Accounting
A system of maintaining records of a company's operations and communicating that information to decision makers
Accounting equation
assets= liabilities and stockholders' equity
Assets
Resources owned by a company
Auditors
Trained individuals hired by a company as an
independent party to express a professional opinion of the accuracy of that company's financial statements.
Balance sheet
A financial statement that presents
the financial position of the company on a particular
date.
Corporation
An entity that is legally separate from
its owners.
Cost effectiveness
Financial accounting information
is provided only when the benefits of doing so exceed
the costs.
Decision usefulness
The ability of the information
to be useful in decision making.
Dividends
Cash payments to stockholders.
Economic entity assumption
All economic events with a particular economic entity can be identified.
Ethics
A code or moral system that provides criteria
for evaluating right and wrong behavior.
Expenses
Costs of providing products and
services.
Faithful representation
Accounting information
that is complete, neutral, and free from material
error.
Financial accounting
Measurement of business
activities of a company and communication of those
measurements to external parties for decision-making
purposes.
Financial Accounting Standards Board (FASB)
An independent, private body that has primary
responsibility for the establishment of GAAP in the
United States.
Financial statements
Periodic reports published by
the company for the purpose of providing information
to external users.
Financing activities
Transactions involving external
sources of funding.
Generally accepted accounting principles
(GAAP)
The rules of financial accounting.
Going concern assumption
In the absence of information to the contrary, a business entity will continue
to operate indefinitely.
Income statement
A financial statement that reports
the company's revenues and expenses over an interval
of time.
Investing activities
Transactions involving the purchase and sale of (1) long-term resources such as land,
buildings, equipment, and machinery and (2) any
resources not directly related to a company's normal
operations.
Liabilities
Amounts owed to creditors.
include:
notes payable
accounts payable
unearned service revenue
salaries and wages payable
interest payable
Materiality
The impact of financial accounting information on investors' and creditors' decisions.
Net income
Difference between revenues and expenses.
Operating activities
Transactions involving the primary operations of the company, such as providing
products and services to customers and the associated costs of doing so, like utilities, taxes, advertising,
wages, rent, and maintenance.
Partnership
Business owned by two or more persons.
Retained earnings
Cumulative amount of net income earned over the life of the company that has not been distributed to stockholders as dividends.
Revenues
Amounts earned from selling products or services to customers.
Sole proprietorship
A business owned by one person.
Statement of cash flows
A financial statement that measures activities involving cash receipts and cash payments over an interval of time.
Statement of stockholders' equity
A financial statement that summarizes the changes in stockholders' equity over an interval of time.
Stockholder's equity
Stockholders', or owners',
claims to resources, which equal the difference
between total assets and total liabilities.
2. What is the primary purpose of financial accounting?
A. Determine the amount of tax liability owed to the government.
B. Communicate business transactions to internal management.
C. Measure business transactions and communicate those measures to extern
C. Measure business transactions and communicate those measures to external users to make decisions.
3. Financial accounting does not deal with which of the following?
A. Measuring a company's economic activity.
B. Preparing financial reports.
C. Making business decisions.
D. Communicating financial results to investors.
C. Making business decisions.
4. Which of the following groups is not among the external users for whom financial statements are prepared?
A. Creditors.
B. Regulators.
C. Investors.
D. Managers.
D. Managers.
5. Financial accounting:
A. Provides information primarily for external decision makers.
B. Provides information primarily for a company's employees.
C. Provides information primarily for the use of managers of the company.
D. Is primarily used to compute
A. Provides information primarily for external decision makers.
6. The primary purpose(s) of financial accounting is (are) to:
A. Measure and record business transactions.
B. Prepare federal and state tax returns.
C. Communicate financial results to investors and creditors.
D. a and c
D. a and c
7. Which definition below best describes financial accounting?
A. Process of measuring income taxes owed to the government.
B. System of maintaining communication with a company's customers and suppliers.
C. Procedures designed to enhance the company's im
D. Measuring business activities and communicating them to external parties.
8. The accounting equation is defined as:
A. Assets = Liabilities + Stockholders' Equity.
B. Assets = Liabilities - Stockholders' Equity.
C. Net Income = Revenues - Expenses.
D. Liabilities + Revenues = Assets.
A. Assets = Liabilities + Stockholders' Equity.
9. Which statement below best describes the accounting equation?
A. The change in retained earnings equals net income less dividends.
B. Equality of revenue and expense transactions over time.
C. Resources of the company equal creditors' and owners' claim
C. Resources of the company equal creditors' and owners' claims to those resources.
10. If a company has stockholders' equity of $60,000 at the end of the year, which of the following statements must be true?
