Accounting multiple choice test 1 – Flashcards
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Sole proprietorship Partnership Corporation
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What are the three forms of business organization?
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Reduced legal liability for investors
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What is an advantage of corporations relative to partnerships and sole proprietorships?
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Corporation
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Easy transfer of ownership is a characteristic of which form of business organization?
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Sole proprietorships and partnerships
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In which forms of business organization are the owners personally liable for all the debts of the business?
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favorable tax treatment relative to a corporation
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The proprietorship form of business organization generally receives what?
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Sole proprietorships, corporations, and partnerships
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Which forms of business organization are considered to be separate accounting entities?
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1. What selling price for our product will maximize the company's net income? 2. Which product line is most profitable? 3. Is cash sufficient to pay dividends to stockholders?
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What questions will internal users want answered?
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Customers Labor unions Economic planners
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What are some external users of accounting data?
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True
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Taxing authorities are considered external users
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True
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Management is considered an internal user
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False
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Regulatory authorities are considered internal users
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True
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Present creditors are considered external users
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-Independence of auditors increased -penalties for fraudulent activity increased -Top management must now certify the accuracy of financial information
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What resulted from the Sarbanes-Oxley Act?
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The information system that identifies, records, and communicates the economic events of an organization to interested users
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What is the most appropriate and modern definition of accounting?
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Top management must certify the financial statements for their company
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What became required as a result of SOX?
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Operating Activities
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Paying interest expense and receiving interest revenue are examples of what?
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Financial activity
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The payment of dividends is an example of what?
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Financing, operating, investing
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What are the three primary business activities?
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Issuing shares of common stock
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What is an example of financing activity?
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Assets
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Resources owned by a business are referred to as what?
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Operating activities
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In terms of the principle types of business, paying salaries expense is an example of what?
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Expense
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What kind of classification is cost of goods sold?
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Interest Expense Service Expense Net income
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What things would appear on the income statement?
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Revenues - Expenses = Net Income
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How do you find net income?
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Liabilities + Stock. Eq. = Assets
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How do you find Assets?
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Assets - Stock. Eq. = Liabilities
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How do you find Liabilities?
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Assets - Liabilities = SE
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How do you find Stockholders' Equity?
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Net income Dividends Beginning retained earnings balance
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What would appear on the retained earnings statement?
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1. Income statement 2. Retained earnings statement 3. Balance sheet 4. Statement of cash flows
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In which sequence are the financial statements usually prepared?
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When revenues exceed expenses
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Net income will result during a time period when what happens?
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Balance sheet
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What statement presents information as of a specific point in time?
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Marketing activity
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How is the issuance of common stock reported on the statement of cash flows?
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The investing section
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What section of a cash flow statement shows the cash spent on new equipment during the past accounting period?
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Balance sheet
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What financial statement reports assets, liabilities, and stockholders' equity?
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Both the retained earnings statement and the balance sheet
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The ending retained earnings balance appears on what?
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Reports assets, liabilities, and stockholders' equity
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The balance sheet does what?
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Claims of owners
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Stockholders' Equity represents what?
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Notes to the financial statements
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The segment of a corporation's annual report that describes the corporation's accounting methods is the what?
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Auditor's opinion
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The segment of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is/are the what?
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A disclaimer of opinion
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When the auditor is satisfied that the financial statements are provide a fair representation of the company's financial position and results of operation in accordance with generally accepted accounting principles, the auditor will express what?
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An auditor's report A management discussion and analysis section Notes to the financial statements
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An annual report includes what?
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Management discussion and analysis
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Which section of the annual report presents highlights of favorable or unfavorable trends and identifies significant events and uncertainties affecting a company's ability to pay near-term obligations, and a company's ability to fund operations and expansion?
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Central government planners Private investors Tax authorities
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Which are considered to be primary users of financial statements in countries outside the U.S.?
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GAAP is rules based and IFRS is principles based.
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The most common description of IFRS as contrasted to GAAP is that:
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International Financial Reporting Standards.
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IFRS stand for
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Assets, Liabilities, Equity, Income, Expenses
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Which of the five elements of financial statements does the IASB's definitional structure recognize?
