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Chapter 01 Accounting in Business
MULTIPLE CHOICE QUESTIONS
1)
Accounting is an information and measurement system that identifies, records, and communicates
relevant, reliable, and comparable information about an organization's business activities.
A)
True
B)
False
2)
Recordkeeping, or bookkeeping, is the recording of transactions and events, either manually or
electronically. This is just one part of accounting.
A)
True
B)
False
3)
An accounting system captures relevant data about transactions and then classifies, records, and
reports data.
A)
True
B)
False
4)
Financial accounting is the area of accounting aimed at serving external users by providing them
with general-purpose financial statements.
A)
True
B)
False
5)
Internal operating activities include research and development, distribution, and human resources.
A)
True
B)
False
6)
The primary objective of managerial accounting is to provide general purpose financial statements
to help external users analyze and interpret an organization's activities.
A)
True
B)
False
7)
External auditors examine financial statements to verify that they are prepared according to
generally accepted accounting principles.
A)
True
B)
False
8)
External users include lenders, shareholders, customers, and regulators.
A)
True
B)
False
9)
Regulators often have legal authority over certain activities of organizations.
A)
True
B)
False
10)
Internal users include lenders, shareholders, brokers and nonexecutive employees.
A)
True
B)
False
11)
Opportunities in accounting include auditing, consulting, market research, and tax planning.
A)
True
B)
False
12)
Identifying the proper ethical path is usually easy.
A)
True
B)
False
13)
The Sarbanes-Oxley Act (SOX) requires each issuer of securities to disclose whether it has adopted
a code of ethics for its senior financial officers and the contents of that code.
A)
True
B)
False
14)
The fraud triangle asserts that the three factors that must exist for a person to commit fraud are
opportunity, pressure, and rationalization.
A)
True
B)
False
15)
The Sarbanes-Oxley Act (SOX) does not require public companies to apply both accounting
oversight and stringent internal controls.
A)
True
B)
False
16)
A partnership is a business owned by two or more people.
A)
True
B)
False
17)
Owners of a corporation are called shareholders or stockholders.
A)
True
B)
False
18)
In the partnership form of business, the owners are called stockholders.
A)
True
B)
False
19)
The balance sheet shows a company's net income or loss due to earnings activities over a period of
time.
A)
True
B)
False
20)
The Financial Accounting Standards Board is the governmental agency that sets both broad and
specific accounting principles.
A)
True
B)
False
21)
The business entity principle means that accounting information reflects a presumption that the
business will continue operating instead of being closed or sold.
A)
True
B)
False
22)
Generally accepted accounting principles are the basic assumptions, concepts, and guidelines for
preparing financial statements.
A)
True
B)
False
23)
The business entity assumption means that a business is accounted for separately from other
business entities, including its owner or owners.
A)
True
B)
False
24)
As a general rule, revenues should not be recognized in the accounting records when earned, but
rather when cash is received.
A)
True
B)
False
25)
Specific accounting principles are basic assumptions, concepts, and guidelines for preparing
financial statements and arise out of long-used accounting practice.
A)
True
B)
False
26)
General accounting principles stem from long-used accounting practices.
A)
True
B)
False
27)
A sole proprietorship is a business owned by one or more persons.
A)
True
B)
False
28)
Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.
A)
True
B)
False
29)
Understanding generally accepted accounting principles is not necessary to effectively use and
interpret financial statements.
A)
True
B)
False
30)
The International Accounting Standards board (IASB) has the authority to impose its standards on
companies around the world.
A)
True
B)
False
31)
Objectivity means that financial information is supported by independent, unbiased evidence; it
demands more than a person's opinion.
A)
True
B)
False
32)
The idea that a business will continue to operate instead of being closed or sold underlies the
going-concern assumption.
A)
True
B)
False
33)
According to the measurement (cost) principle, it is necessary for managers to report an
approximation of an asset's market value upon purchase.
A)
True
B)
False
34)
The monetary unit assumption means that all companies doing business in the United States must
express transactions and events in U.S. dollars.
A)
True
B)
False
35)
The International Accounting Standards Board (IASB) is the government group that establishes
reporting requirements for companies that issue stock to the public.
A)
True
B)
False
36)
A limited liability company offers the limited liability of a partnership or proprietorship and the tax
treatment of a corporation.
A)
True
B)
False
37)
A limited liability company offers the limited liability of a corporation and the tax treatment of a
partnership or proprietorship.
A)
True
B)
False
38)
The Securities and Exchange Commission (SEC) is a government agency that has legal authority to
establish GAAP.
A)
True
B)
False
39)
The three common forms of business ownership include sole proprietorship, partnership, and
non-profit.
A)
True
B)
False
40)
The three common forms of business ownership include sole proprietorship, partnership, and
corporation.
A)
True
B)
False
41)
The three major types of business activities are operating, financing, and investing.
A)
True
B)
False
42)
Planning is a part of each business activity (Operating, investing, and financing), and gives each
activity meaning and focus.
A)
True
B)
False
43)
Financing activities provide the means organizations use to pay for resources such as land,
buildings, and equipment.
A)
True
B)
False
44)
Investing activities are the means an organization uses to pay for resources like land, buildings, and
equipment to carry out its plans.
A)
True
B)
False
45)
Investing activities are the acquiring and disposing of resources that an organization uses to acquire
and sell its products or services.
A)
True
B)
False
46)
Owner financing refers to resources contributed by creditors or lenders.
A)
True
B)
False
47)
Revenues are increases in equity (via net income) from a company's sales of products and services
to customers.
A)
True
B)
False
48)
A net loss occurs when revenues exceed expenses.
A)
True
B)
False
49)
Net income occurs when revenues exceed expenses.
A)
True
B)
False
50)
Liabilities are the owner's claim on assets.
A)
True
B)
False
51)
Assets are the resources a company owns or controls that are expected to yield future benefits.
A)
True
B)
False
52)
Owner withdrawals are subtracted in the calculation of net income, as expenses.
A)
True
B)
False
53)
The accounting equation can be restated as: Assets - Equity = Liabilities.
A)
True
B)
False
55)
Owner's investments are increases in equity from a company's earnings activities.
A)
True
B)
False
56)
Every business transaction leaves the accounting equation in balance.
A)
True
B)
False
57)
An external transaction is an exchange within an entity that may or may not affect the accounting
equation.
A)
True
B)
False
58)
From an accounting perspective, an event is a happening that affects the accounting equation, but
cannot be measured.
A)
True
B)
False
59)
Owner's equity is increased when cash is received from customers in payment of previously
recorded accounts receivable.
A)
True
B)
False
60)
An owner's investment increases equity via net income.
A)
True
B)
False
