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