Accounting Competency Review

The accounting systems of most business organizations: A. Are tailored to meet the organization's needs for accounting information and the resources available for operating the system. B. Are similar in design to the journals, ledgers, and worksheets illustrated in this text. C. Utilize data bases, rather than ledger accounts. D. Are designed by the CPA firm that performs the annual financial audit.

A. Are tailored to meet the organization's needs for accounting information and the resources available for operating the system.

In comparison with managerial accounting, financial accounting is more likely to (choose all that apply): A. Be used by external decision makers. B. Be used by internal decision makers. C. Follow established rules and guidelines. D. Be tailored to the specific needs of an individual decision maker

A. Be used by external decision makers. C. Follow established rules and guidelines.

A strong internal control structure: A. Contributes to the accuracy and reliability of the accounting records. B. Will prevent a business from operating at a loss. C. Assures that a business will remain solvent. D. Will prevent fraud, theft, and embezzlement.

A. Contributes to the accuracy and reliability of the accounting records.

What area of accounting prepares multi-purpose reports? A. Financial B. Managerial C. Tax

A. Financial

Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the informational needs of: A. Investors and creditors. B. Government agencies such as the Internal Revenue Service. C. Customers. D. Trade associations and labor unions.

A. Investors and creditors.

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. A. True B. False

A. True

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. A. True B. False

A. True

Investors are individuals and other enterprises that have provided equity to the reporting enterprise. A. True B. False

A. True

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

A. True

Public accounting is the segment of the profession where professionals offer audit, tax, and consulting services to clients. A. True B. False

A. True

In comparison with financial accounting, managerial accounting is more likely to (choose all that apply): A. Be used by external decision makers. B. Be used by internal decision makers. C. Follow established rules and guidelines. D. Be tailored to the specific needs of an individual decision maker

B. Be used by internal decision makers. D. Be tailored to the specific needs of an individual decision maker

What is the primary purpose of tax accounting? A. Help people cheat on their taxes. B. Determine the amount of taxes owed. C. Communicate information about business transactions to external users to help make decisions. D. Provide information about business transactions to company managers.

B. Determine the amount of taxes owed.

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

B. False

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

B. False

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

B. False

The internal control structure of an organization has no relationship to the reliability of accounting information. A. True B. False

B. False

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. A. True B. False

B. False

The set of standards, assumptions, and concepts that form the "ground rules" for financial reporting in the United States is termed: A. The conceptual framework. B. Generally accepted accounting principles. C. Statements of Financial Accounting Concepts. D. American standards for certified public accountants.

B. Generally accepted accounting principles.

Why does accounting exist? A. Ensure businesses are managed profitably B. Help people make decisions C. Give people jobs D. Prepare tax returns

B. Help people make decisions

Which of the following does not describe accounting? A. It is commonly referred to as the language of business. B. It is an end rather than a means to an end. C. It is useful for decision-making. D. It is used by businesses, governments, non-profit organizations, and individuals.

B. It is an end rather than a means to an end.

What area of accounting is based on the needs of the users? A. Financial B. Managerial C. Tax

B. Managerial

Which of the following is not characteristic of financial accounting? A. Information used in financial statements is prepared in conformity with generally accepted accounting principles. B. The information is confidential and is intended for use only by company management. C. The information is used in a wide variety of business decisions. D. The information is developed primarily by "private accountants" that is, accountants employed by business organizations.

B. The information is confidential and is intended for use only by company management.

In the phrase "generally accepted accounting principles," the words generally accepted mean that the principles: A. Have been adopted by Congress or approved by the voters in a general election. B. Are acceptable to the Internal Revenue Service. C. Are understood and observed by all the participants in the financial reporting process. D. Have been approved by a majority of the members of the Financial Accounting Standards Board.

C. Are understood and observed by all the participants in the financial reporting process.

What is the primary purpose of financial accounting? A. Help people cheat on their taxes. B. Determine the amount of taxes owed. C. Communicate information about business transactions to external users to help make decisions. D. Provide information about business transactions to company managers.

