Chapter 01 Introduction to Accounting

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Chapter 01

Introduction to Accounting

True / False Questions

1.Accounting is an information and measurement system that identifies, records, and communicates financial information to users.
TrueFalse

2.Bookkeeping is the same as accounting.
TrueFalse

3.Bookkeeping is the recording of transactions and events and is only part of accounting.
TrueFalse

4.Accounting is one way important information about businesses is reported to decision makers.
TrueFalse

5.Internal reports are subject to the same rules as external reports as consistency is important and makes information more useful to the user.
TrueFalse

6.Accounting software packages reduce the time, effort and cost of recordkeeping.
TrueFalse

7.Internal auditors assess an employer's procedures and controls over recordkeeping activities and physical control of a firm's assets.
TrueFalse

8.Internal controls are procedures designed to protect company property, ensure reliable reports, promote efficiency and ensure employees follow company policies.
TrueFalse

9.Accounting information systems collect, process and report information to decision makers.
TrueFalse

10.Managerial accounting is an area of accounting that provides internal reports to assist in the decision-making needs of internal users.
TrueFalse

11.The primary objective of financial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities.
TrueFalse

12.Opportunities in accounting include auditing, management consulting, and tax planning.
TrueFalse

13.The Financial Accounting Standards Board is the private group that sets both broad and specific accounting principles.
TrueFalse

14.Generally accepted accounting principles are the basic assumptions, concepts, and guidelines for preparing financial statements.
TrueFalse

15.Generally accepted accounting principles were established to improve conformity in financial reporting by making information relevant, reliable and comparable.
TrueFalse

16.US accounting practices are viewed as rule-based as financial statements are prepared using technical, specific and detailed rules.
TrueFalse

17.External auditors examine financial statements to determine if they are prepared according to generally accepted accounting principles.
TrueFalse

18.External users include lenders, shareholders, customers, and regulators.
TrueFalse

19.Internal users include lenders, shareholders, brokers and managers.
TrueFalse

20.Identifying the proper ethical path is easy.
TrueFalse

21.Ethics are not important to decision making in accounting.
TrueFalse

22.Guidelines for ethical decision making requires recognition of an ethical concern and consideration of good and bad consequences.
TrueFalse

23.Good ethics are good business.
TrueFalse

24.State ethics codes require CPAs who audit financial statements to disclose areas where those statements fail to comply with GAAP.
TrueFalse

25.Public accounting provides the majority of the career opportunities.
TrueFalse

26.The majority of accounting career opportunities are in the private sector.
TrueFalse

27.Understanding generally accepted accounting principles is not necessary to use and interpret financial statements.
TrueFalse

28.The Sarbanes-Oxley Act requires issuers of securities to disclose the adoption of an ethics code.
TrueFalse

29.The Securities and Exchange Commission (SEC) is an arm of the federal government that establishes reporting requirements for companies that issue stock to the public.
TrueFalse

30.The Financial Accounting Board is the group that establishes reporting requirements for companies that issue stock to the public.
TrueFalse

31.A limited liability company is treated like a corporation for liability and tax purposes.
TrueFalse

32.Separate legal status means that a corporation can conduct business with the rights, duties and responsibilities as a person.
TrueFalse

33.Separate legal status means that owners, called shareholders are not personally liable for corporate acts and debts.
TrueFalse

34.Three forms of business include service providers, wholesalers and retailers.
TrueFalse

Multiple Choice Questions

35.The primary objective of financial accounting is:
A.To serve the decision-making needs of internal users.
B.To provide financial statements to help external users analyze an organization's activities.
C.To monitor and control company activities.
D.To provide information on both the costs and benefits of looking after products and services.
E.To know what, when, and how much to produce.

36.External users of accounting information include:
A.Shareholders.
B.Customers.
C.Creditors.
D.Government regulators.
E.All of these.

37.Career opportunities in accounting include:
A.Auditing.
B.Management consulting.
C.Tax accounting.
D.Cost accounting.
E.All of these.

38.Internal users of accounting information include:
A.Shareholders.
B.Managers.
C.Lenders.
D.Suppliers.
E.Customers.

39.Accounting is an information and measurement system that:
A.Identifies business activities.
B.Records business activities.
C.Communicates business activities.
D.Helps people make better decisions.
E.All of these.

40.Accounting software:
A.Has replaced the need for accountants.
B.Has not changed the work that accountants do.
C.Has improved clerical accuracy.
D.Has replaced the need for decision makers.
E.Is only available to large corporations.

41.The area of accounting aimed at serving the decision-making needs of internal users is:
A.Financial accounting.
B.Managerial accounting.
C.External auditing.
D.SEC reporting.
E.Bookkeeping.

42.The financial statements prepared for external users is often referred to as
A.The books.
B.Integrated financial statements.
C.Statements of financial position.
D.General purpose financial statements.
E.Proforma financial statements.

43.The organization responsible for overseeing the work of external auditors is the:
A.FASB.
B.SEC.
C.PCAOB.
D.GAAP.
E.AICPA.

44.Career opportunities in accounting include:
A.Budgeting.
B.Auditing.
C.Cost accounting.
D.Internal Auditing.
E.All of these.

