Chapter 01 Accounting in Business True / False Questions Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities True False Bookkeeping is the recording of transactions and events and is only part of accounting True False An accounting information system communicates data to help users make better decisions True False Financial accounting is the area of accounting that provides internal reports to assist the decision making needs of internal users True False Internal operating activities include research and development, distribution, and human resources True False The primary objective of managerial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities True False External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles True False External users include lenders, shareholders, customers, and regulators True False 1-1 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Regulators often have legal authority over certain activities of organizations True False 10 Internal users include lenders, shareholders, brokers and managers True False 11 Opportunities in accounting include auditing, consulting, market research, and tax planning True False 12 Identifying the proper ethical path is usually easy True False 13 The Sarbanes-Oxley Act (SOX) requires each issuer of securities to disclose whether it has adopted a code of ethics for its senior financial officers and the contents of that code True False 14 The fraud triangle asserts that the three factors that must exist for a person to commit fraud are opportunity, pressure, and rationalization True False 15 The Sarbanes-Oxley Act (SOX) does not require public companies to apply both accounting oversight and stringent internal controls True False 16 A partnership is a business owned by two or more people True False 17 Owners of a corporation are called shareholders or stockholders True False 18 In the partnership form of business, the owners are called stockholders True False 19 The balance sheet shows a company's net income or loss due to earnings activities over a period of time True False 20 The Financial Accounting Standards Board is the governmental agency that sets both broad and specific accounting principles True False 1-2 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 21 The business entity principle means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold True False 22 Generally accepted accounting principles are the basic assumptions, concepts, and guidelines for preparing financial statements True False 23 The business entity assumption means that a business is accounted for separately from other business entities, including its owner or owners True False 24 As a general rule, revenues should not be recognized in the accounting records when earned, but rather when cash is received True False 25 Specific accounting principles are basic assumptions, concepts, and guidelines for preparing financial statements and arise out of long-used accounting practice True False 26 General accounting principles arise from long-used accounting practices True False 27 A sole proprietorship is a business owned by one or more persons True False 28 Unlimited liability and separate taxation of the business are advantages of a sole proprietorship True False 29 Understanding generally accepted accounting principles is not necessary to effectively use and interpret financial statements True False 30 The International Accounting Standards board (IASB) has the authority to impose its standards on companies around the world True False 31 Objectivity means that financial information is supported by independent, unbiased evidence True False 1-3 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 32 The idea that a business will continue to operate instead of being closed or sold underlies the going-concern assumption True False 33 According to the cost principle, it is necessary for managers to report an approximation of an asset's market value upon purchase True False 34 The monetary unit assumption means that all companies doing business in the United States must express transactions and events in U.S dollars True False 35 The International Accounting Standards Board (IASB) is the government group that establishes reporting requirements for companies that issue stock to the public True False 36 A limited liability company offers the limited liability of a partnership or proprietorship and the tax treatment of a corporation True False 37 The Securities and Exchange Commission (SEC) is a government agency that has legal authority to establish GAAP True False 38 The three common forms of business ownership include sole proprietorship, partnership, and non-profit True False 39 The three major types of business activities are operating, financing, and investing True False 40 Planning involves defining an organization's ideas, goals, and actions True False 41 Strategic management is the process of determining the right mix of operating activities for the type of organization, its plans, and its market True False 42 Investing activities are the means an organization uses to pay for resources like land, buildings, and equipment to carry out its plans True False 1-4 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 43 Investing activities are the acquiring and disposing of resources that an organization uses to acquire and sell its products or services True False 44 Owner financing refers to resources contributed by creditors