Chapter 14 - Accounting

List the steps in the accounting cycle from beginning to end. (Note: The first step in the process should be at the top of your list)

1. Examine source documents 2. Record transactions 3. Post Transaction 4. Prepare financial statements

What is the main distinguishing factor between accountants and bookkeepers? Multiple choice question. Bookkeepers record financial information, while accountants do not. Accounting is more mechanical and narrow in focus compared to bookkeeping. Bookkeepers require additional training beyond a college accounting degree, while accountants do not. Accountants analyze and interpret financial information, while bookkeepers do not.

Accountants analyze and interpret financial information, while bookkeepers do not.

Organizations evaluate their operations through the recording, measurement, and interpretation of financial information. This process is known as ______.

Accounting

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

Accounting

The (blank) (blank) is a four-step procedure accounting system.

Accounting Cycle

Which of the following is an accurate statement regarding the role of an accountant? Multiple choice question. Accounting requires less training than does bookkeeping. An accountant's role is essentially the same as a bookkeeper. Accounting usually requires coursework beyond a college accounting degree. Accountants are usually responsible for the routine, day-to-day transactions of a business.

Accounting usually requires coursework beyond a college accounting degree.

Which of the following is an asset of a business?

Accounts receivable

Economic resources owned by a firm are called (blank)

Assets

Refrigerated display cases, commercial meat slicers, and walk-in cold storage units are ______ of David's Deli.

Assets

In the 2000s, the government intervened in the economy and bailed out some of the United States' largest ______.

Banks

Cost of goods sold is calculated by using ______.

Beginning inventory, interim purchases, and ending inventory

Managers of most firms tend to keep debt-to-asset levels _____.

Below 50 percent

A(n) (blank) is an internal financial plan that forecasts income and expenses of the organization for a set period of time.

Budget

Which of the following is considered the most important component of an annual report?

CPA's Signiture

Of utmost importance to management is/are ______, which is the movement of money through a firm on a daily, weekly, monthly, or yearly basis.

Cash Flow

______ is the movement of money through an organization over a daily, weekly, monthly, or even yearly basis.

Cash Flow

Forensic accountants would most likely become certified as ______.

Certified Fraud Examiners

A private accountant that has passed a rigorous examination by the Institute of Management Accountants may become certified as a(n) ______.

Certified Management Accountant (CMA)

Gross income or profit equals revenues minus the ______ required to generate the revenue.

Cost of goods sold

The amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies is ______.

Costs of goods sold

(blank) liabilities must be repaid within one year.

Current

Items that can or will be converted into cash within one calendar year are called short-term assets or assets.

Current

Assets that can or will be converted into cash within one year are termed ______. Multiple choice question. current assets goodwill intangible assets fixed assets

Current Assets

Forensic accountants act much like ______.

Detectives

A system of recording and classifying business transactions in separate accounts is called (blank) - (blank) bookkeeping.

Double-entry

Owners' (blank) includes all the money that has ever been contributed to a company that never has to be repaid.

Equity

The cost incurred in the day-to-day operations of an organization is known as ______.

Expenses

The costs incurred in the day-to-day operations of an organization are called .

Expenses

True or false: An expense statement provides an explanation of how the company's cash changed from the beginning of the accounting period to the end.

False

True or false: CPAs pass and obtain their certification through the federal government.

False

True or false: Organizational budgets are always prepared on a monthly basis.

False

(blank) statements evaluate the return on stockholders' investment and the overall quality of the firm's management team.

Financial

What is the term for a written report that quantitatively evaluates the return on stockholders' investments and the overall quality of the firm's management team?

Financial Statement

Which types of assets are buildings, equipment, and intangibles like patents and trademarks?

Fixed assets

The accounting specialty that analyzes financial documents in search of fraudulent entries or financial misconduct and, therefore, is fit for legal review is ______ accounting.

Forensic

The accounting cycle is most known as being a ______-step process.

Four

There are more than 85,000 certified ______ examiners across the United States who work to root out evidence of "cooked books" in firms.

