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Exam 16: Understanding Accounting and Financial Information

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Question 71

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During periods of rising prices,firms that want to report more attractive profits would tend to favour the FIFO technique of inventory valuation.

A) True
B) False

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Question 72

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Accounting provides financial information that can be useful to the owners,creditors,suppliers,employees,and competitors of an organization.

A) True
B) False

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Question 73

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Readers of financial statements usually have no way of knowing which amortization and inventory valuation methods a firm uses,a fact which makes interpretation of the information very difficult.

The fundamental accounting equation is as follows: Assets = Liabilities + Owners' equity.

The purpose of a trial balance is to:

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

Taxes are used for what purposes?

Resources that a firm owns are called:

Taylor Casual,a chain of retail clothing stores,wants to assure investors and other outsiders that its financial statements are accurate.One way to do so would be to hire a public accounting firm to:

The cost of goods sold reported on an income statement is not affected by the inventory valuation method the firm uses.

Liquidity refers to how fast an asset can be converted into cash.

The return on sales ratio measures a firm's use of leverage.

Expenses a firm incurs for insurance,office salaries,and rent would be classified as:

Budget preparation is one aspect of managerial accounting.

Juliet has found that her small business needs a better way to maintain accounting records and analyze business opportunities than its current manual system.These days,any off-the-shelf accounting package available at a local software retailer should do an excellent job of meeting her firm's accounting needs.

Jeremy operates his own small business,but doesn't want to be bothered with dealing with accounting information.He tells his friends,"All I need accounting for is to prepare my income tax return for my business.I'll hire someone to do that for me".Jeremy's attitude would be disastrous if he managed a large firm,but is a reasonable view for a small business owner.

The LIFO method of inventory valuation bases the cost of goods sold on the cost to the firm of the:

Assets are economic resources that are owned by a firm.

The value of things you own minus the amount of money you owe others is called:

The balance sheet is composed of the following types of accounts: