation b. fair value in nature c. inexact and approximate measures d. specific-purpose assumption

a,c

Information provided by the management accounting system is of useful for which of the following reasons? Multiple select question. a. to motivate management b. to inform external investors and creditors c. to help the enterprise achieve its goals d. to motivate employees, including management

a,c,d

Which of the following are reliable sources of financial information for investors and creditors? Multiple select question. a. Daily publications, such as the Wall Street Journal b. Unfamiliar internet sources c. Financial statements of companies d. Press releases directly from companies

a,c,d

Owners' equity is decreased by Multiple select question. a. dividend payments of cash or transfers of other assets to owners. b. acquiring a building in exchange for a long-term note. c. payment of an account payable. d. losses from unprofitable operation of the business.

a,d

Owners' equity is increased by Multiple select question. a. earnings from profitable operations of the business. b. buying a piece of equipment. c. collecting an amount owed from a customer. d. investments of cash or other assets by owners.

a,d

The allocation of an expenditure to expense is particularly judgmental for which accounts? Multiple select question. a. Equipment b. Prepaid Insurance c. Prepaid Rent d. Building

a,d

Which of the following are characteristics of management accounting information? Multiple select question. a. Needs to be provided to those with decision-making authority b. Measures compliance with accounting standards c. Oriented toward the past d. Needs to be timely

a,d not b: b/c it actually characterizes external accounting information not c: b/c oriented toward the future

Which are the primary objectives of external financial reporting? Multiple select question. a. To provide information that is useful in making investment and credit decisions b. To provide information on the success of the enterprise's growth strategy given its risks c. To provide information on errors, fraud, and misrepresentation d. To provide information on whether the stock is over- or undervalued, as well as on stock volatility e. To provide information about the enterprise's resources, claims to those resources, and how both of these change over time f. To provide information that is useful in assessing the amount, timing, and uncertainty of future cash flows

a,e,f not b: Accounting information might be used for this purpose, but it is not a primary objective. not c: This might be a sub-objective but is not a primary objective. not d: Accounting information might be used for this purpose, but it is not a primary objective.

Accounting information is only relevant to businesses. True false question. a. True b. False

b

An increase in one asset must be accompanied by Multiple choice question. a. a decrease in liabilities. b. a decrease in another asset. c. a decrease in liabilities or owners' equity. d. a decrease in owners' equity.

b

Financial statements are communicated in terms of a Multiple choice question. a. tangible unit. b. monetary unit. c. physical unit. d. universal value.

b

If payment occurs at the time the expense is incurred, then Multiple choice question. a. liabilities are increased. b. assets are reduced. c. assets are increased. d. liabilities are reduced.

b

The cash effects of revenue and expense transactions are included in which section of the statement of cash flows? Multiple choice question. a. investing b. operating c. business d. financing

b

The statement of cash flows explains the Multiple choice question. a. cash at the beginning of the period. b. change in cash from the beginning to the end of the period. c. cash at the end of the period. d. change in cash over the lifetime of the business.

b

The three types of accounting information used in the business community include all of the following except? Multiple choice question. a. management b. judgments c. tax d. financial

b

Which financial statement describes where an enterprise stands at a specific date? Multiple choice question. a. statement of comprehensive income b. statement of financial position c. income statement d. statement of cash flows

b

Which group is the primary user of management accounting information? Multiple choice question. a. creditors b. management c. taxing authorities d. investors

b

Which of the following is not an internal user of accounting information? Multiple choice question. a. business unit managers b. investors c. line supervisors d. chief financial officer

b

Which of the following results when a business reports a profit, but declares (pays) no dividends? Multiple choice question. a. Total assets increase. b. Owners' equity increases. c. Cash increases. d. Total liabilities decrease.

b

A management accounting information system is useful in Multiple select question. a. assessing an entity's cash flow-generating ability. b. providing a signal as to employee performance. c. evaluating and rewarding decision-making performance. d. assessing an entity's profitability.

b,c not a: This is externally provided information via the statement of cash flows. not d: This is externally provided information via the income statement.

Identify the major categories in a statement of cash flows. Multiple select question. a. cash flows from interest activities b. cash flows from operating activities c. cash flows from investing activities d. cash flows from financing activities

b,c,d

Organizations or individuals that are primary users of accounting information of a company include Multiple select question. a. Individuals with no financial interest in the company b. Business organizations c. Nonprofit organizations d. Governmental agencies

b,c,d

Which statements describe revenues? Multiple select question. a. They result in an immediate increase in cash. b. They result in positive cash flows, either now or in the future. c. They result from profit-directed activities. d. They increase net assets.

b,c,d

A balance sheet lists Multiple select question. a. cash flow from financing activities. b. owners' equity. c. liabilities. d. cash flow from investing activities. e. assets.

b,c,e

Indicate how accounts payable differ from notes payable. Multiple select question. a. Notes payable are a legally enforceable debt. b. Notes payable involve a written promise. c. Notes payable are long-term. d. Notes payable involve interest.

b,d

The 3 primary financial statements Multiple choice question. a. are based on different transactions but present similar views of the company. b. are based on different transactions and present different views of the company. c. are based on the same transactions but present different views of the company. d. are based on the same transactions and present the same view of the company.

c

The cash effects of owners investing in the company and creditors loaning money to the company and the repayment of either or both are included in which section of the statement of cash flows? Multiple choice question. a. business b. operating c. financing d. investing

c

The claims of stockholders are represented in which section of the balance sheet? Multiple choice question. a. liabilities b. assets c. owners' equity

c

The term financial position is used to describe Multiple choice question. a. cash inflows and outflows during the year. b. changes in owners' equity accounts during the year. c. an entity's financial resources and obligations. d. financial activities during the year.

c

The title "balance sheet" is an alternative name for which financial statement? Multiple choice question. a. Statement of cash flows b. Income statement c. Statement of financial position d. Statement of plant and equipment

c

Virtually all businesses prepare a statement of financial position at the end of each a. month b. week c. year d. quarter

c

Which of the following are correct statements about the three primary financial statements? Multiple select question. a. The income statement is an expansion of the accounting equation b. The terms balance sheet and income statement refer to the same financial statement c. The statement of cash flows and the income statement cover a period of time rather than a point in time d. The income statement shows revenue and expenses for a period of time

c,d

Which of the following items are accounting measurements? Multiple select question. a. board independence b. corporate political contributions c. profits d. sales volume e. company stock price f. costs

c,d,f not a: This is a corporate governance measurement. not b: These are a political and legal issue, which is subject to measurement. not e: Although numeric, a company's stock price is determined by market forces and is viewed as more of a finance measure than an accounting measure.

____________ ______________represents the amount that owners originally paid into the company to become owners.

capital stock

On the statement of financial position,____________is listed first, followed by other assets that will soon be converted into cash or be used up in business operations.

cash

All owners' equity accounts normally have_____________balances.

credit

An owners' equity account is increased via a______________entry

credit

The person or organization to whom a debt is owed is called a(n)____________.

creditor

The sum of all debits in the general ledger must equal the sum of all______________.

credits

A limitation of recording assets at historical cost is that Multiple choice question. a. appraised value is more relevant than cost for all assets. b. it is cheaper to determine the fair value of an asset than its cost. c. cost is sometimes difficult to determine. d. the monetary unit or dollar is not always stable.

d

An expense always Multiple choice question. a. reduces liabilities. b. increases liabilities. c. reduces assets. d. reduces owners' equity.

d

Changes in owners' equity resulting from the profitable or unprofitable operation of the business are recorded in which account? Multiple choice question. a. Dividends b. Capital Stock c. Net Income d. Retained Earnings

d

Liabilities are typically shown on the balance sheet Multiple choice question. a. from largest dollar amount to smallest. b. from smallest dollar amount to largest. c. in reverse order of which they are to be repaid. d. in the order in which they are to be repaid.

d

The accounting equation most closely relates to which financial statement? Multiple choice question. a. statement of cash flows b. income statement c. statement of owners' equity d. statement of financial position

d

The cash settlement (payment) of a $40,000 account payable results in: Multiple choice question. a. an increase in Accounts Payable of $40,000 b. an increase in owners' equity of $40,000 c. an increase in total liabilities of $40,000 d. a decrease in Cash of $40,000

d

The term "articulation" refers to which of the following regarding the three primary financial statements? Multiple choice question. a. Only the balance sheet and income statement are related b. The three financial statements are unrelated c. Only the income statement and statement of cash flows are related d. All three financial statements are related and based on the same underlying information

d

Which of the following accounts would typically be shown last among assets on the balance sheet? Multiple choice question. a. Supplies b. Accounts Receivable c. Cash d. Building

d

Which of the following is typically not shown at an amount based on cost? Multiple choice question. a. equipment b. office supplies c. building d. accounts receivable

d

If debit entries to an account exceed the total of credit entries to an account, that account has a______________balance.

debit

A company purchased land for $50,000 by paying $20,000 cash, and by issuing a note payable for the remainder of the amount owed. It recorded this transaction by___________________land for $50,000,________________cash for $20,000 and __________________ notes payable for________________.

debiting, crediting, crediting, 30,000

The financial position of an entity is measured at a point in_____________.

time