Intro to Business Chapter 17

Accounting recognizes that assets, such as machinery and buildings, lose value over time. Accountants will record a portion of the cost of an asset as an expense each year through the use of:
A. Asset valuation.
B. Asset audits.
C. Appreciation.
D. Depreciation.

D. Depreciation

The accounting profession follows generally accepted accounting principles as defined by __________________.
A. the GAAP
B. the PCAOB (Public Company Accounting Oversight Board)
C. the FASB (Financial Accounting Standards Board)
D. the Sarbanes-Oxley Act

C. the FASB (Financial Accounting Standards Board)

The __________ is a six-step procedure that results in the preparation and analysis of the major financial statements.
A. double-entry method
B. financial management process
C. financial performance appraisal
D. accounting cycle

D. accounting cycle

The current ratio is a type of ________ ratio.
A. leverage
B. profitability
C. activity
D. liquidity

D. liquidity

The __________ is an accounting statement that reports the financial condition of a firm at a specific point in time.
A. income statement
B. balance sheet
C. statement of cash flows
D. trial balance

B. balance sheet

The sixth and final step in the accounting cycle involves:
A. Performing a trial balance to verify that the accounting statements are internally consistent.
B. Auditing the books to ensure that they were prepared according to generally accepted accounting principles.
C. Preparing the income statement.
D. Analyzing major accounting statements to evaluate the financial condition of the firm.

D. Analyzing major accounting statements to evaluate the financial condition of the firm.

Your firm is a supplier to a major chain of discount stores. You have heard rumors that this chain of discount stores is in financial difficulty. Which financial ratios would indicate the discount store’s ability or inability to pay its short-term debts?
A. liquidity ratios
B. leverage ratios
C. activity ratios
D. profitability ratios

A. liquidity ratios

Which of the following ratios is a liquidity ratio?
A. inventory turnover ratio
B. acid-test ratio
C. debt to owners’ equity ratio
D. basic earnings per share

B. acid-test ratio

A firm’s efficient use of its assets in running the business is key to maintaining sufficient cash flow. Ratios that accountants utilize to measure the efficient use of assets are called ____________ ratios.
A. leverage
B. liquidity
C. activity
D. profitability

C. activity

FIFO and LIFO are two common:
A. depreciation strategies.
B. ways to structure a balance sheet.
C. inventory valuation methods.
D. current ratios.

C. inventory valuation methods.

_________ refers to how quickly an asset can be converted into cash.
A. Liquidity
B. Velocity
C. Fundability
D. Accessibility

A. Liquidity

The ______________ shows how the capital is structured in the business, including the value of assets and the amount the firm owes at a specific point in time.
A. income statement
B. balance sheet
C. statement of cash flows
D. trial balance

B. balance sheet

The accounting profession is divided into 5 key working areas, two of which are:
A. Auditing and managerial accounting.
B. Forecasting and logistical accounting.
C. Inventory control and budgeting.
D. Income accounting and expenditure accounting.

A. Auditing and managerial accounting.

An accountant who works for a single business or government agency is referred to as a:
A. Public accountant.
B. Private accountant.
C. Certified accountant.
D. Commission accountant.

B. Private accountant.

__________ earnings per share measures the amount of profit a firm earns per share of outstanding common stock when preferred stock, stock options, warrants and convertible debt securities are also taken into account.
A. Basic
B. Diluted
C. Restricted
D. Broad-based

B. Diluted

Jasmine is categorizing journal entries in order to post to the _______.
A. income statement
B. balance sheet
C. working papers
D. ledger

D. ledger

Which of the following would be classified as a general expense on an income statement?
A. Salaries paid to salespeople
B. Dividends paid to stockholders
C. Payments made for insurance
D. Costs associated with an advertising campaign

C. Payments made for insurance

Which of the following is an example of a financial transaction?
A. A firm purchases a fire insurance policy.
An internal auditor discovers an error in a firm’s inventory valuation.
A potential customer accesses a firm’s Web page.
A manager reviews the financial statements prepared by an accountant.

A. A firm purchases a fire insurance policy.

Generally, a high ___________ ratio could lead investors and creditors to view the company as being very risky.
A. debt to owners’ equity
B. acid-test
C. diluted earnings per share
D. inventory turnover

A. debt to owners’ equity

As U.S. firms focus on cost cutting in order to stay competitive with producers in low-wage countries, they will rely on __________ to create strategies to help reduce costs.
A. managerial accountants
B. financial accountants
C. government accountants
D. auditors

A. managerial accountants

A comparison of bookkeeping and accounting indicates that:
A. The two are virtually the same in practice.
B. Bookkeeping involves recording financial information, while accounting is concerned with classifying, summarizing, and interpreting this information.
C. Bookkeeping is more useful for small businesses while accounting is more useful for large businesses.
D. Accounting is a subsystem of the process of bookkeeping.

B. Bookkeeping involves recording financial information, while accounting is concerned with classifying, summarizing, and interpreting this information.

Leverage ratios indicate the extent to which ________ has been used to fund a business’s operations.
A. debt
B. equity
C. owner invested capital
D. profit

A. debt

__________ involves the review and evaluation of the records that are used to prepare the organization’s financial statements.
A. Auditing
B. Financial accounting
C. Managerial accounting
D. Certified bookkeeping

A. Auditing

________ is the monetary value that is received for goods sold, services rendered and money received from other sources.
A. Revenue
B. Gross margin
C. Net income
D. Cost of goods sold

A. Revenue

Earnings per share, return on sales, and return on equity are examples of:
A. leverage ratios.
B. liquidity ratios.
C. equity ratios.
D. profitability ratios.

D. profitability ratios.

A __________ is a specialized accounting book, where transactions are categorized according to type. For example, all utility transactions are recorded in the same category.
A. journal
B. trial balance
C. ledger
D. balance sheet

C. ledger

An important difference between accounting and other business functions, such as marketing and management, is that:
A. Accounting functions must be performed by an "outsider" (rather than by an employee of the business) in order to avoid conflicts of interest.
B. Accounting offers us insight into whether the business is financially sound.
C. Accounting involves mainly clerical activities and thus requires very little analysis.
D. Accounting deals exclusively with numbers.

B. Accounting offers us insight into whether the business is financially sound.

Company resources that are purchased with the intention that they will convert to cash within one year are:
A. Fixed assets
B. Current liabilities
C. Current assets
D. Owners’ equity

C. Current assets

During a period of rising prices, if a firm desires to report a low gross profit figure in hopes of reducing their income tax liability, the firm will use the __________ inventory valuation method.
A. FIFO (first in, first out)
B. LIFO (last in, first out)
C. sliding scale
D. average cost

B. LIFO (last in, first out)

The three important financial statements prepared by accountants are:
A. Ledger, journal, and trial balance.
B. Cash budget, capital budget, and master budget.
C. Revenue summary, expense summary, and consolidation statement.
D. Balance sheet, income statement, and statement of cash flows.

D. Balance sheet, income statement, and statement of cash flows.