Chapter 12 quiz

Which of the following does the accounting equation state?

Assets = Liabilities + Owners' Equity

By limiting the information about financial concerns, the complexity of managerial accounting has been increased.

False

Expendables are necessarily fixed costs.

False

Financial accounting is forward-looking and attempts to predict the results of management decisions.

False

Formal summaries of the content of an accounting system's records of transactions are called financial instruments.

False

Statement of cash flows is also referred to as the statement of financial position.

False

Cash flow statements can be either direct statements or indirect statements.

True

One reason why accounting is important to a small business is that it shows how much your business is worth.

True

The first step in budgeting is to make a forecast of your future sales.

True

The primary reason to acquire and use a computerized accounting system in your business is to ensure the accuracy of your accounting information.

True

The usefulness of the income statement for managing a small business is related to the amount of detail available in the statement.

True

Variance analysis is the process of determining the effect of price and quantity changes on revenues and expenses.

True

Financial accounting is primarily intended for:

bankers, investors, and regulators.

Regardless of your business's size, the one essential element of an accounting system is ________ that is accurate, easy to use, and tracks all checks written and all deposits made.

cash accounting

One of the difficulties in understanding and interpreting the income statements is the dispute over when one should recognize revenues.

true

To ensure your accounting information is accurate, reliable, and useful, the accounting system you choose should easily and efficiently maintain an internal "audit trail".

true

The difference between assets and liabilities of a business is called its:

owner's equity

Which of the following is true of managerial accounting?

It is forward-looking in nature.

An accounting method that is specifically intended to be used for planning, directing, and controlling a business is called:

None of the above

Larry owns a successful business called Super Car-Hire. He plans to sell it to Bob. Bob assumes that he can keep up the high revenues if he can plan and execute the mission of the business well. Which of the following basic accounting concepts is reflected in Bob's assumption?

The going concern expectation

The "business entity" concept of accounting indicates that:

a business has an existence that is separate from its owner.

Regular and systematic reduction in income that transfers asset value to expense over time is called _____.

depreciation

Variable costs decrease if output increases.

false

Most investors and all banks expect to be provided financial statements that meet the rules of _______.

generally accepted accounting principles or GAAP

Legal obligations to give up things of value in the future are known as _____.

liabilities