A. The company's assets exceed liabilities by $60,000.
B. The company has issued $60,000 of common stock.
C. Net income for the ye
A. The company's assets exceed liabilities by $60,000.
11. Emmitt had the following final balances after the first year of operations: assets, $55,000; stockholders' equity, $25,000; dividends, $3,000; and net income, $10,000. What is the amount of Emmitt's liabilities?
A. $55,000.
B. $30,000.
C. $13,000.
D.
B. $30,000.
12. Transactions of a company involving external sources of funding are referred to as:
A. Investing activities.
B. Financing activities.
C. External activities.
D. Operating activities.
B. Financing activities.
13. Transactions of a company that include the purchase and sale of long-term productive assets are referred to as:
A. Investing activities.
B. Financing activities.
C. Expenditure activities.
D. Operating activities.
A. Investing activities.
14. McGill purchases additional office equipment to better serves its customers. This purchase is classified as what type of activity?
A. Company activity.
B. Financing activity.
C. Investing activity.
D. Operating activity.
C. Investing activity.
15. Transactions related to the primary business activities of the company, such as selling goods and services to customers, are referred to as:
A. Investing activities.
B. Management activities.
C. Operating activities.
D. Financing activities.
C. Operating activities.
17. The form of business organization that is legally separate from its owners is a:
A. Partnership.
B. Sole proprietorship.
C. Corporation.
D. Separation entity.
C. Corporation.
18. Which business form has the advantage of limited liability?
A. Corporation.
B. Sole proprietorship.
C. Partnership.
D. All business forms share equal limited liability.
A. Corporation.
19. Limited liability means:
A. Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket.
B. Liabilities of a company cannot exceed its assets.
C. Companies are not allowed to borrow unless they are profitable
A. Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket.
20. One disadvantage of the corporate form of business is:
A. Limited liability.
B. Access to more capital.
C. Smaller in size.
D. Double taxation.
D. Double taxation.
21. The costs of providing goods and services to customers are referred to as:
A. Assets.
B. Expenses.
C. Liabilities.
D. Revenues.
B. Expenses.
22. The accounts which represent the resources of the company are called:
A. Liabilities.
B. Revenues.
C. Expenses.
D. Assets.
D. Assets.
23. An alternative form of the accounting equation is:
A. Net Income = Revenues - Expenses.
B. Stockholders' Equity = Assets + Liabilities.
C. Assets = Liabilities - Stockholders' Equity.
D. Assets - Liabilities = Stockholders' Equity.
D. Assets - Liabilities = Stockholders' Equity.
24. The owners' interest in a corporation is called:
A. Dividends.
B. Assets.
C. Liabilities.
D. Stockholders' equity.
D. Stockholders' equity.
25. Creditors' claims to a corporation's resources are referred to as:
A. Dividends.
B. Assets.
C. Liabilities.
D. Stockholders' equity.
C. Liabilities.
26. Net income can best be described as:
A. Net cash received by a company during the year.
B. Revenues minus expenses.
C. The amount of profits retained in a company for the year.
D. Resources owned by a company.
B. Revenues minus expenses.
27. Use the following appropriate amounts to calculate net income: Revenues, $12,000; Liabilities, $5,000; Expenses, $4,000; Assets, $19,000; Dividends, $4,000.
A. $6,000.
B. $8,000.
C. $4,000.
D. $14,000.
B. $8,000.
28. Liabilities are best defined as:
A. Amounts the company expects to collect in the future from customers.
B. Debts or obligations the company owes resulting from past transactions.
C. The amounts that owners have invested in the business.
D. Payments t
B. Debts or obligations the company owes resulting from past transactions.
29. Which of the following best describes a revenue?
A. Resources owned.
B. Cash received from a customer.
C. Amounts earned from providing goods and services to a customer.
D. Dividends paid to stockholders.
C. Amounts earned from providing goods and services to a customer.
30. The account type that represents payments to stockholders is called:
A. Liabilities.
B. Assets.
C. Stockholders' equity.
D. Dividends.
D. Dividends.
31. The accounts that represent resources owed to creditors are called:
A. Assets.
B. Liabilities.
C. Dividends.
D. Stockholders' equity.
B. Liabilities.
33. Which of the following is an operating activity?
A. Issuing common stock.
B. Paying dividends.
C. Borrowing cash from a bank to acquire a factory.
D. Paying electricity bills for the month.
D. Paying electricity bills for the month.
34. How many of the following transactions are operating activities?
Borrowed $50,000 from the bank
Purchased $12,000 in supplies
Provide services to customers for $27,000
Paid the utility bill of $750
Purchased a delivery truck for $12,000
Received $25,0
C. Three.
35. The costs associated with producing revenues are referred to as:
A. Dividends.
B. Assets.
C. Liabilities.
D. Expenses.
D. Expenses.
36. Accountants are responsible for measuring various operating, investing and financing activities. Which of the following correctly matches the activity with its type?
