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TEST PLANNING TABLE FOR CHAPTER 8
Learning Objective Easy: Moderate: Challenging:

Knows Basic Understands Applies Principles
Terms and Concepts and
Facts Principles
8-1: Define accounting 1, 14, 15, 94, 2, 3, 4, 5, 6, 7, 8, 9, 95, 100, 104, 105,
and describe how 96, 101, 102 10, 11, 12, 13, 108, 186, 187, 188,
accounting infor- 16, 17, 18, 97, 189
mation is used by a 98, 99, 103, 106,
variety of stake- 107
holders
8-2: Identify the purpos- 20, 21, 22, 30, 19, 23, 24, 25, 27, 28, 109, 110, 190,
es and goals of 111, 113, 116 26, 29, 112, 191
generally accepted 114, 115
accounting princi-
ples
8-3: Describe the key 31, 36, 41, 42, 34, 38, 39, 43, 32, 33, 35, 37, 40, 50,
elements of the ma- 47, 48, 54, 55, 44, 45, 46, 49, 57, 117, 122, 123,
jor financial state- 56, 118, 119, 51, 52, 53, 58, 124, 131, 133, 135,
ments 121, 125, 129, 59, 120, 126, 136, 138, 143, 145,
134, 137, 140, 127, 128, 130, 152, 192, 193, 194
147 132, 139, 141,
142, 144, 146,
148, 149, 150,
151
8-4: Describe several 61, 62, 67, 60, 64, 65, 66, 63, 69, 163, 164, 165,
methods stakehold- 155, 156, 158, 68, 153, 154, 195
ers can use to ob- 159, 160, 166 157, 161, 162
tain useful insights
from a company’s
financial statements
8-5: Explain the role of 70, 72, 73, 74, 75, 76, 77, 82, 71, 79, 80, 81, 170,
managerial account- 78, 167, 168, 173, 177 174, 176, 178, 196,
ing and describe the 169, 171, 172, 197, 198, 199
various cost con- 175
cepts identified by
managerial ac-
countants
8-6: Explain how the 83, 86, 87, 88, 84, 85, 91, 180, 92, 93, 179, 185, 200
budget process can 89, 90, 181, 184
help managers plan, 182, 183
motivate and evalu-
ate their organiza-
tion’s performance
321
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
True/False questions are in plain text.
Multiple choice questions are in bold text.
Essay questions are in bold underlined text
The answers are displayed:

ANS: B DIF: Easy REF: Page 7 OBJ: 8-1 NAT: BUSPROG: Communication
TOP: The Economic Environment KEY: Bloom’s Comprehension
ANS: Answer is B
DIF: Difficulty Level - Easy
REF: Page number of the book where the answer can be found
OBJ: Learning Objective 1 in chapter 8
NAT: Tier 1 Standards (Interdisciplinary Learning Outcomes)
TOP: Topic – A Head/B Head of where the answer can be found
KEY: Bloom’s Taxonomy Tags
322
Chapter 8: Accounting: Decision Making by the Numbers
TRUE/FALSE
1. Accounting is a system for recognizing, recording, organizing, analyzing, summarizing, and

reporting information about the financial transactions that affect an organization.
ANS: T DIF: Easy REF: Page 115 OBJ: 8-1

NAT: BUSPROG: Communication TOP: Accounting: Who Needs It--and Who Does It?
KEY: Bloom’s Knowledge
2. A variety of business stakeholders rely so heavily on accounting information that it’s sometimes
called the “backbone” of business.
ANS: F DIF: Moderate REF: Page 115 OBJ: 8-1

NAT: BUSPROG: Analytic TOP: Accounting: Who Needs It--and Who Does It?
KEY: Bloom’s Analysis
3. The accounting profession is seldom concerned with the interpretation of financial information.

4. Recording financial transactions is an accounting function.
ANS: T DIF: Moderate REF: Page 115 OBJ: 8-1

5. As an employee of Boca Bowling, you have no need to review or understand the company’s
accounting information.

NAT: BUSPROG: Communication TOP: Accounting: Who Uses It?
KEY: Bloom’s Comprehension
6. The managers of a company are the only stakeholders of a company that have a legitimate interest
in its accounting information.

