WorksheetsIntroduction to Accounting
Total questions: 103
Worksheet time: 1hrs 7mins
Identify the activities and users associated with accounting.
Explain the building blocks of accounting: ethics, principles, and assumptions.
State the accounting equation, and define its components.
Analyze the effects of business transactions on the accounting equation.
Describe the four financial statements and how they are prepared.
Explain the career opportunities in accounting.
Owners of business firms are the only people who need accounting information.
True
False
Transactions that can be measured in monetary units are recorded in the financial information system.
True
False
The hiring of a new company president is an economic event recorded by the financial information system.
True
False
Management of a business enterprise is the major external user of information.
True
False
Accounting communicates financial information about a business enterprise to both internal and external users.
True
False
Accounting information is used only by external users with financial interests in a business enterprise.
True
False
Financial statements are the major means of communicating accounting information to interested parties.
True
False
Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process.
True
False
The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
True
False
The study of accounting is not useful for a business career unless your career objective is to become an accountant.
True
False
A working knowledge of accounting is not relevant to a lawyer or an architect.
True
False
A partnership must have more than one owner.
True
False
The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.
True
False
The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.
True
False
Accountants rely on a fundamental business concept-ethical behavior-in reporting financial information.
True
False
The primary accounting standard-setting body in the United States is the International Accounting Standards Board.
True
False
The International Accounting Standards Board sets accounting standards for the United States.
True
False
The International Accounting Standards Board sets accounting standards for more than 130 countries.
True
False
The cost and fair market value of an asset are the same at the time of acquisition and in all subsequent periods.
True
False
For accounting purposes, partnership affairs should be kept separate from the personal activities of the owners.
True
False
In order to possess future service potential, an asset must have physical substance.
True
False
In order to possess future service potential, an asset must have physical substance.
True
False
Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.
True
False
The basic accounting equation states that Assets = Liabilities.
True
False
Accountants record both internal and external transactions.
True
False
Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company.
True
False
The purchase of store equipment for cash reduces assets and owner's equity by an equal amount.
True
False
The purchase of office equipment on credit increases total assets and total liabilities.
True
False
The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period.
True
False
Net income for the period is determined by subtracting total expenses and drawings from total revenues.
True
False
The study of accounting will be useful only if a student is interested in working for a profit-oriented business firm.
True
False
Private accountants are accountants who are not employees of business enterprises.
True
False
Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs or CAs.
True
False
Identifying is the process of keeping a chronological diary of events measured in monetary units.
True
False
Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation.
True
False
Accountants do not have to worry about issues of ethics.
True
False
At the time an asset is acquired, cost and fair value should be the same.
True
False
The monetary unit assumption requires that all amounts be rounded to the nearest monetary unit.
True
False
The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets.
True
False
External transactions involve economic events between the company and some other enterprise or party.
True
False
In the owner's equity statement, revenues are listed first, followed by expenses, and net income (or net loss).
True
False
Accountants refer to an economic event as a
purchase
sale
transaction
change in ownership
The starting point of the accounting process is
communicating information to users
identifying economic events
recording economic events
None of these answers are correct
Communication of economic events is the part of the accounting process that involves
identifying economic events
quantifying transactions into dollars and cents
preparing accounting reports
recording and classifying information
Which of the following events cannot be quantified into monetary units and recorded as an accounting transaction?
The appointment of a new public accounting firm to perform an audit
The purchase of a new computer
The sale of store equipment
Payment of income taxes
Interpretation of reported information involves each of the following except
limitations of reported data
meaning of reported data
uses of reported data
All of these choices are correct
The accounting process involves all of the following except
identifying economic transactions that are relevant to the business
communicating financial information to users by preparing financial reports
recording nonquantifiable economic events
analyzing and interpreting financial reports
The accounting process is correctly sequenced as
identification, communication, recording
recording, communication, identification
identification, recording, communication
communication, recording, identification
Which of the following techniques are not used by accountants to interpret and report financial information?
Graphs
Special memos for each class of external users
Charts
Ratios
Which of the following would not be considered an internal user of accounting data for the LMN Company?
President of the company
Production manager
Merchandise inventory clerk
President of the employees' labor union
Which of the following would not be considered an external user of accounting data for the LMN Company?
Taxing authority agent
Management
Creditors
Customers
Which of the following would not be considered internal users of accounting data for a company?
The president of a company
The controller of a company
Creditors of a company
Salesmen of the company
Which of the following is an external user of accounting information?
Labor unions.
Finance directors.
Company officers.
Managers.
Which one of the following is not an external user of accounting information?
Regulatory agencies.
Customers.
Investors.
All of these answers choices are external users.
Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the accounting process?
Identification.
Communication.
Recording.
Analysis.
All of the following are services offered by public accountants except
budgeting.
auditing.
tax planning.
consulting.
Which list below best describes the major services performed by public accountants?
Bookkeeping, mergers, budgets.
Employee training, auditing, bookkeeping.
Auditing, taxation, management consulting.
Cost accounting, production scheduling, recruiting.
Preparing tax returns and engaging in tax planning is performed by
public accountants only.
private accountants only.
both public and private accountants.
tax authority accountants only.
A private accountant can perform many activities in a business organization but would not work in
budgeting.
accounting information systems.
external auditing.
tax accounting.
The origins of accounting are generally attributed to the work of
Christopher Columbus.
Abner Doubleday.
Luca Pacioli.
Leonardo da Vinci.
Financial accounting provides economic and financial information for all of the following except
creditors.
investors.
customers.
other external users.
The final step in solving an ethical dilemma is to
identify and analyze the principal elements in the situation.
recognize an ethical situation.
identify the alternatives and weigh the impact of each alternative on stakeholders.
recognize the ethical issues involved.
