` This OpenStax ancillary resource is © Rice University under a CC BY 4.0 International license; it may be reproduced or modified but
must be attributed to OpenStax, Rice University and any changes must be noted.
Chapter 14 USING FINANCIAL INFORMATION AND ACCOUNTING
TRUE-FALSE QUESTIONS
Title: ANSWER: T REFERENCE: Accounting: More than Numbers LEARNING OUTCOME: 1
1. Accounting is the process of collecting, recording, classifying, summarizing, reporting, and
analyzing the financial condition of an organization.
a. True
b. False
Title: ANSWER: T REFERENCE: Accounting: More than Numbers LEARNING OUTCOME: 1
2. An accounting system should generate both internal and external reports.
a. True
b. False
Title: ANSWER: F REFERENCE: Accounting: More than Numbers LEARNING OUTCOME: 1
RATIONALE: This is the definition of managerial accounting.
3. Administrative accounting is the term given to the internal workings of the company, such as
budgets, sales reports, and analyses of how well marketing strategies are working.
a. True
b. False
Title: ANSWER: T REFERENCE: The Accounting Profession LEARNING OUTCOME: 2
4. Independent accountants who serve organizations and individuals on a fee basis are called public
accountants.
a. True
b. False
Title: ANSWER: T REFERENCE: The Accounting Profession LEARNING OUTCOME: 2
5. The Sarbanes-Oxley Act redefines the public corporation-auditor relationship and restricts the
types of services auditors can provide to clients.
a. True
b. False
Title: ANSWER: T REFERENCE: Basic Accounting Procedures LEARNING OUTCOME: 3
6. The usual expression of the accounting equation is Assets = Liabilities + Owners' Equity.
a. True
b. False
Title: ANSWER: F REFERENCE: Basic Accounting Procedures LEARNING OUTCOME: 3
RATIONALE: Another term for net worth is owners' equity 7. Another term for net worth is working
capital.
a. True
b. False
.
Title: ANSWER: T REFERENCE: Basic Accounting Procedures LEARNING OUTCOME: 3
8. An accounting journal is a chronological list of transactions, each assigned to a particular account.
a. True
,b. False
Title: ANSWER: T REFERENCE: Basic Accounting Procedures LEARNING OUTCOME: 3
9. The five-step process that takes a transaction from being mere raw financial data to its being
summarized in the financial statements is called the accounting cycle.
a. True
b. False
Title: ANSWER: F REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
RATIONALE: This is the definition for an income statement.
10. The balance sheet summarizes a firm's financial position over a period of time, for instance 3
months or a year.
a. True
b. False
Title: ANSWER: T REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
11. The postage stamps and petty cash in the architect’s drawer as well as his drawing table, his
office furniture, and money owed to him by clients are all examples of assets.
a. True
b. False
Title: ANSWER: T REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
12. A current asset is one that can or will be converted into cash within one year.
a. True
b. False
Title: ANSWER: F REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
RATIONALE: This is an example of an account receivable.
13. The $350 charged to the homeowner for electrical work performed one month ago is an example
of a note receivable.
a. True
b. False
Title: ANSWER: F REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
RATIONALE: Goodwill and brand loyalty are examples of intangible assets.
14. An example of an intangible asset is accounts receivable because the firm does not see or feel it
until it is paid in full.
a. True
b. False
Title: ANSWER: T REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
15. Retained earnings are the amounts left over from profitable operations since the firm’s
beginning. They are equal to total profits minus all dividends paid to stockholders.
a. True
b. False
Title: ANSWER: F REFERENCE: The Income Statement LEARNING OUTCOME: 5
RATIONALE: This is a definition of the balance sheet.
16. The income statement is a snapshot of the firm's financial position at a certain point in time.
October 22, 2018 392
, a. True
b. False
Title: ANSWER: T REFERENCE: The Income Statement LEARNING OUTCOME: 5
17. Revenues are the dollar amount of sales plus any other income received from sources like
interest, dividends, and rent.
a. True
b. False
Title: ANSWER: F REFERENCE: The Income Statement LEARNING OUTCOME: 5
RATIONALE: This is the net profit.
18. The final figure or bottom line on an income statement is called the net revenue.
a. True
b. False
Title: ANSWER: T REFERENCE: The Statements of Cash Flows LEARNING OUTCOME: 6
19. All publicly held companies must include a statement of cash flows in their financial reports to
stockholders.
a. True
b. False
Title: ANSWER: F REFERENCE: The Statements of Cash Flows LEARNING OUTCOME: 6
RATIONALE: These figures relate to the purchase and sale of fixed assets.
20. In a statement of cash flow, the cash flow from investment activities would include special
promotions used to sell extra inventory.
a. True
b. False
Title: ANSWER: F REFERENCE: Analyzing Financial Statements LEARNING OUTCOME: 7
RATIONALE: This is the quick or acid-test ratio.
21. The ratio of current assets to current liabilities is called the ownership ratio.
a. True
b. False
Title: ANSWER: F REFERENCE: Analyzing Financial Statements LEARNING OUTCOME: 7
RATIONALE: Profitability ratios measure how well a firm is using its resources to generate profit.
22. Profitability ratios measure how well a firm uses its assets.
a. True
b. False
Title: ANSWER: T REFERENCE: Analyzing Financial Statements LEARNING OUTCOME: 7
23. Earnings per share (EPS) is the dollar amount earned by each share, not the actual amount given
to stockholders in the form of dividends.
a. True
b. False
Title: ANSWER: F REFERENCE: Trends in Accounting LEARNING OUTCOME: 8 Rationale: Sarbanes-
Oxley prohibited the continuation of these types of relationships.
24. Sarbanes-Oxley allowed accountants to serve as both auditors and advisors for their clients
October 22, 2018 393
must be attributed to OpenStax, Rice University and any changes must be noted.
