Chapter 17 – Understanding Accounting and Financial Information
248. 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.
Feedback: The bookkeeping function in the Accounting Cycle involves the recording of
transactions. The accounting function goes further and includes classifying, summarizing, and
interpreting the recorded information.
249. Sales receipts, purchase orders, and payroll records are all examples of accounting
transactions that would be recorded by a(n):
A. Auditor.
B. Forensic accountant.
C. Bookkeeper.
D. Purchasing agent.
Feedback: Sales receipts, purchase orders, and payroll records are original transaction
documents. Bookkeepers record the data from these documents into journals.
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250. Jasmine is categorizing journal entries in order to post to the ________.
A. income statement
B. balance sheet
C. working papers
D. ledger
Feedback: A ledger is a specialized accounting book in which information from the journal is
classified into specific categories and posted so managers can find all the information about
one account in the same place.
251. Which of the following is a key step in the accounting cycle?
A. Recording information into journals
B. Collecting data from customers
C. Forecasting expenses and revenues
D. Preparing the advertising message
Feedback: Steps in the accounting cycle include all of the following: (1) Categorize source
documents, (2) record transactions in journals, (3) post journal entries to the ledger, (4)
perform a trial balance, (5) prepare financial statements, and (6) analyze financial statements.
252.
Chapter 17 – Understanding Accounting and Financial Information
The main reason an accountant would conduct a trial balance is to:
A. Determine whether account figures in the ledger are correct and balanced.
B. Obtain an estimate of the amount of taxes the firm owes.
C. Ensure the audit was done correctly.
D. Verify the validity of last year’s balance sheet before beginning the next accounting
cycle.
Feedback: The accountant performs the trail balance, as a check to verify the accuracy of data
recorded in the account ledger.
253. Hap owns and operates a small business with only four full-time employees and less
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262. Oklahoma Chemicals plans to use its computers to post information from journals to the
ledger instantaneously. One obvious benefit of this technology is:
A. A reduction in the number of accountants required by the firm.
B. Less scrutiny from agencies such as the Internal Revenue Service.
C. To shift financial decision making from people to programmed technology.
D. Readily available financial information.
Feedback: Computerized accounting programs post information from journals
instantaneously so that financial information is readily available whenever the organization
needs it.
263.
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264.
Chapter 17 – Understanding Accounting and Financial Information
Johnson Products is a small manufacturing firm specializing in custom-order tool and
die work. A computerized accounting system would help Johnson Products by:
A. Making key accounting and financial decisions.
B. Helping management identify cash flow and other financial difficulties more quickly.
C. Eliminating the need to prepare financial statements and other reports.
D. Eliminating the need to perform the three middle steps of the accounting cycle.
Feedback: Computerized accounting programs post information from journals
instantaneously, permitting accountants to run financial statements and reports at a moment’s
notice.
265. 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.
266. 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
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270. A ___________ provides a summary of cash coming into and money going out of a
firm from operations activities, financing activities, and investing activities.
A. income statement
B. statement of cash flows
C. cash budget
D. cash receivables and payables report
271. The balance sheet is composed of the following types of accounts:
A. Revenue, expenses, and earnings.
B. Operating expenses, cash flow, and capital expenditures.
C. Capital, cost, and valuation.
D. Assets, liabilities, and owners’ equity.
272. A balance sheet lists assets in order of their _______________.
A. Dollar value, from smallest to largest
B. Date of acquisition, with the most recently acquired assets listed first
C. Liquidity, with the most liquid assets listed first
D. Income generating ability
273.
Chapter 17 – Understanding Accounting and Financial Information
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_________ refers to how quickly an asset can be converted into cash.
A. Liquidity
B. Velocity
C. Fundability
D. Accessibility
274. When companies owe money to creditors, suppliers, and others, these outstanding
amounts are recorded on the balance sheet as __________.
A. Contra-assets
B. Liabilities
C. Owners’ equity
D. Expenses
275. _______ refers to the value that stockholders or owners have in a company.
A. Assets
B. Liabilities
C. Owners’ equity
D. Contra receivables
276.
Chapter 17 – Understanding Accounting and Financial Information
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The fundamental accounting equation states: Assets = __________.
A. liabilities minus owners’ equity
B. liabilities plus receivables
C. payables plus cash equivalents
D. liabilities plus owners’ equity
277. 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
278. Resources that a firm owns are called:
A. Revenues.
B. Assets.
C. Equities.
D. Credits.
279.
Chapter 17 – Understanding Accounting and Financial Information
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The most liquid asset is:
A. Sales.
B. Cash.
C. Accounts payable.
D. Owners’ equity.
281. Debts that are due in one year or less are classified on the Balance Sheet as:
A. Current liabilities.
B. Bonds payable.
C. Callable bonds.
D. Immediate expenses.
282.
Chapter 17 – Understanding Accounting and Financial Information
The value of resources the firm owns, minus the amount of money the firm owes to
others = ____________.
A. liabilities
B. liquidity
C. leverage
D. owners’ equity
283. The _____ account on the Balance Sheet shows profits that the firm has reinvested in
the company.
A. retained earnings
B. stockholder’s equity
C. intangible assets
D. notes payable
284. Revenue, minus cost of goods sold =____________.
A. retained earnings
B. fundamental accounting equation
C. gross profit
D. net income
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291. The “bottom line” of an income statement shows the firm’s:
A. Retained earnings.
B. Gross profit.
C. Net income or net loss.
D. Owners’ equity.
292. Expenses a firm incurs for insurance, office salaries, and rent are classified as:
A. Selling expenses on an income statement.
B. General expenses on an income statement.
C. Current liabilities on a balance sheet.
D. General expenses on a cash flow statement.
293. Debts owed by a business are called ___________.
A. revenues
B. liabilities
C. equities
D. assets
294.
Chapter 17 – Understanding Accounting and Financial Information
FIFO and LIFO are two common:
A. depreciation strategies.
B. ways to structure a balance sheet.
C. inventory valuation methods.
D. current ratios.
295. The LIFO method of inventory valuation bases the cost of goods sold on the cost of:
A. Merchandise that has been held in inventory for the longest period of time.
B. Most recent merchandise purchased by the firm.
C. Actual units customers purchased.
D. Merchandise the firm acquired at the lowest cost.
296. _________ is the systematic write-off of the value of a tangible asset over its useful
life.
A. Expense structuring
B. Depreciation
C. Capital budgeting
D. Gross margin allocation