Financial and Managerial Accounting - D196
Practice Exams
Accounting plays a vital role in the decision-making process. Which action is the first step in the
decision-making process? - ANS-Identify the issue. Identifying the issue is the first step in the decision-
making process.
The money that a company needs to buy its land, pay its employees, and buy its supplies is called
capital. What are the potential sources of capital for a business? - ANS-Investors, creditors, and retained
business earnings
True or False: Accountants measure and communicate the results of business activities. - ANS-True
Which primary area of accounting generates reports for internal users? - ANS-Management accounting-
generates reports for internal users, such as budgets and cost analyses.
Which group uses financial information to evaluate whether a company will be able to repay a loan? -
ANS-Lenders -
Lenders are interested in whether or not a company will be able to repay a loan, so they use financial
information to analyze the company's financial ability to do so.
Which of the primary financial statements reports the resources, obligations, and owner's equity of a
company? - ANS-Balance sheet- Balance sheet reports the resources of a company (the assets), the
company's obligations (the liabilities), and the owners' equity, which represents the difference between
what is owned (assets) and what is owed (liabilities).
Statement of cash flows
1
,What group of people make up the FASB? - ANS-Auditors, corporate accountants, analysts, and
accounting academics. The FASB is not directly controlled by the SEC, although SEC input is extremely
important to the FASB in its deliberations.
What is the role of the GASB in setting accounting standards? - ANS-a private-sector organization that
establishes accounting and financial reporting standards for U.S. state and local governments.
What is the role of the IASB in regulating accounting standards? - ANS-Establish international accounting
standards. A private organization based in London. Currently, does not have legal authority to set
accounting standards for U.S. companies,
How is it possible for an accountant to intentionally deceive financial statement users and yet still
technically be in compliance with generally accepted accounting principles (GAAP)? - ANS-There is
flexibility inherent in the assumptions underlying the preparation of financial statements. The flexibility
inherent in the assumptions underlying the preparation of financial statements means that an
accountant can intentionally deceive financial statement users and yet still technically be in compliance
with GAAP.
In what way do accountants have an economic incentive to conduct themselves ethically? - ANS-The
value of the information produced by accountants is related to the confidence that users have in the
reliability of that information.Accountants are in the "trust" business. If users of the financial
information that is being prepared do not have confidence in, or do not trust, the information that is
being provided to make business decisions, then the role of the accountant becomes far less important.
If accountants and the accounting system are not reliable and trustworthy, then the value of the
information they produce is lower.
What is the role of the IRS - ANS-To ensure that tax filing complies with financial accounting standards.
What is the purpose of Financial reports? - ANS-Used by individuals and organizations that have an
economic interest in the business. They provide information about the financial performance of a
company.
Bank statements
2
, Which user of accounting information will monitor data to ensure that the company is providing
sufficient information for investors? - ANS-Government agencies SEC
Which role of accounting involves obtaining and using financial information to determine the financial
health and performance of a business or product line? - ANS-Evaluation
what could the American Institute of Certified Public Accountants (AICPA) do in response to the
accountants who were found guilty of unethical conduct in accounting practices? - ANS-Implement
professional sanctions
They can enforce professional sanctions by taking away the CPA designation from an accountant who
has acted unethically.
What is the correct summary sequence in the accounting cycle? - ANS-Analyze, Record, Summarize,
Prepare
Business documents, such as a sales invoice, a purchase order, or a check stub, are an important part of
the accounting process. From an accounting cycle standpoint, what is purpose of business documents? -
ANS-To confirm that a transaction has occurred
What is the purpose of the financial accounting cycle? - ANS-To turn transactions into financial
statements and provide useful financial information for decision makers
What is a transaction in accounting? - ANS-An interaction in which two parties exchange something of
value
In the context of the financial accounting cycle, what is the definition of an account? - ANS-A specific
accounting record that provides an efficient way to categorize similar types of transactions
What is an arm's-length transaction? - ANS-An exchange between two independent parties
3
Practice Exams
Accounting plays a vital role in the decision-making process. Which action is the first step in the
decision-making process? - ANS-Identify the issue. Identifying the issue is the first step in the decision-
making process.
