Financial accounting is the process of identifying, measuring, analyzing, and communicating financial info needed by mgt. to plan, evaluate, and control on org's operations.
Accounting standards are now less likely to require the recording or disclosure of fair value info.
What is the objective of financial accounting?
A. provide the info that is useful to management in making decisions.
B. Provide information that clearly portray non-financial transactions,
C. Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors.
D. Provide information that excludes claims to the resources.
Accrual accounting is used because:
A. Cash flows are considered less important.
B. it provides a better indication of ability to generate cash flows than the cash basis.
C. It recognizes revenues when cash is received and expenses when cash is paid.
The historical cost principle would be of limited usefulness if not for the going concern assumptions.
Revenues are realized when assets received or held are readily convertible into cash or claims to cash.
Nominal (temporary) accounts are revenue, expenses, and dividend accounts and are periodically closed.
One purpose of a trial balance is to prove that debits and credits of an equal amount are in the general ledger.
Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions.
Which of the following is a nominal (temporary) account?
A. Unearned Revenue
B. Salary Expense
D. Retained Earnings
Nominal accounts are also called
A. temporary accounts
B. permanent accounts
C. real accounts
The accounting equation must remain in balance
A. throughout each step in the accounting cycle
B. only when journal entries are recorded
C. only at the time the trial balance is prepared.
D. only when formal financial statements are prepared.
The difference between the accounting process and the accounting cycle is:
A. the accounting process results in the preparation of financial statements, whereas the accounting cycle is concerned with recording business transactions.
B. the accounting cycle represents the steps taken to accomplish the accounting process.
C. the accounting process represents the steps taken to accomplish the accounting cycle.
D. merely semantic, because both concepts refer to the same thing.
Which of the following properly describes a deferral?
A. Cash is received after revenue is earned.
B. Cash is received before revenue is earned.
C. Cash is paid after expense is incurred.
D. Cash is paid in the same time period that expense is incurred.
A. are fundamental truths or axioms that can be derived from the laws of nature.
B. derive their authority from legal court proceedings
C. derive their credibility and authority from general recognition and acceptance by the accounting profession.
D. have been specified in detail in the FASB conceptual framework.
Which of the following is NOT a benefit associated with the FASB Conceptual Framework Project?
A. A conceptual framework should increase financial statement users' understanding of and confidence in financial reporting.
B. Practical problems should be more quickly solvable by reference to an existing conceptual framework.
C. A coherent set of accounting standards and rules should result.
D. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.
Accounting information is considered to be relevant when it:
A. can be depended on to represent the economic conditions and events that it is intended to represent.
B. is capable of making a difference in a decision.
C. is understandable by reasonably informed users of accounting information.
D. is verifiable and neutral
Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue earned in the current accounting period.
The income statement is useful for helping to assess the risk or uncertainty of achieving future cash flows.
Use of a muliple-step income statement will resule in the company reporting a higher net income than if they used a single-step income statements.
Gains or losses from exchange or translation of foreign currencies are reported as extraordinary items.
Watts Corp made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. Correction of the error when discovered in the next year should be treated as:
A. an increase in depreciation expense for the year in which the error is discovered.
B. a component of income for the year in which the error is discovered, but separately listed on the income statement and fully explained in a note to the financial statements.
C. an extraordinary item for the year in which the error was made.
D. a prior period adjustment
Which of the following is an acceptable method of presenting the income statement?
A. A single-step income statement
B. A multiple-step income statement
C. A consolidated statement of income
in order to be classified as an extraordinary item in the income statement, an event or transaction should be:
A. unusual in nature, infrequent, and material in amount
B. unusual in nature and infrequent, but need not be material
C. infrequent and material in amount, but it need not be unusual
D. unusual in nature and material, but need not be infrequent
A material item which is unusual in nature or infrequent in occurrence, but not both should be shown in the income statement:
Net of Tax Disclosed Separately
A. No No
B. Yes Yes
C. No Yes
D. Yes No
Earnings per share should always be shown separate for
A. net income and gross margin
B. net income and pretax income
C. income before extraordinary items
D. extraordinary items and prior period adjustments