A. Investing - paying utilities for the month.
B. Investing - purchasing land.
C. Ope
B. Investing - purchasing land.
37. Which of the following accounts appears in the statement of stockholders' equity?
A. Supplies.
B. Cash.
C. Salaries Payable.
D. Retained Earnings.
D. Retained Earnings.
38. Sooner Company has had a net income of $8,000, $5,000, $12,000, and $10,000 over the first four years of the company's existence. If the average annual amount of dividends paid over the last four years is $3,000, what is the ending retained earnings b
C. $23,000.
39. The equation best describing the income statement is:
A. Revenues - Expenses = Net Income.
B. Assets = Revenues - Expenses.
C. Assets = Liabilities + Stockholders' Equity.
D. Revenues + Expenses = Net Income.
A. Revenues - Expenses = Net Income.
40. On January 1, 2012, Gucci Brothers Inc. started the year with a $492,000 balance in Retained Earnings and a $605,000 balance in Common Stock. During 2012, the company earned net income of $92,000, paid a dividend of $15,200, and issued more common sto
C. $1,201,300.
41. The financial statement that represents activity over the entire life of the company is the:
A. Income statement.
B. Statement of financial accounting.
C. Balance sheet.
D. Statement of cash flows.
C. Balance sheet.
42. Which of the following is the correct order for preparing the financial statements?
A. Balance sheet, statement of stockholders' equity, and income statement.
B. Balance sheet, income statement, and statement of stockholders' equity.
C. Statement of s
D. Income statement, statement of stockholders' equity, and balance sheet.
43. The financial statement(s) that record activity over an interval of time is (are) the:
A. Income statement.
B. Balance sheet.
C. Balance sheet and income statement.
D. Income statement and statement of cash flows.
D. Income statement and statement of cash flows.
44. Which of the following items would not appear in an income statement?
A. Salaries expense.
B. Advertising expense.
C. Service revenue.
D. Cash.
D. Cash.
45. The two categories of stockholders' equity usually found in the balance sheet of a corporation are:
A. Common stock and liabilities.
B. Assets and liabilities.
C. Common stock and retained earnings.
D. Revenues and expenses.
C. Common stock and retained earnings.
46. Which of the following statements regarding financial reports is not correct?
A. A balance sheet contains assets, liabilities, and stockholders' equity information.
B. An income statement shows revenues and expenses.
C. A statement of stockholders' eq
C. A statement of stockholders' equity reports revenues, net income, and dividends information.
47. Which of the following is not a balance sheet item?
A. Assets.
B. Common stock.
C. Retained earnings.
D. Revenues.
D. Revenues.
48. In what order are the following financial statements prepared: (1) balance sheet, (2) income statement, and (3) statement of stockholders' equity?
A. 1, 2, 3.
B. 3, 2, 1.
C. 1, 3, 2.
D. 2, 3, 1.
D. 2, 3, 1.
49. Nina Corp. had the following net income (loss) the first three years of operation: $7,100, ($1,600), and $3,600. If the Retained Earnings balance at the end of year three is $1,100, what was the total amount of dividends paid over these three years?
A
D. $8,000.
50. Aikman Company has paid dividends of $2,410, $0, $1,570 and $1,060 over the first four years of the company's existence. If Retained Earnings after year four has an ending balance of $9,700, what is the average annual amount of net income (loss) over
A. $3,685.
51. The equation best describing the balance sheet is:
A. Assets = Liabilities + Stockholders' Equity.
B. Revenues - Expenses = Net Income.
C. Ending Retained Earnings + Dividends = Net Income.
D. Revenues + Expenses = Net Income.
A. Assets = Liabilities + Stockholders' Equity.
52. DW has an ending Retained Earnings balance of $51,100. If during the year DW paid dividends of $4,300 and had net income of $22,500, then what was the beginning Retained Earnings balance?
A. $24,300.
B. $300.
C. $32,900.
D. $69,300.
C. $32,900.
53. The ending Retained Earnings balance of Boomer Inc. decreased by $1.0 million from the beginning of the year. The company declared a dividend of $5.4 million during the year. What was the net income earned during the year?
