Chapter 01 - Financial Statements and Business Decisions
Chapter 01
Financial Statements and Business Decisions
True / False Questions
1. Accounting is a system that collects and processes financial information about an
organization and reports that information to decision makers.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-01 The Four Basic Financial Statements: An Overview
2. External users of accounting information include the managers who plan, organize, and run
a business.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-01 The Four Basic Financial Statements: An Overview
3. In accounting and reporting for a business entity, the accounting and reporting for the
business must be kept separate from other economic affairs of its owners.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-01 The Four Basic Financial Statements: An Overview
1-1
,Chapter 01 - Financial Statements and Business Decisions
4. Accounting communicates financial information about a business to both internal and
external users.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-01 The Four Basic Financial Statements: An Overview
5. A statement of financial position should be dated for a period (such as "For the year ended
December 31, 20X1"), whereas a statement of earnings should be dated at a point in time
(such as "At December 31, 20X1").
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-01 The Four Basic Financial Statements: An Overview
6. Expenses are the cost of assets consumed or services used in the process of generating
revenue.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-06 The Statement of Earnings
1-2
,Chapter 01 - Financial Statements and Business Decisions
7. Generally speaking, a financially success business will have positive cash flows from
operating activities.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-12 The Statement of Cash Flows
8. The issuance of additional common shares is a financing activity that generates positive
cash flow to the firm.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-12 The Statement of Cash Flows
9. Borrowing money and issuing shares are examples of financing activities
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-12 The Statement of Cash Flows
1-3
, Chapter 01 - Financial Statements and Business Decisions
10. Total assets are $60,000, total liabilities, $30,000, and share capital is $20,000; therefore,
retained earnings is $5,000.
FALSE
Calculation: $60,000 - $30,000 - $20,000 = $10,000.
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-02 The Statement of Financial Position
11. Investing activities involve collecting the necessary funds to operate the business.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-12 The Statement of Cash Flows
12. The purchase of equipment is an example of a financing activity.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-12 The Statement of Cash Flows
1-4
Chapter 01
Financial Statements and Business Decisions
True / False Questions
1. Accounting is a system that collects and processes financial information about an
organization and reports that information to decision makers.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-01 The Four Basic Financial Statements: An Overview
2. External users of accounting information include the managers who plan, organize, and run
a business.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-01 The Four Basic Financial Statements: An Overview
3. In accounting and reporting for a business entity, the accounting and reporting for the
business must be kept separate from other economic affairs of its owners.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-01 The Four Basic Financial Statements: An Overview
1-1
,Chapter 01 - Financial Statements and Business Decisions
4. Accounting communicates financial information about a business to both internal and
external users.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-01 The Four Basic Financial Statements: An Overview
5. A statement of financial position should be dated for a period (such as "For the year ended
December 31, 20X1"), whereas a statement of earnings should be dated at a point in time
(such as "At December 31, 20X1").
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-01 The Four Basic Financial Statements: An Overview
6. Expenses are the cost of assets consumed or services used in the process of generating
revenue.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-06 The Statement of Earnings
1-2
,Chapter 01 - Financial Statements and Business Decisions
7. Generally speaking, a financially success business will have positive cash flows from
operating activities.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-12 The Statement of Cash Flows
8. The issuance of additional common shares is a financing activity that generates positive
cash flow to the firm.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-12 The Statement of Cash Flows
9. Borrowing money and issuing shares are examples of financing activities
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-12 The Statement of Cash Flows
1-3
, Chapter 01 - Financial Statements and Business Decisions
10. Total assets are $60,000, total liabilities, $30,000, and share capital is $20,000; therefore,
retained earnings is $5,000.
FALSE
Calculation: $60,000 - $30,000 - $20,000 = $10,000.
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-02 The Statement of Financial Position
11. Investing activities involve collecting the necessary funds to operate the business.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-12 The Statement of Cash Flows
12. The purchase of equipment is an example of a financing activity.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 Recognize both the information conveyed in each of the four basic financial statements and describe how the
information is used by different decision makers (investors, creditors, and managers).
Topic: 01-12 The Statement of Cash Flows
1-4