45.Accounting certifications include the:
A.Certified Public Accountant.
B.Certified Management Accountant.
C.Certified Internal Auditor.
D.Certified Bookkeeper.
E.All of these.

46.A Certified Public Accountant.
A.Must meet education and experience requirements.
B.Must pass an examination.
C.Must exhibit ethical character.
D.May also be a Certified Management Accountant.
E.All of these.

47.Ethical behavior:
A.Requires that auditors' pay not depend on the figures in the client's reports.
B.Encourages auditors to invest in businesses they audit.
C.Does not affect external users.
D.Is rarely an issue in business.
E.All of these.

48.The rules adopted by the accounting profession as guides in preparing financial statements are:
A.Comprised of both general and specific principles.
B.Known as generally accepted accounting principles.
C.Abbreviated as GAAP.
D.Intended to make information in financial statements relevant, reliable, and comparable.
E.All of these.

49.The board of directors report to
A.Shareholders.
B.Lenders.
C.Management.
D.SEC.
E.All of these.

50.The committee that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the:
A.AICPA.
B.FASB.
C.CAP.
D.SEC.
E.IASB.

51.The private board that currently has the authority to establish generally accepted accounting principles is the:
A.APB.
B.FASB.
C.AAA.
D.AICPA.
E.SEC.

52.Rules adopted by the accounting profession to make information relevant, reliable and comparable:
A.Are comprised of both general and specific principles.
B.Are known as generally accepted accounting principles.
C.Are abbreviated as GAAP.
D.Are established by FASB and SEC.
E.All of these.

53.In order to be useful, accounting information must be
A.Reliable.
B.Relevant.
C.Conform to GAAP.
D.Both a and b.
E.All of these.

54.Generally accepted accounting principles:
A.Are practices adopted by accountants to make accounting easier.
B.Are only necessary when convenient.
C.Can be overruled if approved by the SEC.
D.Strive to make information relevant, reliable and comparable.
E.None of these.

55.The International Accounting Standards Board (IASB)
A.Hopes to create harmony among accounting practices of different countries.
B.Is the government group that establishes reporting requirements for companies that issue stock to the public.
C.Has the authority to impose its standards on companies.
D.Is the only source of generally accepted accounting principles (GAAP).
E.Only applies to companies that are members of the European Union.

56.Accounting
A.Is an information and measurement system.
B.Identifies, records, and communicates information about business activities.
C.Helps people make better decisions.
D.Provides information about a company's performance.
E.All of these.

57.Examples of social responsibility include:
A.Donating computers to a local elementary school.
B.Enacting stricter production-pollution standards.
C.Sponsoring a summer free-lunch program.
D.Improving lighting in a production room.
E.All of these.

58.Ethics:
A.Are beliefs that separate right from wrong.
B.And law often coincide.
C.Help to prevent conflicts of interest.
D.Are critical in accounting.
E.All of these.

Essay Questions

59.What are the author's recommended three steps for making a good ethical decision?

60.What aspects of business involve accounting?

61.Explain why accounting is referred to as "the language of business".

62.What is social responsibility?

63.What is the purpose of the internal controls in a company?

64.What are some examples of how an organization can act socially responsible?

65.Explain the role of accounting in the information age.

66.Explain the flow of accounting in a business's activities.

67.What role does technology play in the accounting function?

68.Identify several opportunities in accounting and its related fields.

69.Identify the users and uses of accounting information.

70.What are two questions that an owner might be able to answer by looking at accounting information?

71.Explain why ethics are an integral part of accounting.

72.Identify the two main groups involved in establishing generally accepted accounting principles.

73.How do the information needs of external users such as lenders differ from an external auditor?

Fill in the Blank Questions

74.______is the recording of financial transactions and events, either manually or electronically.
______

75.______is the information and measurement system that identifies, records, and communicates relevant information about a company's business activities.
______

76.______are those that use accounting information for the purpose of managing the organization.
______

77.______are beliefs that separate right from wrong.
______

78.______is the recording of transactions or events, and is just one part of accounting.
______

79.______users of accounting information are not directly involved in running the organization.
______

80.______is the area of accounting aimed at serving external users.
______

81.Managerial Accounting is the area of accounting mainly aimed at serving the decision-making needs of the ______.
______

82.______is the federal agency that sets reporting rules for organizations that sell ownership shares to the public.
______

83.Shareholders are owners of a corporation and typically elect ______to oversee their interests in the corporation.
______

84.______are procedures set up to protect company property and equipment, ensure reliable accounting reports, promote efficiency, and encourage adherence to company policies.
______

85.A primary purpose of ______is to make information in financial statements relevant, reliable and comparable.
______

86.______is the independent group of full-time members responsible for setting the rules of accounting.
______

87.Accounting is an ______that identifies, records and communicates relevant, reliable and comparable information about an organization's economic activities.
______

88.International Accounting Standards Board is the group that works to identify ______and encourages global acceptance.
______

Chapter 01 Introduction to Accounting Answer Key

True / False Questions

1.Accounting is an information and measurement system that identifies, records, and communicates financial information to users.
TRUE