Business Essentials, 12e (Ebert/Griffin)
Chapter 15 The Role of Accountants and Accounting Information
1) Which of the following terms refers to the comprehensive system for collecting, analyzing,
and communicating financial information?
A) Bookkeeping
B) Accounting
C) Controlling
D) Auditing
E) Budgeting
2) Which of the following refers to the rules and procedures governing the content and form of
financial reports?
A) National bookkeeping standards
B) Core competencies for accounting
C) Accounting and financial rules
D) National guidelines of accounting principles
E) Generally accepted accounting principles
3) Which of the following terms refers to the recording of financial transactions?
A) Bookkeeping
B) Finance
C) Controlling
D) Budgeting
E) Auditing
4) Which of the following terms refers to the examination of a company’s accounting system to
determine whether its financial reports fairly represent its operations?
A) Financial analysis
B) Forensic accounting
C) Portfolio analysis
D) Audit
E) Preliminary investigation
5) Which are the two major fields of accounting?
A) Managerial and forensic
B) Financial and managerial
C) Bookkeeping and advisory
D) Corporate and individual
E) Public and private
6) Which of the following bodies formulates the generally accepted accounting principles
(GAAP) ?
A) Accounting Disclosure Board
B) Financial Accounting Standards Board
C) Association of Certified Fraud Examiners
D) Securities and Exchange Commission
E) CPA Vision Project
7) Which of the following bodies requires firms to file disclosures so potential investors have
valid information?
A) Accounting Disclosure Board
B) Financial Accounting Standards Board
C) Association of Certified Fraud Examiners
D) Securities and Exchange Commission
E) American Institute of Certified Public Accountants
8) Which of the following BEST describes a certified fraud examiner?
A) A specialized managerial accountant concerned with issues of fraud
B) A specialized certified public accountant concerned with issues of fraud
C) A specialized forensic accountant concerned with issues of fraud
D) An accounting agent for the Securities and Exchange Commission concerned with issues of
fraud
E) An accounting agent provided by the Sarbanes-Oxley Act of 2002 concerned with issues of
fraud
9) Which of the following areas of the Certified Fraud Examiner (CFE) exam includes why
people commit fraud and a professional code of ethics?
A) Fraud prevention and deterrence
B) Financial transactions
C) Fraud investigation
D) Fraud litigation
E) Legal elements of fraud
10) What do businesses use to identify, record, and retain financial information and includes the
people, reports, procedures and other resources needed to compile transactions?
A) Accounting information systems
B) Financial accounting
C) Bookkeeping
D) Accounting
E) Managerial accounting
11) How do certified public accountants ensure a company’s financial reports really represent its
operations?
A) By reviewing GAAP standards
B) By conducting an audit
C) Through the filing of tax information
D) By acting as consultants to noncertified accountants
E) By acting as advisory to senior management
12) What is the goal of the CPA Vision Project?
A) To eradicate fraud in public companies
B) To increase the role of CPAs in providing consulting services to corporate managers
C) To better identify core competencies needed for noncertified public accountants in the public
sector
D) To better define the role of accountants in the world economy
E) To lobby for laws that better support the accounting field and eliminate fraud
13) Which type of accountant uses audits to assist in the investigation of companies and as
litigation support in crimes against companies?
A) Management accountants
B) Private accountants
C) Forensic accountants
D) Financial accountants
E) Controllers
14) Which of the following requires auditor rotation by prohibiting the same person from being
the lead auditor for more than five consecutive years?
A) The Association of Certified Fraud Examiners
B) The Securities and Exchange Commission
C) The American Institute of Certified Public Accountants
D) The Financial Accounting Standards Board
E) Sarbanes-Oxley Act of 2002
15) Which of the following is a designation for those who have passed the IMA’s experience and
examination requirements?
A) Certified management accountant (CMA)
B) Certified public accountant (CPA)
C) Controller
D) Private accountant
E) Forensic accountant
16) Who is responsible for ensuring the accounting information system provides the reports and
statements needed for management planning and decision making?
A) Auditor
B) Controller
C) Fraud examiner
D) Managerial accountant
E) Bookkeeper
17) Those accountants who are hired by firms as salaried employees and who specialize in areas
such as financial planning, internal auditing, and taxation are called
A) forensic accountants.
B) certified management accountants.
C) private accountants.
D) certified public accountants.
E) fraud examiners.
18) In addition to help preparing tax returns, what benefit can a tax service offer a business?
A) Tax planning
B) Litigation advice
C) State certification
D) Personal financial planning
E) Advice on corporate mergers
19) An audit examines whether a firm’s financial statement conforms to generally accepted
accounting principles.
20) Bookkeeping is a comprehensive system for collecting, analyzing, and communicating
financial information.
21) Due to current concerns over accounting fraud, certified public accountants are now licensed
by the Securities and Exchange Commission.
22) In order to increase the quality of current accountants, the CPA Vision Project has re-
asserted the ability to use and calculate large amounts of numerical data as a primary
competency for accountants.
23) It is currently very common that a CPA who is hired to audit a firm’s finances will also be
hired to help design a more efficient financial information system.
24) A key component of the Sarbanes-Oxley Act of 2002 was increased government oversight
over the certification examinations given by the accounting professional organizations such as
the Institute of Management Accountants.
25) In the private accounting field, certified management accountants use accounting to
investigate and support litigation in crimes against companies.
