POBF Nature of Accounting 6.01

The process of keeping the financial records of a business is known as

• accounting

• controlling

• financing

• bookkeeping

The overall purpose of accounting is to

• maintain accurate reports

• compile the business’s expenses

• keep track of sales

• control the finances of the business

Why are accurate accounting records important to a business?

• They prevent any financial losses

• They show the business how it is doing

• They increase the return on investments

• They give the business an image of success

Which of the following groups makes regular use of a business’s managerial accounting information:

• Managers

• Customers

• Creditors

• Investors

A creditor is most likely to examine a business’s financial accounting records if the business is

• applying for a bank loan

• selecting a new market

• using cash accounting

• complying with regulations

Riley is an employee of the federal government who studies the financial reports of major businesses in a specific industry. The government’s purpose in assigning this task to Riley is to

• verify compliance with laws

• calculate the businesses’ income taxes

• analyze employment statistics

• identify trends in the industry

For an accounting system to be useful to the business, the accounting information it contains must be

• accurate and up to date

• approved by the chief executive officer

• posted by an accountant

• recorded using the accrual method

Which of the following is a requirement for a good accounting system:

• It should be updated annually

• It should provide needed information quickly

• It should eliminate the need for an accountant

• It should be replaced every two or three years

Two employees used a business’s computerized accounting system to change some records. They were able to steal $50,000 from the business because the accounting system lacked which of the following:

• Protection from theft and fraud

• An affordable price

• A manual system as backup

• Printed financial statements

Checks, receipts, invoices, and purchase orders are examples of

• financial statements

• department ledgers

• source documents

• accounting standards