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77 Test Bank for Accounting Information for Business Decisions 2nd Edition Multiple Choice Questions Which of the following summarises a business’ receipts and payments? a Budget b Income statement c Balance sheet d Cash flow statement Which of the following summarises a business’ financial position on a given date? a Income statement b Cash flow statement c Balance sheet d Budget A budget: a quantifies management’s plans b determines and evaluates the cost of specific products or activities in a business c compiles actual costs for a given period d is used to determine if a product should be continued or discontinued Financial accounting information: a is a one size fits all approach to reporting business results b can be tailored to the needs of the internal user c follows statements on management accounting in the reporting process d helps only external users make decisions A lack of solvency is demonstrated when: a assets are greater than liabilities b liabilities are greater than assets 3 c revenues are greater than expenses d expenses are greater than revenues Which of the following not cover a period of time? a Income statement b Cash flow statement c Balance sheet d Accounts receivable ledger Which type of business organisation generates the greatest volume of business? a Proprietorships b Partnerships c Company/corporation d Each generates roughly the same amount of business What is the primary difference between a manufacturer and a merchandiser? a Merchandisers purchase finished goods ready to sell, whereas a manufacturer must create the goods b Manufacturers purchase finished goods ready to sell, whereas a merchandiser must create the goods c Merchandisers not sell directly to the public, but rather only to manufacturers d Manufacturers buy the finished goods from a merchandiser then resell it, basically acting as a middle man The business’ obligations to its creditors are: a Liabilities b Expenses c Payments d Owners’ equity Which of the following summarises the results of a business’ operating activities for a specific time period? a Income statement b Cash flow statement c Balance sheet d Payables ledger Which of the following is the first stage in solving a business problem? a Knowing the possible outcomes b The recognition and definition of the problem c Understanding the available resources to solve the problem d Assessing the total cost and benefits of solving the problem Statements on management accounting: a are binding and contractual in nature b are general guidelines management accountants may turn to when faced with new situations to resolve c are developed primarily to guide the structure of reporting to external users d are issued by CPA Australia Managerial accounting information: a is a one size fits all approach to reporting business results b can be tailored to the needs of the internal user c follows GAAP in the reporting process d helps shareholders make decisions Which of the following would a manager as a part of planning activities? a Compare estimates to benchmarks b Purchase inventory c Hire employees d Prepare cost estimates Evaluating activities consist of: a establishing business goals b establishing a means of achieving business goals c providing feedback to managers to correct deviations from standards d setting benchmarks or standards Which of the following is an example of a manufacturer? a Dell Calculator b Bob’s lawnmower services c Air NZ d Qantas Which of the following is false? a Accounting keeps track of a business’ economic resources and activities, then reports the results and financial position to users who have an interest b Accounting is a mere numbers game The information is only useful to a limited few The reality is that few managers need accounting information to make quality operating decisions c Accounting focuses on the resources and activities of individual businesses d Products and services affect almost every minute of our lives Financial position of a business can best be evaluated with which of the following? a Net income b Assets, liabilities and owner’s equity c Cash received and paid d Owner investments The business’ economic resources are: a Revenues b Liabilities c Owners’ equity d Assets Operating activities consist of: a how products get made and sold b measuring actual operations and progress against a standard or benchmark c establishing business goals d establishing means of achieving business goals True - False Questions The modern day accountant generally works alone and therefore does not require teamwork skills True False Accounting is an information tool which can help make good business decisions True False An internal user would receive “tailor-made” information from the accounting system True False An external user would receive ‘tailor-made’ information from the accounting system True False Feedback from operations can be effectively used in the planning, operating or evaluating stages of a business True False Many businesses have no need for accounting information and can actually exist without an accounting system True False The term ‘private enterprise’ means that businesses keep their accounting information private True False Woolworths is an example of a retailing business True False A balance sheet lists the business’ assets, liabilities and owners’ equity at a given date True False Sources of capital for a business include owner investments, and borrowing or seeking investments from outsiders True False External users possess skills to extract the information they need for decisions from the accounting information of a business True False Accounting keeps track of a business’ economic resources and