Fraud

The costs of owning and maintaining the general office

General and administrative expenses

In different types of businesses as well as different countries, different accounting terms may be used for the same concept. For example, revenue is equivalent to which two terms? Multiple select question. gross income operating profit goods or services sold sales

Goods or services sold. Sales

______ is an intangible asset that often includes an organization's reputation.

Goodwill

Select the two terms that can be defined as revenue minus the cost of goods sold. Multiple select question. Net sales Gross margin Gross profit Gross income Net earnings

Gross profit, Gross Income

Select the three terms that are equivalent to the term operating income. Multiple select question. income before interest and taxes earnings before interest and taxes profit after taxes operating profit gross income

Income before interest and taxes Earnings before interest and taxes. Operating profit

Which report summarizes an organization's bottom line profitability over a specific period, which may be a week, a month, or a year? Multiple choice question. Statement of cash flows Ratio analysis Balance sheet Income statement

Income statement

Which report summarizes an organization's profitability over a specific period, which may be a week, a month, or a year?

Income statement

Which report summarizes an organization's profitability over a specific period, which may be a week, a month, or a year? Multiple choice question. ratio analysis income statement statement of cash flows balance sheet

Income statement

The direct costs of borrowing money

Interest expenses

What does it mean to say that an annual report has been audited? Multiple choice question. It has been verified by the federal government to be free from error and thus is free to be used by potential investors. It bears the signature of a CPA attesting that the document is an accurate reflection of the financial condition of the firm. It contains all the necessary information about the firm, that is, company overview, the firm's business strategy, and the most current balance sheet.

It bears the signature of a CPA attesting that the document is an accurate reflection of the financial condition of the firm.

Which of the following scenarios most warrants an organization using a "bottom-up" budget? Multiple choice question. slow-growing organizations smaller, entrepreneurial ventures larger, fast-growing organizations static-growth organizations

Larger, fast-growing organizations

Debts that a firm owes to others are called (blank)

Liabilities

______ refers to how fast an asset can be converted into cash.

Liquidity

The internal use of accounting statements by managers in planning and directing the organization's activities is known as (blank ) accounting.

Managerial

The internal use of accounting statements by managers in planning and directing the organization's activities is referred to as ______.

Managerial Accounting

A budget that covers the entire firm and not just individual departments is called a(n) ______ budget.

Master

Select from the following those items that characterize a certified public accountant. (Select all that apply) Multiple select question. Is certified through the federal government May complete audits of corporate financial records Must be self-employed to avoid conflicts of interest May provide opinions regarding the accuracy of financial statements May file tax returns

May complete audits of corporate financial records. May provide opinions regarding the accuracy of financial statements. May file text returns.

All of the following are assets of an organization except ______.

Money owed to creditors

Cash from ______ activities is calculated by combining the changes in the revenue accounts, expense accounts, current asset accounts, and current liability accounts.

Operating

An accountant that is employed by a large corporation, government agency, or other organization to prepare and analyze their financial statements would be called a(n) ______ accountant.

Private

_____ ratios measure how much operating income an organization is able to generate relative to assets, owners' equity, and sales.

Profitability

A (blank) analysis calculates an organization's financial health.

Ratio

Includes the costs for people, equipment, and information used to design and build prototypes and samples

Research and development expense

In the fundamental accounting equation (blank) = Liabilities + Owners' equity.

Revenue

______ is/are the total amount of money received (or promised) from the sale of goods or services, as well as from other business activities such as the rental of property and investments.

Revenue

Revenue is defined as ______.

Sales plus other money coming into the firm.

Advertising and sales salaries

Selling expenses

In any accounting system, financial data typically pass through a four-step procedure sometimes called ______.

The Accounting Cycle

In 2008, the United States experienced a financial crisis. What three things took place to prevent the crisis from turning into a depression? Multiple select question. The federal government bailed out many small, "mom-and-pop" shops. The Federal Reserve Board was allowed to implement legislation regarding banks. The federal government bailed out some of the largest banks. Congress passed the Dodd-Frank Act. Congress passed the Sarbanes-Oxley Act.

The Federal Reserve Board was allowed to implement legislation regarding banks. The federal government bailed out some of the largest banks. Congress passed the Dodd-Frank Act.

True or false: People both inside as well as outside of an organization use accounting tools to evaluate organizational operations.

True

Like its name suggests, double-entry bookkeeping requires that business transactions be recorded in (blank) separate accounts.

Two

The ______ format balance sheet is newer and gaining wide acceptance. It shows assets on the top followed by liabilities and owners' equity.

