Chapter 17 – Understanding Accounting and Financial Information
Before starting his landscape business, Andrew took a marketing class at the local
Community College. He decided that his time would be better utilized in this class
because if he could learn to sell his services well, the revenues and profits would follow.
Your assessment of his plan might include which of the following:
A. Andrew understands that Marketing is the life-blood of the company, and he is right
on track with his approach.
B. Andrew has elected to operate like a virtual company and leave various parts of the
business including accounting, environmental trends scanning, and management to
outsourcers.
C. Andrew knows that increasing revenues will always keep the business profitable and
in a positive cash position.
D. Andrew needs to realize that the ability to understand and interpret financial
statements provided by his accountant might enhance his profits.
Feedback: It is almost impossible to effectively run a business without being able to read,
understand, and analyze accounting reports and financial statements.
203. Phil O’Keefe is opening a small sports store in his town. At the advice of a friend who is
a bookkeeper, he keeps the receipts of everything he purchases for the business in the
bottom drawer of his desk, along with all other business expenses, such as his retail
license, his rent expense, and insurance expense. You suggest that ________.
A. Phil continues with this procedure, but only until the store opens, at which time he
will need an additional drawer for his sales transactions.
B. Phil invests some time in exploring an accounting system that will make it easier to
classify and summarize accounting information.
C. Phil continues with this procedure because there is very little difference between one
expense and another.
D. Phil stops wasting valuable time saving the receipts because accountants only record
sales transactions.
Feedback: It is almost impossible to effectively run a business without utilizing an accounting
system to record, classify, and summarize financial events and transactions.
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204. Given that measuring a firm’s financial health is important to its survival, which of the
following strategies is good advice for a person just starting a business?
A. Create a method for keeping your books that makes sense to you. Outside agencies
such as creditors and suppliers will not evaluate you by the way you keep books.
B. All transactions are important. Separating transactions only serves to create a
perception that some transactions are of lesser importance than others.
C. Accounting systems used by big business are not suitable for small businesses.
D. Select an accounting system that helps you make decisions, and helps you report
information to others outside your firm.
Feedback: It is almost impossible to effectively run a business without utilizing an accounting
system to record, classify, and summarize financial events and transactions. We use our
accounting systems to help make well-informed decisions, as well as to report financial
information about the firm to interested stakeholders.
205. 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.
206.
Chapter 17 – Understanding Accounting and Financial Information
The area of accounting that provides managers inside the organization with information
they need to make decisions is called:
A. Tax accounting.
B. Managerial accounting.
C. Informational accounting.
D. Financial accounting.
207. The preparation of financial statements for people outside the firm (creditors, unions,
suppliers, and others) is the goal of:
A. Auditing.
B. Financial accounting.
C. Managerial accounting.
D. Cost accounting.
208. A(n) __________ provides accounting services to individuals or firms on a fee basis.
A. contract accountant
B. account agent
C. public accountant
D. independent accountant
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215. 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
216. Important provisions of the Sarbanes-Oxley Act:
A. Approve corporate loans to directors of the company.
B. Encourage the destruction of financial documents.
C. Require the CEO and CFO of corporations to certify the accuracy of financial reports.
D. Encourage outside CPA firms to deliver several services to their clients, including
auditing services and consulting services.
Feedback: The Sarbanes-Oxley Act includes several key provisions. It disapproves of
corporate loans to director; it disapproves of CPA firms providing both auditing and
consulting services to clients. It considers the destruction of important financial documents as
a crime that can result in felony charges.
217.
Chapter 17 – Understanding Accounting and Financial Information
The __________ sets accounting standards used in government accounting.
A. Federal Accounting Review Board
B. Governmental Accounting Standards Board
C. Academy of Public Sector Accountants
D. Federal Reserve Board
Feedback: The U.S. government has its own agency that defines accounting standards for
government accountants. It is known as the GASB (Governmental Accounting Standards
Board).
218. Benjamin works in the accounting department for a textbook publishing firm preparing
budgets and reporting production costs. He is a:
A. Managerial accountant.
B. Financial accountant.
C. Tax accountant
D. Auditor.
Feedback: Managerial accounting provides information to managers within an organization to
assist them in decision-making.