NAT: BUSPROG: Analytic TOP: Accounting: Who Uses It?
7. Some key users of a corporation’s accounting information include managers, government

agencies, and stockholders.

323
324 Chapter 8: Accounting: Decision Making by the Numbers
8. Accounting systems are utilized by companies for several reasons, but they have little value when
it comes to making economic decisions.

9. Mary is an employee and stockholder for the McNeely Company. Mary is considered a primary
user of her firm’s accounting information.
ANS: T DIF: Challenging REF: Page 115 OBJ: 8-1

NAT: BUSPROG: Reflective Thinking TOP: Accounting: Who Uses It?
KEY: Bloom’s Synthesis
10. Public accountants provide a variety of accounting services for clients on a fee basis.

NAT: BUSPROG: Communication TOP: Accounting: Who Does It?
11. Management accountants and public accountants do the same type of work but have different
qualifications.
ANS: F DIF: Moderate REF: Pages 115-116

OBJ: 8-1 NAT: BUSPROG: Analytic TOP: Accounting: Who Does It?
12. Management accountants work for private citizens who are not part of a firm, while public
accountants work internally for publicly traded companies.

13. Management, internal, and government accountants are business titles used by certified public
accountants.

14. Management accountants work within a business organization, preparing reports and analyzing
financial information for the company that employs them.
ANS: T DIF: Easy REF: Pages 115-116

OBJ: 8-1 NAT: BUSPROG: Communication
TOP: Accounting: Who Does It?
Chapter 8: Accounting: Decision Making by the Numbers 325
15. Internal auditors are also known as certified public accountants.
ANS: F DIF: Easy REF: Page 116 OBJ: 8-1

16. Through additional preparation, an accountant may become a certified management accountant
(CMA), certified public accountant (CPA), and/or certified internal auditor. These certifications
signify advanced preparation in the accounting field.

17. Internal auditors are private accountants responsible for verifying their company’s internal
accounting procedures.

18. Most accountants become CPAs because the preparation to become a CMA is much more
rigorous.

NAT: BUSPROG: Analytic TOP: Accounting: Who Does It?
19. Financial accounting is the branch of accounting that prepares financial statements for use by
external stakeholders such as owners, creditors, suppliers, and other stakeholders.

NAT: BUSPROG: Communication
TOP: Financial Accounting: Intended for Those on the Outside Looking In
20. The Financial Accounting Standards Board (FASB) is the private, self-regulating board
established to develop and enforce the generally accepted accounting principles that guide the
practice of financial accounting.

TOP: Role of the Financial Standards Accounting Board
21. FASB is an acronym that stands for Federal Accounting Systems Board.

22. Generally accepted accounting principles (GAAP) are a set of accounting standards used in the
preparation of financial statements.

23. The rules governing the practice of financial accounting are established and enforced by the
Federal Accounting Standards Commission (FASC).

24. GAAP is the policy board that establishes the rules known as the FASB of accounting.

NAT: BUSPROG: Analytic
25. The purpose of GAAP is to specify the procedures used in managerial accounting to prepare
budgets and cost reports.

26. Two of the goals underlying GAAP are to ensure that the statements prepared by financial
accountants are relevant and to ensure that they are consistent.

27. FASB responsibility for enforcing accounting standards only extends to the U.S. and does not
include working with other nations.
ANS: F DIF: Challenging REF: Page 117 OBJ: 8-2

NAT: BUSPROG: Reflective Thinking
28. The FASB and IASB are working together to reduce confusion and provide external stakeholders
with accurate and consistent financial statements worldwide.

29. Since it deals strictly with numbers, the practice of accounting is free from ethical considerations.

NAT: BUSPROG: Analytic TOP: Ethics in Accounting
30. As a result of the accounting scandals of the early 21st century, many states have imposed new
ethics-related requirements on certified public accountants.

NAT: BUSPROG: Communication TOP: Ethics in Accounting
31. Assets = Liabilities + Net Income

TOP: The Balance Sheet: What We Own and How We Got It
32. Ralph owns some stock in the Lottadoe Corporation, and wants to know whether this company
earned a profit over the most recent year. This information would be available in the company’s
balance sheet.