A. $7.5 million.
B. $6.4 mil
C. $4.4 million.
54. Which financial statement is typically prepared first?
A. Balance sheet.
B. Income statement.
C. Statement of stockholders' equity.
D. Statement of cash flows.
B. Income statement.
55. Expenses are shown in which of the following statements?
A. Income statement.
B. Statement of cash flows.
C. Balance sheet.
D. Statement of stockholders' equity.
A. Income statement.
57. Retained earnings at the end of the year is calculated using:
A. Beginning retained earnings, net income, and dividends.
B. Common stock and dividends.
C. Stockholders' equity, net income, and dividends.
D. Net income and dividends.
A. Beginning retained earnings, net income, and dividends.
58. The financial statement that represents the accounting equation is the:
A. Income statement.
B. Statement of cash flows.
C. Balance sheet.
D. Statement of stockholders' equity.
C. Balance sheet.
59. Which of the following is not a major section in the statement of cash flows?
A. Cash flows from operating activities.
B. Cash flows from financing activities.
C. Cash flows from customers.
D. Cash flows from investing activities.
C. Cash flows from customers.
61. Liabilities are shown in which of the following statements?
A. Income statement.
B. Statement of cash flows.
C. Balance sheet.
D. Statement of stockholders' equity.
C. Balance sheet.
64. If total change in cash = $44,000, net operating cash flows = $22,000, and net investing cash flows = ($13,000); then net financing cash flows =
