77 test bank for accounting information for business decisions 2nd edition

77 Test Bank for Accounting Information for Business
Decisions 2nd Edition
Multiple Choice Questions
Which of the following summarises a business’ receipts and
payments?
1.

a. Budget.

2.

b. Income statement.

3.

c. Balance sheet.

4.

d. Cash flow statement.

Which of the following summarises a business’ financial
position on a given date?
1.

a. Income statement

2.

b. Cash flow statement

3.

c. Balance sheet

4.

d. Budget

A budget:
1.

a. quantifies management’s plans.

2.

b. determines and evaluates the cost of specific products or activities in a business.

3.

c. compiles actual costs for a given period.

4.

d. is used to determine if a product should be continued or discontinued.

Financial accounting information:
1.

a. is a one size fits all approach to reporting business results.

2.

b. can be tailored to the needs of the internal user.

3.

c. follows statements on management accounting in the reporting process.

4.

d. helps only external users make decisions.

A lack of solvency is demonstrated when:
1.

a. assets are greater than liabilities.

2.

b. liabilities are greater than assets.


3.

c. revenues are greater than expenses.

4.

d. expenses are greater than revenues.

Which of the following do not cover a period of time?
1.

a. Income statement.

2.

b. Cash flow statement.

3.

c. Balance sheet.

4.

d. Accounts receivable ledger .

Which type of business organisation generates the greatest
volume of business?
1.

a. Proprietorships.

2.

b. Partnerships.

3.

c. Company/corporation.

4.

d. Each generates roughly the same amount of business.

What is the primary difference between a manufacturer and a
merchandiser?
1.

a. Merchandisers purchase finished goods ready to sell, whereas a manufacturer must
create the goods.

2.

b. Manufacturers purchase finished goods ready to sell, whereas a merchandiser must
create the goods.

3.

c. Merchandisers do not sell directly to the public, but rather only to manufacturers.

4.

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:
1.

a. Liabilities.

2.

b. Expenses.

3.

c. Payments.

4.

d. Owners’ equity.


Which of the following summarises the results of a business’
operating activities for a specific time period?
1.

a. Income statement

2.

b. Cash flow statement

3.

c. Balance sheet

4.

d. Payables ledger

Which of the following is the first stage in solving a business
problem?
1.

a. Knowing the possible outcomes.

2.

b. The recognition and definition of the problem.

3.

c. Understanding the available resources to solve the problem.

4.

d. Assessing the total cost and benefits of solving the problem.

Statements on management accounting:
1.

a. are binding and contractual in nature.

2.

b. are general guidelines management accountants may turn to when faced with new
situations to resolve.

3.

c. are developed primarily to guide the structure of reporting to external users.

4.

d. are issued by CPA Australia.

Managerial accounting information:
1.

a. is a one size fits all approach to reporting business results.

2.

b. can be tailored to the needs of the internal user.

3.

c. follows GAAP in the reporting process.

4.

d. helps shareholders make decisions.

Which of the following would a manager do as a part of
planning activities?
1.

a. Compare estimates to benchmarks.

2.

b. Purchase inventory.

3.

c. Hire employees.

4.

d. Prepare cost estimates.


Evaluating activities consist of:
1.

a. establishing business goals.

2.

b. establishing a means of achieving business goals.

3.

c. providing feedback to managers to correct deviations from standards.

4.

d. setting benchmarks or standards.

Which of the following is an example of a manufacturer?
1.

a. Dell Calculator

2.

b. Bob’s lawnmower services

3.

c. Air NZ

4.

d. Qantas

Which of the following is false?
1.

a. Accounting keeps track of a business’ economic resources and activities, then
reports the results and financial position to users who have an interest.

2.

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.

3.

c. Accounting focuses on the resources and activities of individual businesses.

4.

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?
1.

a. Net income.

2.

b. Assets, liabilities and owner’s equity.

3.

c. Cash received and paid.

4.

d. Owner investments.

The business’ economic resources are:
1.

a. Revenues.

2.

b. Liabilities.

3.

c. Owners’ equity.

4.

d. Assets.


Operating activities consist of:
1.

a. how products get made and sold.

2.

b. measuring actual operations and progress against a standard or benchmark.

3.

c. establishing business goals.

4.

d. establishing means of achieving business goals.

True - False Questions
The modern day accountant generally works alone and
therefore does not require teamwork skills.
1.

True

2.

False

Accounting is an information tool which can help make good
business decisions.
1.

True

2.

False

An internal user would receive “tailor-made” information from
the accounting system.
1.

True

2.

False

An external user would receive ‘tailor-made’ information from
the accounting system.
1.

True

2.

False

Feedback from operations can be effectively used in the
planning, operating or evaluating stages of a business.
1.

True

2.

False

Many businesses have no need for accounting information and
can actually exist without an accounting system.
1.

True


2.

False

The term ‘private enterprise’ means that businesses keep their
accounting information private.
1.

True

2.

False

Woolworths is an example of a retailing business.
1.

True

2.

False

A balance sheet lists the business’ assets, liabilities and
owners’ equity at a given date.
1.

True

2.

False

Sources of capital for a business include owner investments,
and borrowing or seeking investments from outsiders.
1.

True

2.

False

External users possess skills to extract the information they
need for decisions from the accounting information of a
business.
1.

True

2.

False

Accounting keeps track of a business’ economic resources and
activities, then reports the results and financial position
to users who have an interest.
1.

True

2.

False

Unless you are a business owner, you will not be making
business decisions.
1.

True


2.

False

Sole proprietorships are the most common form of business
and as such, conduct more volume of business than
partnerships and corporations put together.
1.

True

2.

False

Evaluating is the process of establishing the business’ goals
and objectives.
1.

True

2.

False

Operating refers to the set of activities that the business
engages in to conduct its business according to its plan.
1.

True

2.

False

A business’ accounting system would provide information for
both external and internal users.
1.

True

2.

False

Cost analysis tells a business owner the selling price of a
product or service.
1.

True

2.

False

A dental surgery is an example of a service business.
1.

True

2.

False

Having a code of ethics will always provide you with the correct
solution to an ethical dilemma.
1.

True

2.

False



Text Questions - Page 1
____________________ 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 2
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 do 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
do 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.