Chapter 17. Understanding Accounting and Financial Information

Managerial accounting is used to provide information ______.

inside the firm

Which are steps in the accounting cycle? (Select all that apply)

- analyze transactions - prepare a trial balance - record transaction in the journal

Operating expenses include which of the following?

- rent - utilities - supplies

Government and nonprofit accounting involves working for organizations whose purpose is to serve ______. (Select all that apply)

- taxpayers - ratepayers

__________ are economic resources owned by a firm.

Assets

True or false: Gross profit is what a company shows on their income statement as the bottom line figure.

False

The key working areas of accounting include managerial accounting, financial accounting, tax accounting, government and nonprofit accounting, and _________.

auditing

It's possible for a business to increase its sales and profits yet still suffer _________ flow problems.

cash

An accountant's time is freed up to do more important tasks such as financial analysis due to the assistance provided by using ______.

computerized accounting programs

What term describes the cost of merchandise the firm sells?

cost of goods sold

The _________ of _________ _________ measures the cost of merchandise the firm sells or the materials and supplies used to manufacture them for sale.

cost; goods sold

In using the accounting equation, if assets = $40,000 and liabilities = $30,000, then owner's equity is equal to ______.

$10,000

List the steps in the accounting cycle from beginning to end. Place the first step on top and list them down to the last step on the bottom.

- Analyze source documents. - Record transactions in journals. - Transfer journal entries to a ledger. - Take a trial balance. - Prepare financial statements. - Analyze financial statements.

The statement of cash flows reports cash receipts and disbursements related to __________, investments, and financing.

operations

The major categories of the balance sheet are assets, liabilities, and ______.

owners' equity

Calculating and interpreting financial ratios developed from the firm's financial statements is called:

ratio analysis

_________ and nonprofit accounting supports organizations whose purpose is not generating a profit, but serving ratepayers, taxpayers, and others according to a duly approved budget.

Government

Users of managerial accounting information include ______. (Select all that apply)

- department managers - the Chief Financial Officer

On a balance sheet, assets may include ______. (Select all that apply)

- goodwill - intangible resources - tangible resources

Which three activities are part of the function of accounting?

- interpreting financial transactions - classifying financial transactions - recording financial transactions

Which three components make up the fundamental accounting equation?

- liabilities - owners' equity - assets

Net income is ______.

all revenue minus all expenses and taxes

The _________ statement summarizes profit (or loss), costs, and expenses over a specific period, which may be a week, a month, or a year.

income

The relationship among assets, liabilities, and owners' equity is a fundamental concept in accounting known as the _______ equation.

accounting

Through the recording, classifying, summarizing, and interpretation of financial events in an organization, the function of ______ helps managers make good decisions about the firm's operations.

accounting

What is considered to be the "language of business"?

accounting

The ratios that measure the effectiveness of a firm's management in turning over inventory are called ______.

activity ratios

In accounting, liabilities refer to ______.

debts a business owes to others

Return on _________ is net income after taxes divided by total owners' equity.

equity

An indirect measure of risk that tells us how much a firm earned for each dollar invested by its owners is called ______.

return on equity

The monetary value of what a firm received for goods sold, services rendered, and other payments is termed __________.

revenue

What is the term for all resources that come into the firm from operating activities?

revenue

The role of an auditor is to ______.

review and evaluate a company's financial information

Cash flow analysis is especially important for which of the following?

small businesses

An advantage of the use of computers to maintain and compile accounting information is ______.

speed

The _________ _________ provides information about a company's financial status to company managers, owners, government agencies, and the general public.

anual report

_________ ratios measure a company's ability to turn assets into cash to pay its short-term debt.

Liquidity

The income statement shows ______.

a firm's profit (or loss) after costs, expenses, and taxes

The information and analysis that comes from managerial accounting is used to ______.

assist managers inside the organization with their decision making

Reviewing and evaluating records used to prepare a company's financial statements is referred to as ______.

auditing

A summary of all the financial transactions that have occurred over a particular period is referred to as a ______.

financial statement

The best way to understand a firm's financial health and stability is to look at its ______.

financial statements

What type of accountant is most likely to develop strategies for a firm in dealing with the Internal Revenue Service?

tax accountant

What are four main types of financial ratios used in ratio analysis?

- Activity ratios - Profitability ratios - Debt ratios - Liquidity ratios

Which are considered to be the working areas of accounting? (Select all that apply)

- managerial accounting - government and not-for-profit accounting - tax accounting - financial accounting - auditing

_________ ratios tell us how effectively management is turning over inventory.

Activity

Assets, liabilities, and owners' equity are the major accounts listed on ______.

a balance sheet

Leverage or debt ratios measure the degree to which a firm relies on ______.

borrowed funds

The ability to read, understand, and analyze accounting reports and financial statements is critical in understanding ______.

business operations

What type of ratios measure the degree to which a firm relies on borrowed funds in its operations?

leverage

What is another name for debts?

liabilities

What type of ratio measures a company's ability to turn assets into cash to pay its short-term debts?

liquidity ratio

In operating a business, rent, salaries, supplies, utilities and insurance are all examples of ______.

operating expenses

Cash receipts and disbursements related to operations, investments, and financing are reported on the ______.

statement of cash flows

A _________ accountant is trained in tax law and is responsible for preparing tax returns or developing tax strategies.

tax

Return on equity is net income minus taxes divided by ______.

total owners' equity