Financial Accounting:

Testbank For

Financial Accounting:

Reporting, Analysis and Decision Making 5 th Edition (Australia) by Carlon et al.Shirley Rosina Mladenovic Palm Mitrione Kirk Wong 1 / 4

Chapter 1: An introduction to accounting

1.1

Chapter 1: An introduction to accounting

Multiple-choice questions

• The provision of accounting information within the business entity is referred to as:
• financial accounting.

*b. management accounting.

• commercial accounting.
• public accounting.

Answer: b

Learning objective 1.1 – Explain the business context and the need for decision making.Feedback: The provision of information within the business entity is referred to as management accounting.

2. The accounting process includes which steps:

*a. identifying, measuring, recording and communicating.

• identifying, recording, communicating and justifying.
• measuring, adjusting, recording and communicating.
• measuring, evaluating, recording and communicating.

Answer: a

Learning objective 1.2 – Define accounting, describe the accounting process and define the diverse role of accountants.

Feedback: The four steps of the accounting process are identifying, measuring,

recording and communicating relevant transactions and events.

3. The sole trader form of business organisation:

• must have at least two owners.
• combines business records with the personal records of the owner.

*c. results in the owner having personal liability for the debts of the business.

• is a separate legal entity.

Answer: c

Learning objective 1.3 – Explain the characteristics of the main forms of business organisation.Feedback: Under the sole trader business structure the owner of the business has no separate legal existence from the business. The owner of the business is therefore personally liable for the debts of the business.

. 2 / 4

Testbank to accompany Financial Accounting: Reporting, Analysis and Decision Making 5e 1.2

4. The majority of business in Australia is transacted by:

• sole traders.
• partnerships.
• government units.

*d. companies.

Answer: d

Learning objective 1.3 – Explain the characteristics of the main forms of business organisation.

Feedback: The majority of business in Australia is transacted by companies.

5. One advantage of the company form of business structure is that:

• it has limited life.
• the liability of the owners is unlimited.

*c. it provides the owners with shared control.

• it makes higher profits.

Answer: c

Learning objective 1.3 – Explain the characteristics of the main forms of business organisation.Feedback: A company is a separate legal entity and has an indefinite life that is independent of the shareholders. Shareholders of most companies have limited liability for the debts of the company and if there is more than one director, the decision making is usually a shared responsibility.

6. A company has the following set of characteristics:

• provides owners with shared control, simple to establish.
• simple to set up, owner retains control.

*c. complex to set up, provides owners with shared control.

• provides owners with shared control, unlimited liability.

Answer: c

Learning objective 1.3 – Explain the characteristics of the main forms of business organisation.Feedback: There are initial costs associated with incorporation for a company and then ongoing fees and regulations to comply with. If there is more than one director, then the decision making is usually a shared responsibility. Shareholders of most companies have limited liability for the debts of the company.

. 3 / 4

Chapter 1: An introduction to accounting

1.3

• Which of the following statements is false?

*a. The definition of reporting entity forms the foundation of the Conceptual Framework as all other elements flow from it.

• A reporting entity must prepare general purpose financial reports that comply with

accounting standards.

• Political or economic importance is a factor in determining whether an entity is a

reporting entity.

• The objective of general purpose financial reports is to provide information that is

useful to existing and potential investors, creditors and other external users.

Answer: a

Learning objective 1.4 – Understand the Conceptual Framework and the purpose of financial reporting.Feedback: The objective of general purpose reporting forms the foundation of the Conceptual Framework. If we know why we need to report then who needs to report can be determined and then what and how the information is to be reported follow. All the other statements are correct.

8. The purpose of financial reports is to:

*a. provide information for decision making.

• report profit.
• pay tax to the ATO.
• report to the bank.

Answer: a

Learning objective 1.4 – Understand the Conceptual Framework and the purpose of financial reporting.Feedback: The purpose of financial reports is to provide information for decision making.

• Who of the following would not be considered an internal user of accounting data

for the XYZ Company Ltd?

• the chief executive officer of the company.
• a production manager.
• the company's sales manager.

*d. a share investor.

Answer: d

Learning objective 1.5 – Identify the users of financial reports and describe users' information needs.Feedback: Internal users of accounting information are managers who plan, organise and control the business.

.

• / 4