The first step in solving an ethical dilemma is to
identify and analyze the principal elements in the situation.
identify the alternatives.
recognize an ethical situation and the ethical issues involved.
weigh the impact of each alternative on various stakeholders.
Ethics are the standards of conduct by which one's actions are judged as
right or wrong.
honest or dishonest.
fair or unfair.
All of these answer choices are correct.
Generally accepted accounting principles are
income tax regulations of the taxing authority.
standards that indicate how to report economic events.
theories that are based on physical laws of the universe.
principles that have been proven correct by academic researchers.
The historical cost principle requires that when assets are acquired, they be recorded at
appraisal value.
cost.
market price.
book value.
The historical cost of an asset and its fair value are
never the same.
the same when the asset is sold.
irrelevant when the asset is used by the business in its operations.
the same on the date of acquisition.
The body of theory underlying accounting is not based on
physical laws of nature.
concepts.
principles.
definitions.
A private sector organization involved in developing accounting principles is the
Internal Accounting Standards Body.
International Accounting Studies Board.
International Accounting Standards Board.
International Auditors' Standards Body.
The IASB and FASB are two organizations that are primarily responsible for establishing accounting standards. It is true that
they are both governmental agencies.
the IASB is a private company.
the IASB sets standards for most of the world.
the IASB and FASB do not try to converge accounting standards.
GAAP stands for
Generally Accepted Auditing Procedures.
Generally Accepted Accounting Principles.
Generally Accepted Auditing Principles.
Generally Accepted Accounting Procedures.
Financial information that is capable of making a difference in a decision is
faithfully representative.
relevant.
convergent.
generally accepted.
The Dulce Company has five plants nationwide that cost a total of $200 million. The current fair value of the plants is $600 million. The plants will be recorded and reported as assets at
$200 million.
$600 million.
$400 million.
$800 million.
The fair value principle is applied for
all assets.
current assets.
buildings.
investment securities.
The proprietorship form of business organization
must have at least three owners.
combined with the partnership form, has more businesses than the corporate form.
combines the records of the business with the personal records of the owner.
is characterized by a legal distinction between the business as an economic unit and the owner.
A business organized as a corporation
is not a separate legal entity.
requires that stockholders be personally liable for the debts of the business.
is owned by its shareholders.
terminates when one of its original shareholders dies.
The partnership form of business organization
is a separate legal entity.
is a common form of organization for service-type businesses.
enjoys an unlimited life.
has limited liability.
A small neighborhood barber shop that is operated by its owner would likely be organized as a
joint venture.
partnership.
corporation.
proprietorship.
George and Ringo met at law school and decide to start a small law practice after graduation. They agree to split revenues and expenses evenly. The most common form of business organization for a business such as this would be a
joint venture.
partnership.
corporation.
proprietorship.
Which of the following is true regarding the corporate form of business organization?
Corporations are the most prevalent form of business organization.
Corporate businesses are generally smaller in size than partnerships and proprietor-ships.
The revenues of corporations are greater than the combined revenues of partnerships and proprietorships.
Corporations are separate legal entities organized exclusively under national law.
A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the
stand alone concept.
monetary unit assumption.
corporate form of ownership.
economic entity assumption.
Sam Ryo is the proprietor (owner) of Sam's, a retailer of golf apparel. When recording the financial transactions of Sam's, Sam does not record an entry for a car he purchased for personal use. Sam took out a personal loan to pay for the car. What accounting concept guides Sam's behavior in this situation?
Pay back concept
Economic entity assumption
Cash basis concept
Monetary unit assumption
A basic assumption of accounting assumes that the monetary unit is
unrelated to business transactions.
a poor measure of economic activities.
the common unit of measure for all business transactions.
useless in measuring an economic event.
The assumption that the unit of measure remains sufficiently constant over time is part of the
economic entity assumption.
cost principle.
historical cost principle.
monetary unit assumption.
A business whose owners enjoy limited liability is a
proprietorship.
partnership.
corporation.
sole proprietorship.
A problem with the monetary unit assumption is that
the monetary unit has not been stable over time.
the monetary unit has been stable over time.
the monetary unit is a common medium of exchange.
it is impossible to account for international transactions.
The common characteristic possessed by all assets is
long life.
great monetary value.
tangible nature.
future economic benefit.
Owner's equity is best depicted by the following:
Assets = Liabilities.
Liabilities + Assets.
Residual equity + Assets.
Assets - Liabilities.
The basic accounting equation may be expressed as
Assets = Equities.
Assets - Liabilities = Owner's Equity.
Assets = Liabilities + Owner's Equity.
All of these answer choices are correct.
Liabilities
are future economic benefits.
are existing debts and obligations.
possess service potential.
are things of value used by the business in its operation.
Liabilities of a company would not include
notes payable.
accounts payable.
salaries and wages payable.
cash.
Liabilities of a company are owed to
debtors.
benefactors.
creditors.
underwriters.
Owner's equity can be described as
creditorship claim on total assets.
ownership claim on total assets.
benefactor's claim on total assets.
debtor claim on total assets.
Owner's equity is often referred to as
residual equity.
leftovers.
spoils.
second equity.
When an owner withdraws cash or other assets from a business for personal use, these withdrawals are termed
depletions.
consumptions.
drawings.
a credit line.
Capital is
an owner's permanent investment in the business.
equal to liabilities minus owner's equity.
equal to assets minus owner's equity.
equal to liabilities plus drawings.
Revenues would not result from
sale of merchandise.
initial investment of cash by owner.
performance of services.
rental of property.