or lenders True False 45 Revenues are increases in equity from a company's sales of products and services to customers True False 46 A net loss occurs when revenues exceed expenses True False 47 Net income occurs when revenues exceed expenses True False 48 Liabilities are the owner's claim on assets True False 49 Assets are the resources a company owns or controls that are expected to yield future benefits True False 50 Owner withdrawals are expenses True False 51 The accounting equation can be restated as: Assets - Equity = Liabilities True False 52 The accounting equation implies that: Assets + Liabilities = Equity True False 53 Owner's investments are increases in equity from a company's earnings activities True False 54 Every business transaction leaves the accounting equation in balance True False 55 An external transaction is an exchange within an entity that may or may not affect the accounting equation True False 1-5 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 56 From an accounting perspective, an event is a happening that affects the accounting equation, but cannot be measured True False 57 Owner's equity is increased when cash is received from customers in payment of previously recorded accounts receivable True False 58 An owner's investment in a business normally creates an asset (cash), a liability (note payable), and owner's equity (investment.) True False 59 Return on assets is often stated in ratio form as the amount of average total assets divided by income True False 60 Return on assets is also known as return on investment True False 61 Return on assets is useful to decision makers for evaluating management, analyzing and forecasting profits, and in planning activities True False 62 Arrow's net income of $117 million and average assets of $1,400 million results in a return on assets of 8.36% True False 63 Return on assets reflects a company's ability to generate profit through productive use of its assets True False 64 Risk is the uncertainty about the return we will earn True False 65 Generally the lower the risk, the higher the return that can be expected True False 66 U.S Government Treasury bonds provide low return and low risk to investors True False 67 The four basic financial statements include the balance sheet, income statement, statement of owner's equity, and statement of cash flows True False 1-6 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 68 An income statement reports on investing and financing activities True False 69 A balance sheet covers activities over a period of time such as a month or year True False 70 The income statement describes revenues earned and expenses incurred over a specified period of time due to earnings activities True False 71 The statement of cash flows shows the net effect of revenues and expenses for a reporting period True False 72 The income statement shows the financial position of a business on a specific date True False 73 The first section of the income statement reports cash flows from operating activities True False 74 The balance sheet is based on the accounting equation True False 75 Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business True False 76 Operating activities include long-term borrowing and repaying cash from lenders, and cash investments or withdrawals by the owner True False 77 The purchase of supplies appears on the statement of cash flows as an investing activity because it involves the purchase of assets True False 78 The income statement reports on operating activities at a point in time True False 79 The statement of cash flows identifies cash flows separated into operating, investing, and financing activities over a period of time True False 1-7 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 80 Ending capital reported on the statement of owner's equity is calculated by adding owner investments and net losses and subtracting net income and withdrawals True False Multiple Choice Questions 81 Accounting is an information and measurement system that does all of the following except: A B C D E Identifies business activities Records business activities Communicates business activities Eliminates the need for interpreting financial data Helps people make better decisions 82 Technology: A B C D E Has replaced accounting Has not improved the clerical accuracy of accounting Reduces the time, effort and cost of recordkeeping In accounting has replaced the need for decision makers In accounting is only available to large corporations 83 The primary objective of financial accounting is to: A B C D E Serve the decision-making needs of internal users Provide accounting information that serves external users Monitor and control company activities Provide information on both the costs and benefits of looking after products and Know what, when, and how much product to produce 84 The area of accounting aimed at serving the decision making needs of internal users is: A B C D E Financial accounting Managerial accounting 1-8 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 85 External users of accounting information include all of the following except: A B C D E Purchasing managers Government regulators 86 All of the following regarding a Certified Public Accountant are true except: A B C D E Must meet education and experience requirements Must pass an examination Must exhibit ethical character May also be a Certified Management Accountant Cannot hold any