activities, then reports the results and financial position to users who have an interest True False Unless you are a business owner, you will not be making business decisions True False Sole proprietorships are the most common form of business and as such, conduct more volume of business than partnerships and corporations put together True False Evaluating is the process of establishing the business’ goals and objectives True False Operating refers to the set of activities that the business engages in to conduct its business according to its plan True False A business’ accounting system would provide information for both external and internal users True False Cost analysis tells a business owner the selling price of a product or service True False A dental surgery is an example of a service business True False Having a code of ethics will always provide you with the correct solution to an ethical dilemma True False Text Questions - Page is the difference between the cash and credit sales of a business (revenues) and its total costs (expenses) Answer Given Profit An shows a business’ revenues, expenses and net income (or net loss) for a time period, usually one year Answer Given income statement businesses purchase goods for resale to their customers Answer Given Merchandising Information explosion, evolving forms of businesses, more complex business activities, increased regulations, globalisat ion and technological advances are all factors affecting the of the business environment Answer Given complexity A is a business organisation that has a separate identity from its owners Answer Given Company Corporation The International Federation of Accountants (IFAC) is an independent, worldwide organisation It has developed a for accountants in each country to use as a basis for producing their own vers ions Answer Given code of ethics are businesses owned by one person who is the sole investor of capital into the business Answer Given Sole proprietorships sole traders An is a means by which accounting information about a business’ activity is id entified,measured, recorded and summarised so it can be communicated in an accounting report Answer Given accounting system are the most common type of business organisation Answer Given Sole proprietorships sole traders refers to the funds a business needs to operate or expand operations Answer Given Capital are merchandising businesses that sell their products directly to the final customer or consumers Answer Given Retailers are merchandising businesses that sell their goods to retailers or other commercial users Answer Given Wholesalers perform services or activities that benefit individuals or business customers Answer Given Service businesses An is an individual who is willing to risk the uncertainty of not knowing if customers will buy wha t their business provides, in exchange for the reward of a profit, along with the reward of seeing their business succeed Answer Given entrepreneur A business financial statement is meant to convey information about the business to and _ _ users in order to help them make decisions about the business Answer Given internal; external is a system in which individuals own businesses that produce and sell services and/or goods for a profit Answer Given Private enterprise are businesses owned by two or more individuals Answer Given Partnerships businesses make their products and then sell these products to their customers Answer Given Manufacturing are issued to the owners of a company as evidence of their investment of capital in the business Answer Given Company shares are the currently accepted principle s, practices and standards that businesses use for financial accounting and reporting in Australia, New Zealand and all over the world Answer Given Generally accepted accounting principles 37 Free Test Bank for Accounting Information for Business Decisions 2nd Edition by Cunningham Free Text Questions - Page Describe the evaluating function of management Answer Given Evaluation measures the actual operations and progress against standards and then acts to correct deviations from the standards It is a continuous process that attempts to prevent problems from occurring and to minimise their effect if they occur Suppose that you are the manager of a business that manufactures various types of athletic shoes for sale primarily in Australia Discuss the pros and cons of locating your manufacturing plants abroad versus in Australia Answer Given The regulatory environments might be very different between Australia and the international location The tax structures might differ considerably This might lead to substantial tax saving Minimum wage laws and working condition standards are present in Australia and might be non-existent abroad This could lead to substantial labour savings abroad If the plant were located abroad, restrictions on the flow of cash might make it difficult to bring your profits home Some countries restrict foreign ownership of assets The supply lines might be much longer, and burdened by import/export regulations This might cause difficulties in delivering the product on a timely b asis What is the purpose of a code of ethics? Answer Given Many situations and decisions are conducted in an environment in which there is not a clear right or wrong Many situations fall between the two extremes A code of ethics is designed to provide guidance to various people in maintaining high ethical standards when faced with difficult decisions What activities contribute to the operations of a business? Answer Given Managers set goals, make decisions, and commit the business’ resources in an attempt to achieve those goals Planning provides organisation and direction for the business