KEY: Bloom’s Evaluation
33. The Taylix Company’s balance sheet showed $18,000,000 in assets and $10,000,000 in liabilities.
Taylix Company’s owner’s equity = $6,000,000.

34. A balance sheet is a financial statement reporting the financial position of a firm at a particular
point in time by identifying and reporting the value of the firm’s assets, liabilities, and owners’
equity.

35. Bernie is calling his accountant to determine how much he owes his supplier of raw materials by
the end of the month. Bernard should ask the accountant to provide him with a balance sheet.

36. According to the accounting equation, Assets – Expenses = Net Income

37. Bernard’s business checking account seems to be short on cash. He is calling his accountant to
determine if he was profitable last month. The income statement is his best source of information
concerning his cash position.

TOP: The Income Statements: So, How Did We Do?
38. Assets are the tangible and intangible resources of value owned by a firm.
ANS: T DIF: Moderate REF: Pages 118-119

OBJ: 8-3 NAT: BUSPROG: Analytic
39. Expenses are listed on the asset side of a balance sheet.

40. Rosalyn owns stock in Munnymacher Inc. and just received her annual report from this company.
If she wants to see the total value of Munnymacher’s assets, she should look at the company’s
balance sheet.

41. Current liabilities are debts that will come due within a year of the date on the balance sheet.

42. The owners’ equity section of the balance sheet indicates the claims a firm’s owners have against
their company’s assets.

43. Liabilities could include bank loans and current payments owed to suppliers.

44. Balance sheets reflect three accounts: assets, liabilities, and cost of goods sold account.

45. The accounting equation is based on the fact that the value of a firm’s assets is, by definition,
exactly equal to the financing provided by creditors and by owners of the firm.

46. A company’s balance sheet will “balance” even if it is on the verge of bankruptcy.

47. An income statement is the financial statement that reports revenues, expenses, and net income
resulting from a firm’s operations, over a given period of time.
ANS: T DIF: Easy REF: Pages 120-121

48. Net income is the difference between the revenue a firm earns and the expenses it incurs in a given
time period.

NAT: BUSPROG: Communication TOP: The Income Statements: So, How Did We Do?
49. The accounting entity approach is an accounting method that recognizes revenue when it is earned
and matches expenses to the revenues they helped produce.

NAT: BUSPROG: Analytic TOP: The Income Statements: So, How Did We Do?
50. A college student registers for classes and pays the tuition with a credit card. Because it uses
accrual-basis accounting, the college will recognize the payment as revenue as soon as the
transaction turns into cash in the school’s bank account.

NAT: BUSPROG: Reflective Thinking TOP: The Income Statements: So, How Did We Do?
51. Business expenses are available resources that stakeholders control.

NAT: BUSPROG: Analytic TOP: The Income Statements: So, How Did We Do?
52. Accrual-basis accounting is the method that recognizes revenue when it is earned and matches
expenses to those revenues they helped produce.

53. Revenues represent increases in the amount of cash and other assets such as accounts receivable
resulting from the sale of goods, the provision of services, or other activities intended to earn
income.

54. The statement of cash flows shows the cash flowing in and out of the firm from three types of
activities: operations, investing, and financing.

TOP: The Statements of Cash Flow: Show Me the Money
55. A statement of cash flows is the financial statement identifying a firm’s sources and uses of cash
in a given accounting period.

56. Revenue, expenses, and net income are the key sections found on a statement of cash flows.

57. The cash flows received from operations reported in the statement of cash flows should be exactly
equal to the revenue the firm reports on its income statement.

58. The cash balance reported at the bottom of the statement of cash flows should equal the amount of
cash reported for a balance sheet prepared at the end of the same accounting period.

59. The statement of retained earnings shows how retained earnings have changed from one
accounting period to the next. By subtracting dividends paid to shareholders from net income,
managers will see changes in this statement over time.

TOP: Other Statements: What Happened to the Owner’s Stake?
60. U.S. securities laws require every private company in the United States to have an independent
CPA firm perform an annual external audit of its financial statements.

TOP: The Independent Auditor’s Report: Getting a Stamp of Approval
61. When an external audit doesn’t uncover any problems with the firm’s financial methods and
statements, the auditor will issue an unqualified opinion.

