CHAPTER 12 THE ROLE OF ACCOUNTING IN BUSINESS MULTIPLE CHOICE 7 The best way to prepare to be an investor is to learn all the that you can a bookkeeping b accounting c stock market tips d spreadsheet b Easy 8 a Easy 9 c Moderate 10 d Moderate which supply relevant accurate timely information in a format that will aid them in making decisions are tailored to the needs of individual managers a Reports b Summaries c Department updates d Data sheets If you were asked to identify the language of business you should reply a Finance b Money c Accounting d Data keeping The purpose of accounting is to help who are interested in the activities of a business because they re affected by them a shareholders b fiduciaries c investors d stakeholders 11 Accountants communicate the meaning of information and work with individuals and organizations to help them use that information to deal with business problems Collins Test Item File Chapter 12 The Role of Accounting in Business 2 a financial b investment c managerial d bookkeeping a Moderate 12 Accountants do all of the following except a measure business activities b summarize business activities c interpret financial information d locate capital d Hard 13 c Hard b Hard 15 a Hard 16 d Hard To help them operate the business accounting provides information and analysis to decision makers inside the organization a financial b internal c management d executive 14 Working in the field of accounting John Bates furnishes information to individuals and groups both inside and outside his organization to help them assess the firm s financial performance a comprehensive b financial c advisory d management All of the following appear in the financial statements prepared by accountants except a marketing budgets b income statements c balance sheets d statements of cash flows are principles for financial reporting established by an independent agency called the Financial Accounting Standards Board a Accounting guidelines b Government approved accounting standards c Certified rules and regulations d Generally accepted accounting principles Collins Test Item File Chapter 12 The Role of Accounting in Business 3 17 Which of the following groups is typically not interested in financial accounting information a labor unions b creditors c suppliers d all of these groups have some use for financial accounting information d Moderate SCENARIO BASED Bakersfield Smith and Babble LLC is a midsized accounting firm in New England In order to project an image as a full service company each partner specializes in a different field of accounting Bakersfield provides information and analysis to business owners in order to help them operate their companies Smith s job is to furnish information to individuals and groups both inside and outside organizations to help them assess their firms financial performances Babble is primarily responsible for preparing financial statements for business owners managers and investors and other users such as creditors and government agencies Smith specializes in corporate accounting 18 False Easy Bakersfield works in management accounting 19 True Moderate Babble spends his time in financial accounting 20 True Hard 21 Given the nature of their firm none of these accountants would have 22 Government agencies would have little interest in the kind of information much daily use for GAAP False Hard supplied by this firm False Hard LEARNING OBJECTIVE 2 Collins Test Item File Chapter 12 The Role of Accounting in Business 4 1 Understand the functions of the three basic financial statements income statement balance sheet and statement of cash flows 23 Your statement of cash flows shows how much cash you have coming in and going out 24 To find out if you ve made a profit you d prepare a so called general statement which shows revenues and expenses 25 Expenses are divided into two categories cost of goods sold and operating expenses Its fiscal year is a company s designated business year The key to surviving in business is generating cash to keep operating 28 Breakeven analysis is a method of determining the level of sales at which a company will have no profit or loss Its statement of cash flows tells a business only where its cash was spent 30 Your income statement shows how much cash you have coming in and going out Your balance sheet shows what your sales and expenses are 32 Gross profit is the negative difference between revenues and the cost of TRUE FALSE True Easy False Easy True Easy 26 True Easy 27 True Easy True Easy 29 False Easy False Moderate 31 False Moderate goods sold False Moderate 33 True Moderate A company s balance sheet reports its owner s equity Collins Test Item File Chapter 12 The Role of Accounting in Business 5 34 Fixed cost contribution margin per unit equals a company s breakeven point in units True Moderate 35 Contribution margin per unit is the shortage of revenue per unit over variable cost per unit False Hard MULTIPLE CHOICE 36 is another word for revenues a Bottom line b Profits c Sales d Income c Easy a banker s best friend b bottom line c language of business d core line 37 We read in business publications that net income is often called the b Easy 38 c Easy 39 is are the resources from which a company expects to gain some future benefit a Liabilities b Owner s equity c Assets d Capital The debt owed by a business to an outside individual or organization is called its a liability b equity c asset base d variable outflow Collins Test Item File Chapter 12 The Role of Accounting in Business 6 40 Which of the following may cause a company to have cash problems a The product in which it has invested isn t selling as well as had been forecast b It tied up too much money in a plant that s too large for its operations c It sold products to customers who can t pay d All of these 41 Cash flows from activities are derived from the day to day operations of your main line of business a operating b investing c sales d quotidian 42 Cash flows from activities result from obtaining or paying back the funds with which you ve financed your business a investing b operating c inflow outflow d financing shows when your total sales revenues exactly equal your expenses a Odd even analysis b Flatline analysis c Breakeven analysis d The equilibrium point costs vary with quantity of goods sold but remain constant on a per unit basis a Breakeven b Variable c Fixed d Flat a Easy d Easy a Easy d Easy 43 c Easy 44 b Easy Collins Test Item File