Operating involves gathering the necessary resources and employees and implementing the plans Evaluating measures the actual progress against standards or benchmarks so problems can be corrected Describe the operating function of management Answer Given This set of activities allows the business to conduct its business according to plan They include gathering the necessary resources and employees to achieve the business’ goals Day-to-day decisions are made about how to best achieve the goals Describe the planning function of management Answer Given This is the start of management The plan lays out the organisation of and provides direction to the operating and evaluating activities Planning establishes the business’ goals and the means of achieving those goals Planning identifies the resources and employees necessary to achieve the business’ goals It also sets standards against which to measure achievement This allows management to adjust future strategy Define entrepreneurship Answer Given Entrepreneurship is a combination of three factors: the entrepreneur’s ideas, the willingness of the entrepreneur to take risks, and the abilities of all of the business’ personnel to use capital to produce and sell goods or services What is the role of cost analysis in management? Answer Given Cost analysis is the process of determining and evaluating the costs of specific products or activities within a business Cost analysis is used when making decisions about these products or activities Such a decision might include whether to continue a particular product line What is private enterprise? Answer Given Private enterprise is a system in which individuals own businesses that produce and sell services and/or goods for a profit These businesses include service businesses, merchandising businesses, and manufacturing businesses What is the role of manufacturing cost reports in management? Answer Given Manufacturing cost reports are used to monitor and evaluate a business’ operations The manufacturing cost report can highlight variances of actual costs from budgeted costs This might allow the manager to take corrective action What is the role of the budget in management? Answer Given The budget is the result of quantifying management plans and showing the impact of these plans on the business’ operations Once the planned activities have occurred, managers can evaluate the results against the budget to make sure that the actual operations have achieved the desired results Define generally accepted accounting principles Answer Given Accounting principles are the set of currently accepted principles, procedures, and practices that are used for financial reporting in Australia and New Zealand The principles must be followed in the external reports of all businesses that sell stock to the public in Australia and New Zealand, as well as many other businesses What is the role of accounting information in business? Answer Given Accounting information helps decision makers It aids managers by providing quantitative information about the business to help them in planning, operating, and evaluating the business’ activities Accounting information helps external decision makers by providing them with financial statements containing economic information about the performance and state of the businesses What sources of capital are available to an entrepreneur? How these sources of capital differ? Answer Given The two primary sources of capital are the owner’s investment and borrowing The owner hopes to get a return on his/her investment greater than the amount that would be obtained from a different investment Borrowings require repayments, along with interest payments If the borrowed money cannot be repaid, then the business may become insolvent and cease operations Briefly describe what information is contained in an Income Statement Answer Given A business’ income statement summarises the results of its operating activities for a specific time period and shows the business’ profit for that period This is what the business charged its customers for services or goods provided to them It also summarises the business’ expenses This is the cost to the business of providing those goods and services Net income is the difference between revenues and expenses What are the primary differences between companies/corporations and partnerships/sole proprietorships? Answer Given Company/corporations are legally established as entities separate from their owners The company/corporation issues capi tal stock to its owners as evidence of their ownership The stock is readily transferable to other owners Sole proprietorships and partnerships are not legally organised separately from their owners What are the primary similarities and differences between service business and merchandising/manufacturing businesses? Answer Given Service businesses and merchandising/manufacturing businesses are trying to earn a profit from selling to a customer The difference is in what is sold Service businesses provide a service to their customers, while merchandising and manufacturing businesses provide goods to their customers ... all over the world Answer Given Generally accepted accounting principles 37 Free Test Bank for Accounting Information for Business Decisions 2nd Edition by Cunningham Free Text Questions - Page... users possess skills to extract the information they need for decisions from the accounting information of a business True False Accounting keeps track of a business economic resources and activities,... have no need for accounting information and can actually exist without an accounting system True False The term ‘private enterprise’ means that businesses keep their accounting information private