62. The Sarbanes-Oxley Act of 2002 included provisions designed to improve external auditing
procedures and enhance financial reporting for publicly traded firms.

63. Bryan’s company is going through its annual external audit. Since Bryan’s job is to catalog and
store the company’s supply inventory he needs to make sure his inventory records are accurate, so
the company will receive an unqualified opinion from the auditor.

64. An unqualified opinion and a clean opinion are the same thing.

65. Publicly traded firms may disclose additional information about the firm’s operations in notes to
the financial statements in the annual report.

TOP: Checking Out the Notes to Financial Statements: What’s in the Fine Print?
66. The SEC requires publicly traded corporations to provide comparative financial statements.

TOP: Looking for Trends in Comparative Statements
67. Horizontal analysis is an analysis of information in financial statements that involves expressing
various accounts as a percentage of some base amount.

68. Horizontal analysis compares the balance sheet in a given year to the income statement and
statement of cash flows in that same year to ensure that these three statements contain consistent
information.

69. Aaron and Abbey are evaluating three different telecommunications companies in order to
determine which one is the best investment. Horizontal analysis will allow them to make
comparisons over several years, in order to determine which company(s) has successfully grown
its profits.

70. Managerial accounting involves developing standardized reports according to a predetermined

schedule.

TOP: Inside Intelligence: The Role of Managerial Accounting
71. The CFO of Hawking Bros. Production asked accountant Artie Anderson to prepare a customized
report dealing with cost overruns at the company’s production facility in Florida. Artie is a
managerial accountant.

72. Managerial accounting is the branch of accounting that provides reports and analysis to managers
in order to help those managers make informed business decisions.

73. Cost is defined as the value of what is given up in exchange for something else.

NAT: BUSPROG: Communication TOP: Cost Concepts: A Cost for All Reasons
74. Explicit, implicit, fixed, and variable are all forms of cost concepts commonly used by managerial
accountants.

75. What a person pays out-of-pocket is often referred to as an implicit costs.

76. Explicit costs are not easy to measure since they do not involve a monetary payment.

NAT: BUSPROG: Analytic TOP: Cost Concepts: A Cost for All Reasons
77. Paying Meghan to assemble a computer in your warehouse is considered a direct cost.

TOP: Assigning Costs to Products: As (Not So) Simple as ABC?
78. Activity-based costing is a technique used by managerial accountants to assign product costs based
on links between activities that drive costs and the production of specific products.

79. Joe’s accountant has asked him to determine the company’s direct and indirect costs. Joe would
classify depreciation on the company’s copy machine and computers as an indirect cost.

80. The accounting department at Cathy’s Cupcakes has been asked to determine the company’s direct
costs. The accountants would need to look at what the company spent on baking supplies, muffin
pans and counter help.

81. Rapunzel has asked her accounting department to give her a detailed description of how her
indirect costs are related to the individual hair care products she produces. The best way of
allocating the costs would be to use the two-stage process of activity-based costing.
ANS: T DIF: Challenging REF: Pages 127-128

OBJ: 8-5 NAT: BUSPROG: Reflective Thinking
82. Activity based-costing (ABC) is a simple “one size fits all” method of all allocating costs.

83. Budgeting is a management tool that explicitly shows how a firm will acquire and use resources
needed to achieve its goals over a specific time period.

NAT: BUSPROG: Communication TOP: Budgeting: Planning for Accountability
84. A bottom-up approach to budgeting allows for lower level managers to participate in the
development of budgets.

TOP: Preparing the Budget: Top-Down or Bottom-Up?
85. The top-down approach to budgeting is best if the company wants to develop buy-in with first-line
supervisors and other lower level management.

TOP: Preparing the Budget: Top-Down or Bottom-Up?
86. Financial budgets are the budget documents that identify cash and other financial resources the
firm will acquire and use to finance operations and make planned investments in fixed assets.

TOP: Developing the Key Budget Components: One Step at a Time
87. Operating budget documents include the cash budget and the capital budget.

88. The master budget is a combined statement of an organization’s operational and financial budgets
that represents the firm’s overall plan of action for a specified time period.

