Chapter 01 - Uses of Accounting Information and the Financial Statements

Chapter 01 - Uses of Accounting Information and the Financial Statements

TRUE/FALSE

1.The processing stage of accounting is accomplished by the recording of data.ANS: F PTS: 1 DIF: Easy OBJ: 1

NAT: AACSB Analytic | AICPA FN Measurement LOC: Recall KEY: Recording entries MSC: ACBSP-APC-01 -Purpose 2.Two major goals of business are to achieve profitability and to achieve liquidity.ANS: T PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Analytic | AICPA FN Measurement LOC: Recall KEY: Business goals MSC: ACBSP-APC-01 -Purpose 3.Profitability means having enough funds on hand to pay debts when they fall due.ANS: F PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Analytic | AICPA FN Measurement LOC: Recall KEY: Liquidity and current liabilities MSC: ACBSP-APC-16 -Current Liabilities Reporting 4.Earned income is a measure of profitability.ANS: T PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Analytic | AICPA FN Measurement LOC: Recall KEY: Profitability MSC: ACBSP-APC-09 -Financial Statements 5.Paying taxes to the government is an example of an operating activity.ANS: T PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Analytic | AICPA FN Measurement LOC: Comprehension KEY: Business activities MSC: ACBSP-APC-09 -Financial Statements 6.Obtaining funds from a bank is an example of a financing activity.ANS: T PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Analytic | AICPA FN Measurement LOC: Comprehension KEY: Business activities MSC: ACBSP-APC-09 -Financial Statements 7.Buying and selling goods and services are examples of financing activities.ANS: F PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Analytic | AICPA FN Measurement LOC: Comprehension KEY: Business activities MSC: ACBSP-APC-09 -Financial Statements Financial Accounting, (Internationa l Edition), 11e Marian Powers, Belverd Needles (Test Bank All Chapters, 100% Original Verified, A+ Grade) 1 / 4

© 2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of theU.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

8.The purchase of equipment is an example of a financing activity.ANS: F PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Analytic | AICPA FN Measurement LOC: Comprehension KEY: Business activities MSC: ACBSP-APC-09-Financial Statements 9.Management accounting focuses on internal decision making.ANS: T PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Analytic | AICPA BB Critical Thinking LOC: Recall

KEY: Management functions

MSC: ACBSP-APC-25-Managerial Characteristics/Terminology

10.A major function of management is to provide the accountant with relevant and useful information.ANS: F PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Communication | AICPA FN Reporting LOC: Recall KEY: Management functions MSC: ACBSP-APC-01-Purpose 11.Accounting ratios are never used as management performance measures.ANS: F PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Analytic | AICPA FN Reporting LOC: Recall KEY: Performance measures MSC: ACBSP-APC-23-Financial Statement Analysis 12.Financial accounting information is used primarily by management.ANS: F PTS: 1 DIF: Easy OBJ: 1

NAT: AACSB Communication | AICPA FN Decision Modeling

LOC: Recall KEY: Role of financial accountingMSC: ACBSP-APC-01-Purpose 13.The terms bookkeeping and accounting are not synonymous.ANS: T PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Analytic | AICPA FN Decision Modeling LOC: Recall KEY: Bookkeeping vs. accounting MSC: ACBSP-APC-01-Purpose 14.A company's management information system is a subsystem of its accounting information system.ANS: F PTS: 1 DIF: Easy OBJ: 1

NAT: AACSB Technology | AICPA FN Leveraging Technology

LOC: Recall KEY: Management information systems MSC: ACBSP-APC-01-Purpose 15.The modern definition of accounting focuses on how to do accounting rather than the role of accounting in making economic decisions.ANS: F PTS: 1 DIF: Easy OBJ: 1

NAT: AACSB Communication | AICPA FN Decision Modeling

LOC: Recall KEY: Accounting information and the Internet

MSC: ACBSP-APC-01-Purpose 2 / 4

© 2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

• The unintentional preparation of misleading financial statements is referred to as fraudulent financial

reporting.