A. $15,000.
B. $25,000.
C. $35,000.
D. $45,000.
C. $35,000.
66. Which of the following items is reported in the statement of stockholders' equity?
A. Total assets.
B. Total expenses.
C. Net income.
D. Operating cash flows.
C. Net income.
67. Which of the following statements is NOT correct about the financial statements?
A. An income statement reports revenues, expenses, and net income information.
B. The statement of stockholders' equity presents common stock, dividends, and retained ear
C. A balance sheet reports assets, liabilities, revenues, and expenses.
68. Which financial accounting number impacts stock prices more than any other single piece of information?
A. Retained earnings.
B. Net income.
C. Common stock.
D. Total assets.
B. Net income.
69. The balance sheet depicts which of the following equations?
A. Net income = revenue - expenses.
B. Ending retained earnings = beginning retained earnings + net income - dividends.
C. Assets = liabilities + stockholders' equity.
D. Net cash flows = tot
C. Assets = liabilities + stockholders' equity.
70. Which financial statement reports a company's retained earnings?
A. Income statement.
B. Balance sheet.
C. Statement of cash flows.
D. All of the above.
B. Balance sheet.
71. Net income appears in which two financial statements?
A. Balance sheet and income statement.
B. Statement of stockholders' equity and balance sheet.
C. Income statement and statement of stockholders' equity.
D. Net income appears in only one financial
C. Income statement and statement of stockholders' equity.
72. Which of the following accounts appears in the statement of stockholders' equity?
A. Accounts Payable
B. Accounts Receivable
C. Common Stock
D. Supplies
C. Common Stock
73. Which of the following items would not appear in an income statement?
A. Delivery expense.
B. Accounts payable.
C. Service revenue.
D. Utilities expense.
B. Accounts payable.
74. Which of the following is not a balance sheet item?
A. Assets.
B. Retained Earnings.
C. Expenses.
D. Liabilities.
C. Expenses.
75. Which accounting amount best represents value created for stockholders during the current period?
A. Retained earnings.
B. Total assets.
C. Net income.
D. Stockholders' equity.
C. Net income.
76. Which accounting number has the single greatest impact on stock prices?
A. Total dividends.
B. Total assets.
C. Total revenues.
D. Net income.
D. Net income.
77. GAAP is an abbreviation for:
A. Generally authorized accounting procedures.
B. Generally applied accounting procedures.
C. Generally accepted auditing practices.
D. Generally accepted accounting principles.
D. Generally accepted accounting principles.
78. Generally Accepted Accounting Principles (GAAP) are best defined as:
A. Standards or methods for presenting financial accounting information.
B. Government-mandated rules that companies must follow.
C. Rules that best estimate profitability for a comp
A. Standards or methods for presenting financial accounting information.
79. Today, financial accounting and reporting standards in the United States are established primarily by the:
A. Securities and Exchange Commission.
B. International Accounting Standards Board.
C. Financial Accounting Standards Board.
D. U.S. Congress.
C. Financial Accounting Standards Board.
80. Financial reporting objectives do not include providing information:
A. Useful to investors and creditors in making decisions.
B. To determine market values, assess profit potential, and evaluate management.
C. Helpful to investors in predicting cash
B. To determine market values, assess profit potential, and evaluate management.
81. Of the following, the most important objective for financial reporting is to provide information useful for:
A. Predicting cash flows.
B. Determining taxable income.
C. Providing accountability.
D. Increasing future profits.
A. Predicting cash flows.
82. The International Accounting Standards Board:
A. Is governed by the U.S. Securities and Exchange Commission.
B. Can overrule the FASB when their policies disagree.
C. Promotes the use of high-quality, understandable global accounting standards.
D. Is
C. Promotes the use of high-quality, understandable global accounting standards.
83. Independent auditors express an opinion on the:
A. Fairness of financial statements.
B. Amount of income taxes a company owes to the government.
C. Quality of the company's products.
D. Quality of a company's workforce.
A. Fairness of financial statements.
84. The body of rules and procedures that guide the measurement and communication of financial accounting information is known as:
A. Standards of Professional Compliance (SPC).
B. Generally Accepted Accounting Principles (GAAP).
C. Generally Accepted Aud
B. Generally Accepted Accounting Principles (GAAP).
85. The independent, private-sector group that is primarily responsible for setting financial reporting standards in the United States is the:
A. FASB.
B. IASB.
C. SEC.
D. IRS.
A. FASB.
86. Which statement below best describes the objectives of financial accounting?
A. Provide information that helps predict cash flows.
B. Provide information about the economic resources, claims to resources and changes in resources and claims.
C. Provide
D. All of the above are correct.
87. The assumption that a business can continue to remain in operation into the future is the:
A. Monetary unit assumption.
B. Periodicity assumption.
C. Economic entity assumption.
D. Going concern assumption.
D. Going concern assumption.
88. The qualitative characteristic that says accounting information can influence users' decisions by allowing them to assess past performance is:
A. Timeliness.
B. Neutrality.
C. Confirmatory value.
D. Predictive value.
C. Confirmatory value.
89. The major underlying assumptions of accounting include all of the following except:
A. Economic entity.
B. Monetary unit.
C. Legal liability.
D. Going concern.
C. Legal liability.
90. The assumption that the assets and liabilities of the business are accounted for on the books of the company but not included in the records of the owner is the:
A. Monetary unit assumption.
B. Going concern assumption.
C. Economic entity assumption.
C. Economic entity assumption.
91. Accounting information that does not provide measurement bias in favor of a particular set of companies has the characteristic of:
A. Relevance.
B. Consistency.
C. Materiality.
D. Neutrality.
D. Neutrality.
92. If accounting information is considered to have faithful representation, then which of the following is true?
A. The information represents to users what it claims to represent.
B. The information follows conservatism principles and is also material.
A. The information represents to users what it claims to represent.
93. For accounting information to be relevant, it must have which of the following characteristics?
A. Predictive value or confirmatory value.
B. Large in amount and timely.
C. Comparability or consistency.
D. Freedom from material error, neutrality, or c
A. Predictive value or confirmatory value.
94. Materiality is based upon which factor(s)?
A. Timeliness of an item.
B. Amount and nature of an item.
C. Consistency of an item.
D. Relevance of an item.
B. Amount and nature of an item.
95. If a company has gone bankrupt, its financial statements likely violate the:
A. Periodicity assumption.
B. Monetary unit assumption.
C. Going concern assumption.
D. Economic entity assumption.
C. Going concern assumption.
96. The conceptual framework's qualitative characteristic of relevance includes:
A. Predictive value.
B. Verifiability.
C. Completeness.
D. Neutrality.
A. Predictive value.
97. The conceptual framework's qualitative characteristic of faithful representation includes:
A. Predictive value.
B. Neutrality.
C. Confirmatory value.
D. Comparability.
B. Neutrality.
98. Constraints on qualitative characteristics of accounting information include:
A. Freedom from material error.
B. Going concern.
C. Neutrality.
D. Cost effectiveness.
D. Cost effectiveness.
99. Primary qualitative characteristics of accounting information are:
A. Relevance and comparability.
B. Comparability and consistency.
C. Faithful representation and relevance.
D. Faithful representation and consistency.
C. Faithful representation and relevance.
100. Enhancing qualitative characteristics of accounting information include:
A. Relevance and comparability.
B. Comparability and consistency.
C. Faithful representation and relevance.
D. Cost effectiveness and materiality.
B. Comparability and consistency.
(pic) Balance Sheet
(pic) Statement of stockholders equity
(pic) Income Statement