certificate other than a CPA 87 Ethical behavior requires that: A B C D E Auditors' pay not depend on the success of the client's business Auditors invest in businesses they audit Analysts report information favorable to their companies Managers use accounting information to benefit themselves Auditors' pay depends on the success of the client's business 88 The conceptual framework that the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are attempting to converge and enhance includes the following broad areas to guide standard setting except: A B C D E Qualitative characteristics Recognition and measurement 89 All of the following are true regarding ethics except: A B C D E Ethics are beliefs that separate right from wrong Ethics rules are often set for CPAs Ethics not affect the operations or outcome of a company Are critical in accounting Ethics can be difficult to apply 1-9 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 90 The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is: A B C D E Business entity assumption Revenue recognition principle Going-concern assumption Time-period assumption Objectivity principle 91 A corporation is: A B C D E A business legally separate from its owners Controlled by the FASB Not responsible for its own acts and own debts The same as a limited liability partnership Not subject to double taxation 92 The independent group that is attempting to harmonize accounting practices of different countries is the: A B C D E 93 The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the: A B C D E 94 The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the: A B C D E Time-period assumption Business entity assumption Going-concern assumption Revenue recognition principle 1-10 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate Topic: Financial Statements 23 Jet Styling has the following beginning cash balance and cash transactions for the month of January Using this information prepare a statement of cash flows a Beginning cash balance $3,200 b Cash investment by owner 15,000 c Cash payment toward long-term loan 1,000 d Cash payment of rent 1,800 e Purchased equipment for cash 7,500 f Purchased store supplies for cash 1,500 g Cash collected from customers 7,750 h Cash withdrawal by owner 2,000 i Cash payment of wages 4,000 Jet Styling Statement of Cash Flows For Month Ended January 31 Cash flows from operating activities: Cash collected from customers $7,750 Cash paid for supplies (1,500) Cash paid for rent (1,800) Cash paid for wages (4,000) Cash flows from operating activities Cash flows from investing activities: Purchase of equipment Cash flows from financing activities: Investment by owner 15,000 Withdrawal by owner (2,000) Payment of loan (1,000) Cash flows from financing activities Net increase in cash Beginning cash balance Ending cash balance AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Reporting Blooms: Create Difficulty: Hard Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate Topic: Financial Statements 1-409 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-410 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 240 The records of Roadmaster Auto Rentals show the following information as of December 31 The owner, Rob Fletcher withdrew $52,000 during the year for personal expenses Prepare a December income statement, a December statement of owner's equity, and a December 30 balance sheet Accounts payable $36,000 Wages expense Insurance expense 2,000 Advertising expense Accounts receivable 24,000 Cash R Fletcher, capital, January 150,000 Office Furniture Airplanes 150,000 Maintenance expense Notes payable 47,000 Revenues Hangar 60,000 ROADMASTER AUTO RENTALS Income Statement For Year Ended December 31 Revenues $217,000 Expenses: Insurance expense $2,000 Wages expense 75,000 Advertising expense 22,000 Maintenance expense 39,000 Total expenses $138,000 Net income $79,000 ROADMASTER AUTO RENTALS Statement of Owner’s Equity For Year Ended December 31 R Fletcher, Capital, January $150,000 Add: Net income 79,000 Less: Withdrawals (52,000) R Fletcher, Capital, December 31 $177,000 ROADMASTER AUTO RENTALS Balance Sheet December 31 Assets Cash Accounts receivable Airplanes Hangar Office furniture Total assets Liabilities $11,000 Accounts payable $36,000 24,000 Notes payable 47,000 150,000 Total liabilities $83,000 60,000 Equity 15,000 R Fletcher, Capital $260,000 Total liabilities and equity 177,000 $260,000 1-411 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Reporting Blooms: Create Difficulty: Hard Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate Topic: Financial Statements 1-412 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-413 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 24 Verity Siding Company, owned by S Verity, began operations in May and completed the following transactions during that first month of operations Show the effects of the transactions on the accounts of the accounting equation by recording increases and decreases in the appropriate columns in the table below Do not determine new account balances after each transaction Determine the final total for each account and verify that the equation is in balance May S Verity invested $90,000 cash in the company The company purchased $25,000 in office equipment It paid $10,000 in cash and signed a no payable promising to pay the $15,000 over the next three years The company rented office space and paid $3,000 for the May