89. The cash budget identifies short-term fluctuations in cash flow.

90. The master budget shows how all of the pieces fit together to form a complete picture.

91. The sales budget is the first operating budget created during the budgeting process, because the
costs included in other operating budgets depend on the firm’s level of sales.

92. BigBux, Inc. indicates the number of units of each product it expects to sell, the selling price, and
the total dollar value of sales in its cash budget.

93. Ted runs Green America, Inc., a nursery and landscape operation. Most of his business occurs in
the spring and early summer seasons, yet he makes most of his inventory purchases in the winter.
As such, he must be very careful about cash flow fluctuations. The capital expenditure budget
would be very helpful for Ted.

MULTIPLE CHOICE
94. _____ is a system for recognizing, recording, organizing, summarizing, analyzing, and reporting
information about the financial transactions that affect an organization.
a) Accounting
b) Bookkeeping
c) Managerial finance
d) Auditing
ANS: A DIF: Easy REF: Page 115 OBJ: 8-1
95. Which statement best defines accounting and those parties who exploit it?
a) Accounting is a system of recording and organizing the finances of a business. Bankers
use this system often.
b) Accounting is a system that provides a way for the financials of a business to be recorded,
organized and analyzed. It is used by accountants and managers.
c) Accounting is a system that provides a way for the financials of a business to be recorded,
organized and analyzed. It is used by stockholders, employees, suppliers, government
agencies, and managers.
d) Accounting is a system that provides a way for the financials of a business to be recorded
and analyzed. It is used for internal purposes by accountants and managers.
ANS: C DIF: Challenging REF: Page 115 OBJ: 8-1
NAT: BUSPROG: Reflective Thinking TOP: Accounting: Who Needs It--and Who Does It?
96. Bookkeepers encompass the routine procedures involved in reporting information about the
financial transactions that affect an organization, while _____ go further by analyzing and
interpreting this information and communicating the results to stakeholders.
a) managers
b) employers
c) auditors
d) accountants
ANS: D DIF: Easy REF: Page 115 OBJ: 8-1
97. Managers, stockholders, employees, and creditors are