Chapter 14 USING FINANCIAL INFORMATION AND ACCOUNTING
TRUE-FALSE QUESTIONS
Title: ANSWER: T REFERENCE: Accounting: More than Numbers LEARNING OUTCOME: 1
1. Accounting is the process of collecting, recording, classifying, summarizing, reporting, and
analyzing the financial condition of an organization.
a. True
b. False
Title: ANSWER: T REFERENCE: Accounting: More than Numbers LEARNING OUTCOME: 1
2. An accounting system should generate both internal and external reports.
a. True
b. False
Title: ANSWER: F REFERENCE: Accounting: More than Numbers LEARNING OUTCOME: 1
RATIONALE: This is the definition of managerial accounting.
3. Administrative accounting is the term given to the internal workings of the company, such as
budgets, sales reports, and analyses of how well marketing strategies are working.
a. True
b. False
Title: ANSWER: T REFERENCE: The Accounting Profession LEARNING OUTCOME: 2
4. Independent accountants who serve organizations and individuals on a fee basis are called public
accountants.
a. True
b. False
Title: ANSWER: T REFERENCE: The Accounting Profession LEARNING OUTCOME: 2
5. The Sarbanes-Oxley Act redefines the public corporation-auditor relationship and restricts the
types of services auditors can provide to clients.
a. True
b. False
Title: ANSWER: T REFERENCE: Basic Accounting Procedures LEARNING OUTCOME: 3
6. The usual expression of the accounting equation is Assets = Liabilities + Owners' Equity.
a. True
b. False
Title: ANSWER: F REFERENCE: Basic Accounting Procedures LEARNING OUTCOME: 3
RATIONALE: Another term for net worth is owners' equity 7. Another term for net worth is working
capital.
a. True
b. False
.
Title: ANSWER: T REFERENCE: Basic Accounting Procedures LEARNING OUTCOME: 3
8. An accounting journal is a chronological list of transactions, each assigned to a particular account.
a. True
,b. False
Title: ANSWER: T REFERENCE: Basic Accounting Procedures LEARNING OUTCOME: 3
9. The five-step process that takes a transaction from being mere raw financial data to its being
summarized in the financial statements is called the accounting cycle.
a. True
b. False
Title: ANSWER: F REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
RATIONALE: This is the definition for an income statement.
10. The balance sheet summarizes a firm's financial position over a period of time, for instance 3
months or a year.
a. True
b. False
Title: ANSWER: T REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
11. The postage stamps and petty cash in the architect’s drawer as well as his drawing table, his
office furniture, and money owed to him by clients are all examples of assets.
a. True
b. False
Title: ANSWER: T REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
12. A current asset is one that can or will be converted into cash within one year.
a. True
b. False
Title: ANSWER: F REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
RATIONALE: This is an example of an account receivable.
13. The $350 charged to the homeowner for electrical work performed one month ago is an example
of a note receivable.
a. True
b. False
Title: ANSWER: F REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
RATIONALE: Goodwill and brand loyalty are examples of intangible assets.
14. An example of an intangible asset is accounts receivable because the firm does not see or feel it
until it is paid in full.
a. True
b. False
Title: ANSWER: T REFERENCE: The Balance Sheet LEARNING OUTCOME: 4
15. Retained earnings are the amounts left over from profitable operations since the firm’s
beginning. They are equal to total profits minus all dividends paid to stockholders.
a. True
b. False
Title: ANSWER: F REFERENCE: The Income Statement LEARNING OUTCOME: 5
RATIONALE: This is a definition of the balance sheet.
16. The income statement is a snapshot of the firm's financial position at a certain point in time.
October 22, 2018 392
, a. True
b. False
Title: ANSWER: T REFERENCE: The Income Statement LEARNING OUTCOME: 5
17. Revenues are the dollar amount of sales plus any other income received from sources like
interest, dividends, and rent.
a. True
b. False
Title: ANSWER: F REFERENCE: The Income Statement LEARNING OUTCOME: 5
RATIONALE: This is the net profit.
18. The final figure or bottom line on an income statement is called the net revenue.
a. True
b. False
Title: ANSWER: T REFERENCE: The Statements of Cash Flows LEARNING OUTCOME: 6
19. All publicly held companies must include a statement of cash flows in their financial reports to
stockholders.
a. True
b. False
Title: ANSWER: F REFERENCE: The Statements of Cash Flows LEARNING OUTCOME: 6
RATIONALE: These figures relate to the purchase and sale of fixed assets.
20. In a statement of cash flow, the cash flow from investment activities would include special
promotions used to sell extra inventory.
a. True
b. False
Title: ANSWER: F REFERENCE: Analyzing Financial Statements LEARNING OUTCOME: 7
RATIONALE: This is the quick or acid-test ratio.
21. The ratio of current assets to current liabilities is called the ownership ratio.
a. True
b. False
Title: ANSWER: F REFERENCE: Analyzing Financial Statements LEARNING OUTCOME: 7
RATIONALE: Profitability ratios measure how well a firm is using its resources to generate profit.
22. Profitability ratios measure how well a firm uses its assets.
a. True
b. False
Title: ANSWER: T REFERENCE: Analyzing Financial Statements LEARNING OUTCOME: 7
23. Earnings per share (EPS) is the dollar amount earned by each share, not the actual amount given
to stockholders in the form of dividends.
a. True
b. False
Title: ANSWER: F REFERENCE: Trends in Accounting LEARNING OUTCOME: 8 Rationale: Sarbanes-
Oxley prohibited the continuation of these types of relationships.
24. Sarbanes-Oxley allowed accountants to serve as both auditors and advisors for their clients
October 22, 2018 393