rent The company installed new vinyl siding for a customer and immediately collected $5,000 The company paid a supplier $2,000 for siding materials used on the May job The company purchased a $2,500 copy machine for office use on credit The company completed work for additional customers on credit in the amount of $16,000 15 The company paid its employees’ salaries $2,300 for the first half of the month 17 The company installed new siding for a customer and immediately collected $2,400 20 The company received $10,000 in payments from the customers billed on May 28 The company paid $1,500 on the copy machine purchased on May It will pay the remaining balance in June 31 The company paid its employees’ salaries $2,400 for the second half of the month 31 The company paid a supplier $5,300 for siding materials used on the remaining jobs complete during May 31 The company paid $450 for this month’s utility bill 1-414 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education VERITY SIDING CO Assets Dat e May Account s Accounts Cash Liabilities + = Receivabl Equipmen e t Payable Notes S Verity Payable Capital S Verity Withdrawal s Revenues 2 15 17 20 28 31 31 31 $ - $ - $ - $ - $ - $ - $ - 1-415 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education $ VERITY SIDING CO Assets = Dat e May Accounts Cash 90,000 (10,000) (3,000) 5,000 (2,000) Receivable Notes S Verity S Verity Payable Payable Capital Withdrawals 25,000 2,500 Accounts 90,000 15,000 2,500 16,000 15 (2,300) 17 2,400 20 10,000 28 (1,500) 31 (2,400) 31 (5,300) 31 Equipment Liabilities + (10,000) (1,500) (450) 80,450 6,000 27,500 1,000 15,000 90,000 AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Reporting Blooms: Analyze Blooms: Apply Difficulty: Hard Learning Objective: 01-P1 Analyze business transactions using the accounting equation Topic: Transaction Analysis Fill in the Blank Questions 242 is an information and measurement system that identifies, records and communicates relevant, reliable and comparable information about an organization's economic activities Accounting AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-C1 Explain the purpose and importance of accounting Topic: Importance of Accounting 1-416 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 243 A is a business that is owned by only one person Sole proprietorship AACSB: Communication AICPA: BB Legal AICPA: FN Decision Making Blooms: Remember Difficulty: Easy Learning Objective: 01-C2 Identify users and uses of; and opportunities in; accounting Topic: Generally Accepted Accounting Principles 244 users of accounting information are not directly involved in running the organization External AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-C2 Identify users and uses of; and opportunities in; accounting Topic: Users of Accounting Information 245 is the area of accounting aimed at serving external users by providing them with general-purpose financial statements Financial accounting AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-C2 Identify users and uses of; and opportunities in; accounting Topic: Users of Accounting Information 246 Congress passed the to help curb financial abuses at companies that issue their stock to the public Sarbanes-Oxley Act AACSB: Communication AACSB: Ethics AICPA: BB Legal AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles Topic: Generally Accepted Accounting Principles 247 _ are beliefs that separate right from wrong and are considered accepted standards of good and bad behavior Ethics AACSB: Communication AACSB: Ethics AICPA: BB Industry AICPA: FN Decision Making Blooms: Remember 1-417 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Difficulty: Easy Learning Objective: 01-C3 Explain why ethics are crucial to accounting Topic: Ethics 248 The assumption that requires that a business be accounted for separately from its owners is the assumption business entity AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles Topic: Generally Accepted Accounting Principles 249 The _ principle requires that financial information is supported by independent, unbiased evidence objectivity AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: Easy Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles Topic: Generally Accepted Accounting Principles 250 The assumption assumes business will continue operating indefinitely instead of being closed or sold going-concern AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: Easy Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles Topic: Generally Accepted Accounting Principles 251 The assumption states that transactions and events are expressed in money units monetary unit AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: Easy Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles Topic: Generally Accepted Accounting Principles 1-418 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 252 In accounting, the rule that requires that assets, services, and liabilities be recorded initially at the cash or cash-equivalent value of what was given up or of the item received is called the cost principle AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: Easy Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles Topic: Generally Accepted Accounting Principles 253 A disadvantage of a sole proprietorship is the fact that the owner has unlimited liability AACSB: Communication AICPA: BB Legal AICPA: FN Decision Making Blooms: Remember