ANS: F PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Ethics | AICPA BB Legal LOC: Recall KEY: Ethical reporting

MSC: ACBSP-APC-01-Purpose

• Fraudulent financial reporting can result from the misapplication of accounting principles.

ANS: T PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Ethics | AICPA BB Legal LOC: Recall KEY: Ethical reporting

MSC: ACBSP-APC-01-Purpose

• Depending on the circumstances, criminal penalties could be imposed on those who prepare fraudulent

financial statements.

ANS: T PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Ethics | AICPA BB Legal LOC: Recall KEY: Ethical reporting

MSC: ACBSP-APC-01-Purpose

• The Sarbanes-Oxley Act orders the Financial Accounting Standards Board (FASB) to hold Chief

Executive Officers (CEOs) and Chief Financial Officers (CFOs) responsible for the accuracy of their company's financial statements.

ANS: F PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Ethics | AICPA BB Legal LOC: Recall KEY: Ethical reporting

MSC: ACBSP-APC-01-Purpose

• Responsibility for ethical financial reporting rests solely with management.

ANS: F PTS: 1 DIF: Easy OBJ: 1 NAT: AACSB Ethics | AICPA BB Legal LOC: Recall KEY: Ethical reporting

MSC: ACBSP-APC-01-Purpose

• The primary external users of accounting information are investors and management.

ANS: F PTS: 1 DIF: Easy OBJ: 2 NAT: AACSB Communication | AICPA FN Reporting LOC: Recall KEY: Financial information users MSC: ACBSP-APC-01-Purpose

• Creditors are those who lend money to others or deliver goods and services before being paid.

ANS: T PTS: 1 DIF: Easy OBJ: 2 NAT: AACSB Communication | AICPA FN Reporting LOC: Recall KEY: Financial information users MSC: ACBSP-APC-01-Purpose 3 / 4

© 2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

• The Federal Reserve Board is an example of a labor union.

ANS: F PTS: 1 DIF: Easy OBJ: 2 NAT: AACSB Communication | AICPA FN Reporting LOC: Recall KEY: Financial information users MSC: ACBSP-APC-01-Purpose

• The Securities and Exchange Commission (SEC) is an accounting information user with a direct

financial interest.

ANS: F PTS: 1 DIF: Easy OBJ: 2 NAT: AACSB Communication | AICPA FN Reporting LOC: Recall KEY: Financial information users MSC: ACBSP-APC-01-Purpose

• Taxing authorities are considered accounting information users with a direct financial interest.

ANS: F PTS: 1 DIF: Easy OBJ: 2 NAT: AACSB Communication | AICPA FN Reporting LOC: Recall KEY: Financial information users MSC: ACBSP-APC-01-Purpose

• Regulatory agencies are considered information users with an indirect financial interest.

ANS: T PTS: 1 DIF: Easy OBJ: 2 NAT: AACSB Communication | AICPA FN Reporting LOC: Recall KEY: Financial information users MSC: ACBSP-APC-01-Purpose

• Accountants consider the euro to be the common unit of measure for all business transactions.

ANS: F PTS: 1 DIF: Easy OBJ: 3 NAT: AACSB Communication | AICPA FN Measurement LOC: Recall KEY: Money measure MSC: ACBSP-APC-06-Recording Transactions

• Payment to a creditor is an example of a nonexchange business transaction.

ANS: F PTS: 1 DIF: Easy OBJ: 3 NAT: AACSB Analytic | AICPA FN Measurement LOC: Recall KEY: Business transactions MSC: ACBSP-APC-06-Recording Transactions

• For accounting purposes, a business and its owners are considered the same entity.

ANS: F PTS: 1 DIF: Easy OBJ: 3 NAT: AACSB Communication | AICPA FN Reporting LOC: Recall KEY: Separate entity concept MSC: ACBSP-APC-01-Purpose

• Knowledge of the exchange rate is necessary to apply the money measure concept in case of

international transactions.

ANS: T PTS: 1 DIF: Easy OBJ: 3 NAT: AACSB Diversity | AICPA BB Global LOC: Recall KEY: Money measure MSC: ACBSP-APC-06-Recording Transactions

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