Accounting - Chapter 1 Review

Accounting is an information and measurement system that does all of the following except:

• B) Records business activities.
• C) Communicates business activities.
• D) Eliminates the need for interpreting financial data.
• E) Helps people make better decisions.

Technology:

• B) Has not improved the clerical accuracy of accounting.
• C) Reduces the time, effort and cost of recordkeeping.
• D) In accounting has replaced the need for decision makers.
• E) In accounting is only available to large corporations.

The primary objective of financial accounting is to:

• B) Provide accounting information that serves external users.
• C) Monitor and control company activities.
• D) Provide information on both the costs and benefits of looking after products and services.
• E) Know what, when, and how much product to produce.

The area of accounting aimed at serving the decision making needs of internal users is:

• B) Managerial accounting.
• C) External auditing.
• D) SEC reporting.
• E) Bookkeeping.

External users of accounting information include all of the following except:

• B) Customers.
• C) Purchasing managers.
• D) Government regulators.
• E) Creditors.

A corporation is:

• B) Controlled by the FASB.
• C) Not responsible for its own acts and own debts.
• D) The same as a limited liability partnership.
• E) Not subject to double taxation.

A limited partnership:

• B) Is subject to double taxation.
• C) Has owners called stockholders.
• D) Is the same as a corporation.
• E) May only have two partners

A partnership:

• B) Has unlimited liability for its partners.
• C) Has to have a written agreement in order to be legal.
• D) Is a legal organization separate from its owners.
• E) Has owners called shareholders.

If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be:

• B) One asset increases $1,300 and another asset decreases $1,300, causing no effect.
• C) Assets decrease $1,300 and equity decreases $1,300.
• D) Assets decrease $1,300 and equity increases $1,300.
• E) Assets increase $1,300 and liabilities increase $1,300.

If a company receives $12,000 from the owner to establish a proprietorship, the effect on the accounting equation would be:

• B) Assets increase $12,000 and liabilities decrease $12,000.
• C) Assets increase $12,000 and liabilities increase $12,000.
• D) Liabilities increase $12,000 and equity decreases $12,000.
• E) Assets increase $12,000 and equity increases $12,000.