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Exam 16: Understanding Accounting and Financial Information

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Question 121

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Net income before taxes is found by deducting operating expenses from gross profit.

A) True
B) False

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Question 122

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A firm's balance sheet reports its financial condition on a specific date.

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B) False

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Question 123

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Felicia is a public accountant.She has been asked to prepare the financial statements for McNick's Auto Body Shop.She is at the stage of the accounting cycle where she wants to summarize all of the data in the accounting ledgers to see whether the figures appear to be correct and balanced.Felicia will need to prepare a statement of cash flows in order to complete this stage of the cycle.

A______ summarizes all the data in the account ledgers to verify that they balance.

A firm's______ reports the profit or loss for the firm over a specified time period.

If a firm can reduce its cost of goods sold and continue to sell its product for the same price,we would expect the firm to enjoy an increase in its _______.

What is the difference between a journal and a ledger? How are journals and ledgers incorporated into the accounting cycle?

What are the four key types of ratios businesses use to measure financial performance?

Ralph owns a small business.Some friends have suggested that he should switch from his current manual accounting system to one that is computerized.Ralph is not certain he wants to use computers in his small firm's accounting system.He is concerned about the time it would take in learning the system,and wonders whether the benefits will justify the costs of setting up the system.As a small business owner,Ralph would probably find that:

An extremely high inventory turnover ratio may represent lost sales due to holding inadequate stocks of merchandise.

Double-entry bookkeeping can help identify a recording error made by a bookkeeper.

Accounting provides information about the financial condition and operating performance of a firm.

The value of what stockholders own in a corporation is called:

A journal is where the initial record of a day's transactions is entered.

The ability to read and understand financial statements is no longer an important skill for managers.

Martha is a member of a conservative political group that wants to identify and publicize examples of wasteful government spending.The type of accounting information that Martha and her group will follow most closely will be provided by certified public accountants.

Many managers are concerned with how their decisions affect the "bottom line" of their company's income statement.These managers are concerned with the impact of their decisions on net income.

The owners' equity in a firm is listed as an asset on the balance sheet.

In an effort to maintain a competitive advantage,most firms do not share accounting information with people outside of the firm.

The cost of goods sold includes all the costs of buying and keeping merchandise available for sale.