26) A firm’s controller is often the firm’s chief accounting officer.
27) A tax service can provide management advisory services ranging from personal financial
planning to planning corporate mergers.
28) Give three examples of management advisory services.
29) For what types of organizations do forensic accountants work?
30) Identify the potential users of accounting information.
31) Discuss the role of a private accountant within large and small firms.
32) Which of the following terms refers to any economic resource that is expected to benefit a
firm or individual who owns it?
A) Asset
B) Liability
C) Equity
D) Account
E) Deposit
33) Which of the following terms refers to the amount of money that owners would receive if
they sold all of a company’s assets and paid all of its liabilities?
A) Asset
B) Owners’ equity
C) Inventory
D) Profit
E) Credit
34) Which of the following describes a liability?
A) The potential profit from selling a firm’s assets and settling all of its debts
B) A debt owed by a firm to an outside organization or individual
C) Any economic resource expected to benefit a firm or an individual who owns it
D) Any economic deficit expected to cost a firm or an individual who owns it
E) The amount of money originally invested in a business by its owners
35) A company has an assets-to-liabilities ratio of 3:2 and total assets worth $6 million. What is
its owners’ equity?
A) $1 million
B) $2 million
C) $4 million
D) $9 million
E) $12 million
36) How much profit does a company which has a total of $5 million invested by its owners and
$4 million in liabilities need to make in order to have an assets-to-liabilities ratio of 2:1?
A) $2 million
B) $3 million
C) $5 million
D) $7 million
E) $8 million
37) Which of the following represents the accounting equation?
A) Assets = Liabilities + Owners’ Equity
B) Owners’ Equity = Assets + Liability
C) Liability = Assets + Owners’ Equity
D) Assets = Liabilities – Owners’ Equity
E) Assets = Liabilities × Owners’ Equity
38) Why is a company’s owners’ equity important for investors and lenders?
A) Owners’ equity indicates potential profit.
B) Owners’ equity determines how quickly liabilities will increase.
C) Owners’ equity determines how much will be paid out as dividends.
D) Owners’ equity indicates how much the owner has invested in the company.
E) Owners’ equity indicates the level of security.
39) A company with a very high amount of liabilities will always find it more difficult to secure
loans than a company with a very low amount of liabilities.
40) The percentage of liabilities in a company’s assets plus the percentage of owners’ equity in its
assets is always equal to 100.
41) Owners’ equity is net worth minus liabilities.
42) If a company’s assets exceed its liabilities, owners’ equity is negative.
43) What two sources of capital make up owners’ equity?
44) What is the accounting equation?
45) What distinguishes the two most commonly used categories of owners’ equity?
A) The amount of equity within each type of asset—current versus fixed and intangible
B) The financial form of the equity—cash investments versus stock and bond investments
C) The source of the equity—paid-in capital versus retained earnings
D) The use of the equity—invested versus saved
E) The age of the equity—older investments and earnings versus newer investments and earnings
46) What are the major categories within an income statement?
A) Operating costs and profits, investing costs and profits, and financing costs and profits
B) Current revenue, long-term revenue, and net revenue
C) Revenue, sales, and income
D) Assets, liabilities, and owners’ equity
E) Revenues, cost of revenues, operating expenses, and net income
47) Which of the following is the difference between revenues and the cost of revenues?
A) Net income
B) Gross profit
C) Accounts payable
D) Interest expense
E) Cash flow
48) Which of the following BEST demonstrates cash flow from operations?
A) Transactions involved in buying and selling goods and services
B) Net cash used in or provided by investment
C) Cash flow from borrowing or issuing stock
D) Outflows for payments of dividends
E) Inflows of cash that will be used to repay borrowed money
49) Which of the following is considered to be the most important internal financial statement
for planning, controlling, and decision making?
A) Income statement
B) Flow of cash statement
C) Balance sheet
D) Budget
E) Statement of projected earnings
50) Which of the following statements BEST describes the difference between current and long-
term liabilities?
A) Current liabilities are debts that need to be paid immediately, whereas long-term liabilities do
not.
B) Current liabilities are those which will cost less in debt interest than long-term liabilities.
C) Current liabilities are debts that are settled sooner than long-term debts.
D) Current liabilities are debts on tangible assets, whereas long-term liabilities are debts on
intangible assets.
E) Current liabilities are debts on current assets, whereas long-term liabilities are debts on fixed
and intangible assets.
51) Which of the following refers to the financial statement detailing a firm’s assets, liabilities,
and owners’ equity?
A) Income statement
B) Statement of cash flow
C) Balance sheet
D) Expense report
E) Annual budget
52) Which of the following describes assets such as land, building, and equipment?
A) Liquid assets
B) Fixed assets
C) Intangible assets
D) Current assets
E) Limited assets
53) Which of the following BEST describes depreciation?
A) The process of increasing the value of fixed assets over time
B) The process of deducting operating expenses from the value of fixed assets
C) The process of reducing the value of fixed assets over time
D) The process of distributing the cost of liabilities over time
E) The process of distributing the cost of intangible assets over time
54) Which of the following describes assets such as patents and trademarks?
A) Liquid assets
B) Fixed assets
C) Intangible assets
D) Current assets
E) Limited assets
55) Which of the following terms refers to the amount paid for an existing business beyond the
value of its other assets?
A) Goodwill
B) Excess compensation
C) Licensing
D) Asset promotion
E) Liability deduction