Chapter Quiz: 17: Accounting Practices and Principles
Official Score: 33% Recorded at 9/18/2008 4:29:04 AM (EST).
1) Most successful entrepreneurs have at least a basic understanding of accounting principles and rules. True False
2) Managerial accounting is intended primarily for use by external decision makers, such as investors, creditors, and the Internal Revenue Service. True False
Rationale: External decision makers primarily use financial accounting. Review this topic
3) The SEC requires publicly traded corporations to publish annual and quarterly financial reports. True
False
Rationale: In addition, annual and quarterly registration statements must also be filed with the SEC. Review this topic
4) After attaining certain educational requirements and passing a rigorous examination, certified public accountants are licensed to practice in all fifty states. True False
Rationale: Licensing requirements vary by state; CPAs are licensed in the state in which they practice. Review this topic
5) A reconciliation is a CPA's examination of a company's financial statements in order to express an opinion about the fairness of those statements in accordance with generally accepted accounting principles. True False
Rationale: This type of financial examination is called an audit. Review this topic
6) According to the accounting equation, a company's assets equal its liabilities plus the owners' equity. True False
Rationale: On this framework exists the entire accounting process: Assets = Liabilities + Owners' Equity Review this topic
7) Liabilities are the costs incurred in order to produce revenues. True False
Rationale: The costs that are incurred in order to produce revenues are called expenses. Review this topic
8) Solvency describes a firm's ability to generate revenues. True False
Rationale: A firm's ability to generate revenues called is profitability. Review this topic
9) Businesses list liabilities on the balance sheet in smallest to largest order. True False
Rationale: Liabilities are listed in the order in which they are to be paid. Review this topic
10) Amounts owed that must be paid within one year from the balance sheet date are called long-term liabilities. True False
Rationale: Amounts that must be paid within one year from the balance sheet date are current liabilities. Review this topic
11) A firm's ability to pay its short-term debts as they come due is measured by liquidity ratios. True False
Rationale: Highly liquid firms can more easily convert assets to cash when needed to repay loans. Review this topic
12) Companies measure their ability to pay long-term debts by ________________. a) debt ratios b) profitability ratios c) equity ratios d) return on sales
Rationale: Specifically, this is called a debt-to-equity ratio; it measures a firm's leverage as the ratio of funds provided to the owner to funds provided by creditors. Review this topic
13) Assets are usually listed on the balance sheet in the order of their liquidity. Which of the following would be listed first? a) Inventory b) Cash c) Accounts receivable d) Accounts payable
Rationale: Nothing is more liquid than cash. Review this topic
14) The number of times per year that the average account receivable is collected is known as accounts receivable turnover. This particular measure indicates how efficiently a firm uses its resources, which are also defined by which of the following? a) Liquidity ratio b) Activity ratio c) Debt ratio d) Quick ratio
Rationale: Activity ratios measure the effective use of assets. Review this topic
15) In most cases, loan decision makers want to review __________ year(s) of a firm's historical financial records. a) ten b) five c) three d) one