Difficulty: Easy Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles Topic: Generally Accepted Accounting Principles 254 There are at least three types of partnerships that limit the partners' liability They are 1) _, 2) _, and 3) limited partnership, limited liability partnership, limited liability company answers can appear in any order AACSB: Communication AICPA: BB Legal AICPA: FN Decision Making Blooms: Remember Difficulty: Easy Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles Topic: Generally Accepted Accounting Principles 255 There are three major types of business activities activities are the means organizations use to pay for resources such as land, building, and equipment to carry out plans Financing AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations Topic: Business Activities and the Accounting Equation 1-419 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 256 There are three major types of business activities activities involve the acquisition and disposal of resources that an organization uses to acquire and sell its products or services Investing AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations Topic: Business Activities and the Accounting Equation 257 There are three major types of business activities activities involve using resources to research, develop, purchase, produce, distribute, and market products and services and receiving amounts from selling products and services Operating AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations Topic: Business Activities and the Accounting Equation 258 Resources such as cash removed from the business by the business owner for personal use are called withdrawals AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components Topic: The Accounting Equation 259 are the increases in equity from a company's sales of products and services to customers Revenues AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components Topic: The Accounting Equation 260 A common characteristic of is their ability to yield expected future benefits to a business assets AACSB: Communication AICPA: BB Industry AICPA: FN Reporting 1-420 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Blooms: Remember Difficulty: Medium Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components Topic: The Accounting Equation 261 Creditors' claims on assets that reflect company obligations to provide assets, products, or services to others are called liabilities AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components Topic: The Accounting Equation 262 The owner's claim on assets, also known as net assets, is called equity AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components Topic: The Accounting Equation 263 The accounting equation is Assets = Liabilities + Owner's Equity AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components Topic: The Accounting Equation 264 The term _ refers to a liability that promises a future outflow of resources payable AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components Topic: The Accounting Equation 265 Using the accounting equation, equity is equal to assets minus liabilities AACSB: Communication AICPA: BB Industry AICPA: FN Reporting 1-421 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Blooms: Understand Difficulty: Medium Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components Topic: The Accounting Equation 266 , which is one part of accounting, is the recording of transactions and events, either manually or electronically Record-keeping or Bookkeeping AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-C1 Explain the purpose and importance of accounting Topic: Importance of Accounting 267 _ is net income divided by average total assets Return on assets AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-A2 Compute and interpret return on assets Topic: Return on Assets 268 Risk is the _ about the return an investor expects to earn uncertainty AACSB: Communication AICPA: BB Industry AICPA: FN Risk Analysis Blooms: Remember Difficulty: Easy Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk Topic: Return and Risk Analysis 269 explains changes in the owner's claim on the business's assets from net income or loss, owner investments, and owner withdrawals over a period of time The statement of owner's equity AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate Topic: Financial Statements 270 The describes a company's revenues and expenses along with the resulting net income or net loss over a period of time due to earnings activities income statement AACSB: Communication 1-422 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education AICPA: BB Industry AICPA: FN Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate Topic: Financial Statements 1-423 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education ... preparing financial statements and arise out of long-used accounting practice True False 26 General accounting principles arise from long-used accounting practices True False 27 A sole proprietorship... replaced accounting Has not improved the clerical accuracy of accounting Reduces the time, effort and cost of recordkeeping In accounting has replaced the need for decision makers In accounting. .. rule, revenues should not be recognized in the accounting records when earned, but rather when cash is received True False 25 Specific accounting principles are basic assumptions, concepts, and