Vertical

Amounts owed to suppliers for goods and services purchased with credit are called ______.

accounts payable

Terry's Tire shop has replaced the tires on 10 delivery trucks for one of his best clients—Deliveries 4U. Terry is allowing Deliveries 4U to pay for the tires over a period of time. The money owed to Terry by Deliveries 4U is considered:

an accounts receivable.

Receivables turnover is a type of _____ ratio.

asset utilization

To be most effective, liquidity ratios should be examined in conjunction with _____.

asset utilization ratios

Owners' or stockholders' equity ______. Multiple choice question. is a debt forgiven by a company is debt that a firm owes to others can come from past profitable operations or from money investors have given the firm equals liabilities minus assets and reflects historical debt owed to others

can come from past profitable operations or from money investors have given the firm

Cash from operating activities is calculated by combining the changes in which four accounts? Multiple select question. current asset accounts current liability accounts fixed asset accounts expense accounts revenue accounts long-term asset accounts

current asset accounts current liability accounts expense accounts revenue accounts

Which financial obligation must be repaid within one year?

current liabilities

The process of spreading the cost of a tangible asset over its estimated useful life is referred to as ______.

depreciation

Select the three terms that are equivalent to the term operating income. Multiple select question. earnings before interest and taxes gross income income before interest and taxes operating profit profit after taxes

earnings before interest and taxes income before interest and taxes operating profit

Research and development expenses include the costs of which of the following? (Pick four answers) Multiple select question. equipment used to design prototypes marketing personnel scientific personnel interest payments engineering personnel advertising costs

equipment used to design prototypes marketing personnel scientific personnel engineering personnel

Long-lived assets like buildings and equipment are called (blank) assets.

fixed

Depreciation is considered a type of ______.

general and administrative expense

A ratio analysis combines information from which two reports? Multiple select question. income statement balance sheet owner's equity report statement of cash flows

income statement balance sheet

Which of the following scenarios most warrants an organization using a "bottom-up" budget? Multiple choice question. static-growth organizations larger, fast-growing organizations slow-growing organizations smaller, entrepreneurial ventures

larger, fast-growing organizations

All assets on a balance sheet are listed in descending order of ______.

liquidity

What aspects of Eggs4U, an online free-range egg supply company, would be considered a liability? eggs money owed for purchased chicken feed money in savings to pay suppliers the Eggs4U website

money owed for purchased chicken feed

If an accountant were to take a firm's total revenue and deduct all expenses (including taxes), the result would be ______.

net income (or loss)

The difference between revenue and expenses is called ______.

net income or loss

External statements that managers in an organization may prepare are used for which of the following? (Select all that apply) Multiple select question. obtaining credit from lenders planning the direction of the company preparing the annual report reporting results to stockholders filing income taxes

obtaining credit from lenders preparing the annual report reporting results to stockholders filing income taxes

The "Retained Earnings" account is one of the ______ accounts.

owners' equity

What three components make up the accounting equation? Multiple select question. expenses owners' equity assets liabilities income

owners' equity assets liabilities

What are the three common expense accounts shown on an income statement? Multiple select question. inventory and returned goods expenses research, development, and engineering expenses selling, general, and administrative expenses interest expenses

research, development, and engineering expenses selling, general, and administrative expenses interest expenses

At the end of an accounting period, all revenue and expense accounts are moved into an account called ______.

retained earnings

Net income divided by assets is the definition of _____.

return on assets

Which calculation shows how much income the firm produces for every dollar it invests in assets?

return on assets

Which three are examples of profitability ratios? Multiple select question. return on equity profit margin acid test return on assets current ratio

return on equity profit margin return on assets

In different types of businesses as well as different countries, different accounting terms may be used for the same concept. For example, revenue is equivalent to which two terms? Multiple select question. gross income sales goods or services sold operating profit

sales goods or services sold

The ______ explains how the company's cash changed from the beginning of the accounting period to the end.

statement of cash flows

The definition of accounts payable is ______. Multiple choice question. the amount a company owes to suppliers for goods and services purchased with credit an account representing all unpaid financial obligations incurred by the organization a firm's financial obligations to it's investors assets that are used or converted into cash within the course of a calendar year

the amount a company owes to suppliers for goods and services purchased with credit

What are the two formats in which balance sheets may be presented? Multiple select question. horizontal modern equal traditional vertical

traditional vertical