Accounting Competency Exam Review

What is Accounting?

The language of business

Why does accounting exist?

To help people make decisions

What are the three types of Accounting?

Tax Accounting, Managerial Accounting, and Financial Accounting

what is managerial accounting?

designed to help people inside the business make decisions

what is financial accounting?

designed to help people outside of the business make decisions

what governs how financial accounting is used?

follows the rules of GAAP (Generally Accepted Accounting Principles)

What area of accounting is based on the needs of the users?

A. Financial

B. Managerial

C. Tax

B. Managerial

What area of accounting follows rules set by the government?

A. Financial

B. Managerial

C. Tax

C. Tax

What area of accounting prepares multi-purpose reports?

A. Financial

B. Managerial

C. Tax

A. Financial

Why does accounting exist?

A. Ensure businesses are managed profitably

B. Help people make decisions

C. Give people jobs

D. Prepare tax returns

B. Help people make decisions

Which of the following best describes the accounting systems of most business organizations:

A. Accounting systems are designed to meet the needs of the business organization

B. All accounting systems are identical

C. Accounting systems only use publicly available data

D. Accounting systems must be designed by a CPA firm that performs the annual financial audit.

A. Accounting systems are designed to meet the needs of the business organization.

Which if the following best describes cost effective:

A. Information is cost effective if it helps management in controlling costs.

B. The information is generated by a computer based accounting system.

C. Information is cost effective if it is based on historical costs.

D. Information is cost effective if the value of producing information exceeds the cost of producing it.

D. Information is cost effective if the value of producing information exceeds the cost of producing it.

Which of the following is not an objective of the system of internal controls?

A. Produce reliable reports

B. Comply with laws and regulations

C. Guarantee profitability

D. Run business effectively and efficiently

C. Guarantee profitability

What does the accounting system consist of?

People, Processes, and Technology

(Financial, Managerial, and Tax)

What is the internal control system?

Policies and procedures dedicated to:

production of reliable reports, compliance with laws and regulations, effective and efficient business operations.

Who prepares the financial statements?

People inside the business organization (management). Primarily for people outside the business.

Who sets the standards for GAAP?

In the U.S., Financial Accounting Standards Board (FASB) and Securities and Exchange Commission (SEC)

Who is responsible for preparing the financial accounting reports?

A. Management

B. Independent Auditors

C. Government

D. IRS

A. Management

Who are the primary users of financial accounting reports?

A. IRS and SEC

B. Investors and SEC

C. Creditors and IRS

D. Investors and Creditors

D. Investors and Creditors

The basic purpose of an audit is to:

A. Assure financial statements are in conformity with GAAP

B. Provide as much useful information to decision makers as possible

C. Record changes in the financial position of an organization by applying the concepts of double entry accounting.

D. Meet an organization's need for accounting information as efficiently as possible.

A. Assure financial statements are in conformity with GAAP.

Generally Accepted Accounting Principles (GAAP):

A. Are based on official decrees only

B. Are based on tradition only

C. Are based on an accountant's experience only

D. May change over time

D. May change over time

T/F: An accounting practice can become a "GAAP" through widespread use, even if the practice is not mentioned in the official pronouncements of the accounting standard-setting organizations.

True

T/F: One purpose of GAAP is to make accounting information prepared by different companies more comparable

True

Which of the following is not characteristic of financial accounting?

A. Information used in financial statements is prepared in conformity with generally accepted accounting principles.

B. The information is confidential and is intended for use only by company management

C. The information is used in a wide variety of business decisions.

D. The information is developed primarily by "private accountants" that is, accountants employed by business organizations

B. The information is confidential and is intended for use only by company management

T/F: All financial accounting measures are precise and accurate and do not rely on estimates.

False

T/F: Financial accounting are modified to fit the needs of the user.

False

Assets

Assets= Liabilites + Equity

Retained Earnings

Net income less Dividends

An asset is:

A. Only acquired with cash.

B. Something the company owns.

C. Only contributed by stockholders.

D. Only acquired with debt

B. Something the company owns

A balance sheet includes:

A. The types and amounts of the revenues and expenses of a business

B. Only the information about what happened to retained earnings during a time period

C. The types and amounts of assets, liabilities, and equity of a business as of a specific date

D. The cash inflows and outflows during the period

C. The types and amounts of assets, liabilities, and equity of a business as of a specific date

The financial statement that shows beginning retained earnings, net income, dividends, and ending retained earnings is:

A. Statement of cash flows

B. Balance sheet

C. Income statement

D. Statement of retained earnings

D. Statement of retained earnings

Net Income

Net Income= Revenues-Expenses

What is revenue?

the price charged for providing goods or services

What is an expense?

The cost of goods and services used in the process of generating revenues

All of the following are characteristics of management accounting, except:

A. Reports are used primarily by insiders rather than by persons outside of the business entity.

B. Its purpose is to assist managers in planning and controlling business operations.

C.information must be developed in conformity with generally accepted accounting principles or with income tax regulations.

D. Information may be tailored to assist in specific managerial decisions.

C. information must be developed in conformity with generally accepted accounting principles or with income tax regulations.

T/F: The tailoring of an accounting report to meet the needs of a specific decision maker is more characteristic of financial accounting reports than of management accounting reports.

False

Financial statements are prepared:

A. Only for publicly owned business organizations.

B. For corporations, but not for sole proprietorships or partnerships.

C. Primarily for the benefit of persons outside of the business organization.

D. In either monetary or nonmonetary terms, depending upon the need of the decision maker.

C. Primarily for the benefit of persons outside of the business organization.

T/F: Managerial accounting information is designed primarily to assist investors and creditors in deciding how to allocate scarce resources.

False

Which of the following are not considered "external" users of financial statements?

A. Owners.

B. Creditors.

C. Labor unions.

D. Managers.

D. Managers

T/F: Investors are individuals and other enterprises that have provided equity to the reporting enterprise.

True

T/F: The content of management accounting reports needs to be presented in conformity with generally accepted accounting principles.

False

It is the function of management accounting to perform the following activities, except:

A. Financial forecasts.

B. Cost accounting.

C. Internal audits.

D. Audited financial statements.

Management accountants primarily are concerned with developing information:

A. For use in income tax returns.

B. Suited to the needs of stockholders, creditors, and other external decision makers.

C. In conformity with generally accepted accounting principles.

D. Suited to the needs of decision makers within the organization.

In the phrase "generally accepted accounting principles," the words generally accepted mean that the principles:

A. Have been adopted by Congress or approved by the voters in a general election.

B. Are acceptable to the Internal Revenue Service.

C. Are understood and observed by all the participants in the financial reporting process.

D. Have been approved by a majority of the members of the Financial Accounting Standards Board.