C. Communicate information about business transactions to external users to help make decisions.

Which of the following is not a user of internal accounting information? A. Store manager. B. Chief executive officer. C. Creditor. D. Chief financial officer.

C. Creditor.

What rules are followed in preparing financial accounting reports? A. Generally Endorsed Accounting Rules (GEAR) B. Government Sanctioned Rules (GSR) C. Generally Accepted Accounting Principles (GAAP) D. Internal Revenue Code (IRC)

C. Generally Accepted Accounting Principles (GAAP)

All of the following are characteristics of management accounting, except: A. Reports are used primarily by insiders rather than by persons outside of the business entity. B. Its purpose is to assist managers in planning and controlling business operations. C. Information must be developed in conformity with generally accepted accounting principles or with income tax regulations. D. Information may be tailored to assist in specific managerial decisions.

C. Information must be developed in conformity with generally accepted accounting principles or with income tax regulations.

Financial statements are prepared: A. Only for publicly owned business organizations. B. For corporations, but not for sole proprietorships or partnerships. C. Primarily for the benefit of persons outside of the business organization. D. In either monetary or nonmonetary terms, depending upon the need of the decision maker.

C. Primarily for the benefit of persons outside of the business organization.

What area of accounting follows rules set by the government? A. Financial B. Managerial C. Tax

C. Tax

The field of accounting may best be described as: A. Recording the financial transactions of an economic entity. B. Developing information in conformity with generally accepted accounting principles. C. The art of interpreting, measuring, and describing economic activity. D. Developing the information required for the preparation of income tax returns.

C. The art of interpreting, measuring, and describing economic activity.

The best definition of an accounting system is: A. Journals, ledgers, and worksheets. B. Manual or computer-based records used in developing information about an entity for use by managers and also persons outside the organization. C. The personnel, procedures, devices, and records used by an entity to develop accounting information and communicate this information to decision makers. D. The concepts, principles, and standards specifying the information which should be included in financial statements, and how that information should be presented.

C. The personnel, procedures, devices, and records used by an entity to develop accounting information and communicate this information to decision makers.

It is the function of management accounting to perform the following activities, except: A. Financial forecasts. B. Cost accounting. C. Internal audits. D. Audited financial statements.

D. Audited financial statements.

Internal users of accounting information include: A. Shareholders (Investors) B. Suppliers C. Internal Revenue Service D. Company's Marketing Manager

D. Company's Marketing Manager

The objectives of an accounting system include all of the following except: A. Interpret and record the effects of business transactions. B. Classify the effects of transactions to facilitate the preparation of reports. C. Summarize and communicate information to decision makers. D. Dictate the specific types of business transactions that the enterprise may engage in.

D. Dictate the specific types of business transactions that the enterprise may engage in.

Which of the following is generally not considered an external user of accounting information? A. Stockholders of a corporation. B. Bank lending officers. C. Financial analysts. D. Factory managers.

D. Factory managers

Generally accepted accounting principles are the "ground rules" used in the preparation of: A. Income tax returns. B. All accounting reports. C. Reports to federal and state regulatory agencies. D. Financial statements.

D. Financial statements.

Which of the following are not considered "external" users of financial statements? A. Owners. B. Creditors. C. Labor unions. D. Managers.

D. Managers.

What is the primary purpose of managerial accounting? A. Help people cheat on their taxes. B. Determine the amount of taxes owed. C. Communicate information about business transactions to external users to help make decisions. D. Provide information about business transactions to company managers.

D. Provide information about business transactions to company managers.

Management accountants primarily are concerned with developing information: A. For use in income tax returns. B. Suited to the needs of stockholders, creditors, and other external decision makers. C. In conformity with generally accepted accounting principles. D. Suited to the needs of decision makers within the organization.

D. Suited to the needs of decision makers within the organization.