The money that a company needs to buy its land, pay its employees, and buy its supplies is called
capital. What are the potential sources of capital for a business? - ANS-Investors, creditors, and retained
business earnings
True or False: Accountants measure and communicate the results of business activities. - ANS-True
Which primary area of accounting generates reports for internal users? - ANS-Management accounting-
generates reports for internal users, such as budgets and cost analyses.
Which group uses financial information to evaluate whether a company will be able to repay a loan? -
ANS-Lenders -
Lenders are interested in whether or not a company will be able to repay a loan, so they use financial
information to analyze the company's financial ability to do so.
Which of the primary financial statements reports the resources, obligations, and owner's equity of a
company? - ANS-Balance sheet- Balance sheet reports the resources of a company (the assets), the
company's obligations (the liabilities), and the owners' equity, which represents the difference between
what is owned (assets) and what is owed (liabilities).
Statement of cash flows
1
,What group of people make up the FASB? - ANS-Auditors, corporate accountants, analysts, and
accounting academics. The FASB is not directly controlled by the SEC, although SEC input is extremely
important to the FASB in its deliberations.
What is the role of the GASB in setting accounting standards? - ANS-a private-sector organization that
establishes accounting and financial reporting standards for U.S. state and local governments.
What is the role of the IASB in regulating accounting standards? - ANS-Establish international accounting
standards. A private organization based in London. Currently, does not have legal authority to set
accounting standards for U.S. companies,
How is it possible for an accountant to intentionally deceive financial statement users and yet still
technically be in compliance with generally accepted accounting principles (GAAP)? - ANS-There is
flexibility inherent in the assumptions underlying the preparation of financial statements. The flexibility
inherent in the assumptions underlying the preparation of financial statements means that an
accountant can intentionally deceive financial statement users and yet still technically be in compliance
with GAAP.
In what way do accountants have an economic incentive to conduct themselves ethically? - ANS-The
value of the information produced by accountants is related to the confidence that users have in the
reliability of that information.Accountants are in the "trust" business. If users of the financial
information that is being prepared do not have confidence in, or do not trust, the information that is
being provided to make business decisions, then the role of the accountant becomes far less important.
If accountants and the accounting system are not reliable and trustworthy, then the value of the
information they produce is lower.
What is the role of the IRS - ANS-To ensure that tax filing complies with financial accounting standards.
What is the purpose of Financial reports? - ANS-Used by individuals and organizations that have an
economic interest in the business. They provide information about the financial performance of a
company.
Bank statements
2
, Which user of accounting information will monitor data to ensure that the company is providing
sufficient information for investors? - ANS-Government agencies SEC
Which role of accounting involves obtaining and using financial information to determine the financial
health and performance of a business or product line? - ANS-Evaluation
what could the American Institute of Certified Public Accountants (AICPA) do in response to the
accountants who were found guilty of unethical conduct in accounting practices? - ANS-Implement
professional sanctions
They can enforce professional sanctions by taking away the CPA designation from an accountant who
has acted unethically.
What is the correct summary sequence in the accounting cycle? - ANS-Analyze, Record, Summarize,
Prepare
Business documents, such as a sales invoice, a purchase order, or a check stub, are an important part of
the accounting process. From an accounting cycle standpoint, what is purpose of business documents? -
ANS-To confirm that a transaction has occurred
What is the purpose of the financial accounting cycle? - ANS-To turn transactions into financial
statements and provide useful financial information for decision makers
What is a transaction in accounting? - ANS-An interaction in which two parties exchange something of
value
In the context of the financial accounting cycle, what is the definition of an account? - ANS-A specific
accounting record that provides an efficient way to categorize similar types of transactions
What is an arm's-length transaction? - ANS-An exchange between two independent parties
3