a) auditors of the health and well-being of a company.
b) all employees of a corporation.
c) all users of accounting information to assess a company’s finances.
d) designated by the board of directors to review company documents.
ANS: C DIF: Moderate REF: Page 115 OBJ: 8-1
98. Stockholders would most likely use accounting information provided by their firm to
a) make capital budgeting decisions.
b) gauge whether the firm is generating a satisfactory return on their investment.
c) determine whether the firm can repay them for their stock.
d) obtain information needed to fill out their individual tax returns.
ANS: B DIF: Moderate REF: Page 115 OBJ: 8-1
99. Key users of accounting information include all of the following EXCEPT
a) managers
b) patent attorneys
c) creditors
d) suppliers
100. A number of groups—whether a company wants them to or not—might have interest in a firm’s
accounting information. Which of the following is most likely NOT one of those groups?
a) news media
b) politicians
c) competitors
d) unions
ANS: B DIF: Challenging REF: Page 115 OBJ: 8-1
NAT: BUSPROG: Reflective Thinking TOP: Accounting: Who Does It?
101. As a _____ you work within an organization, preparing reports and analyzing financial
information such as budgets and cost management.
a) public accountant
b) government accountant
c) management accountant
d) bookkeeper
ANS: C DIF: Easy REF: Pages 115-116
102. _____ accountants provide services such as tax preparation, external auditing, or management
consulting to clients on a fee basis.
a) Public
b) Management
c) Government
d) Private
ANS: A DIF: Easy REF: Pages 115-116
103. _____ perform or assist in a wide variety of tasks for the firms in which they work. These tasks
include budgeting, cost and asset management, and the preparation of reports for the firm’s
stakeholders.
a) Management accountants
b) Public accountants
c) Internal auditors
d) Government accountants
ANS: A DIF: Moderate REF: Pages 115-116
104. You recently were hired by SSC, Inc. It is your job to prepare reports and analyze financial
information related to SSC, Inc. Most likely you are a
a) certified bookkeeper.
b) forensic accountant.
c) management accountant.
d) public accountant.
ANS: C DIF: Challenging REF: Pages 115-116
105. Sally works in the financial department at Porsche. Her duties include preparing reports and
analyzing data specific to Porsche. She develops budgets for upcoming new models, appraises
financial performance, and verifies the accuracy and validity of Porsche’s internal records and
accounting procedures. What might her job title be, specifically?
a) bookkeeper
b) government internal auditor
c) CPA
d) management accountant and internal auditor
ANS: D DIF: Challenging REF: Pages 115-116
106. Candidates wishing to become certified public accountants must complete all of the following to
reach certification EXCEPT
a) must complete 150-semester hours (5 years) of college education with heavy emphasis on
accounting and business-related courses
b) must complete an accounting-related internship while in college
c) must pass a rigorous exam
d) must complete one year of direct work experience in the field of accounting
NAT: BUSPROG: Analytic TOP: Accounting: Who Does It?
107. _____ work for local, state, and federal agencies. They prepare government financial statements as
well as perform tasks similar to those carried out by their private sector counterparts.
a) Fiscal accountants
b) Recording accountants
c) Comptrollers
d) Government accountants
ANS: D DIF: Moderate REF: Page 116 OBJ: 8-1
108. El Duderino, as his clients call him, helps new companies design their accounting systems. He also
assists established companies with updates to their accounting procedures. What might be his job
title?
a) management accountant
b) internal auditor
c) CPA
d) general bookkeeper
NAT: BUSPROG: Reflective Thinking TOP: Accounting: Who Does It?
109. Greg is a recent graduate with this accounting degree. He has also sat for and passed the CPA
exam. At his new accounting position at Get With It.com, inc., he notices that depreciation
expense is not calculated in what he understands to be an acceptable accounting method. Greg has
decided to approach his supervisor and clarify what he believes to be a discrepancy in standard
practices. To make his case, he should refer to
a) GAAP
b) FASB
c) ACCP
d) apples to apples standard of comparing accounting methods
ANS: A DIF: Challenging REF: Page 116 OBJ: 8-2
110. The SEC has delegated the FASB with the task of establishing generally accepted accounting
principles (GAAP). Which of the following statements is NOT true?
a) The GAAP must be relevant, reliable, consistent, and comparable.
b) Many observers view the GAAP as cumbersome, in need of an overhaul.
c) The FASB consists of five FAF-appointed board members that serve a five-year term.
d) Bucking the SEC, the FASB has made a strong push in recent years to overhaul the
GAAP.
ANS: D DIF: Challenging REF: Page 116 OBJ: 8-2
111. _____ addresses the needs of the external stakeholders, including stockholders, creditors, and
government regulators.
a) Forensic accounting
b) Investigative accounting
c) Managerial accounting
d) Financial accounting
112. _____ would provide stockholders or creditors with information about the overall financial
performance of a firm, while _____ would provide information needed by a firm’s vice president
of marketing who wants to view changes in the marketing budget for a new product.
a) Internal auditors; financial accounting
b) Financial accounting; accrual accounting
c) Financial accounting; managerial accounting
d) Bookkeepers; auditors
113. _____ is the private, self-regulating, five-member board established to develop generally accepted
accounting principles used in the practice of financial accounting.
a) GAAP
b) FASB
c) NFASC
d) FARPA
ANS: B DIF: Easy REF: Page 116 OBJ: 8-2
114. The FASB has the responsibility of establishing the principles used to prepare financial statements.
A key goal of these principles is to
a) create a fair distribution of corporate income among various stakeholders.
b) ensure that the firm’s value is fairly assessed and that its taxes are fair but not excessive.
c) provide external stakeholders with relevant and reliable information about a firm’s
financial condition.
d) provide the company’s managers with access to sensitive proprietary financial information
while preventing competitors and other outsiders from obtaining this information.
115. To provide external shareholders with relevant, reliable, consistent, and comparable financial
information, the accounting profession has adopted _____ to guide the practice of financial
accounting.
a) generally accepted accounting principles (GAAP)
b) formal accounting rules and procedures (FARP)
c) standardized accounting procedures (SAP)
d) general accounting rules for financial statements (GARFS)
ANS: A DIF: Moderate REF: Page 116 OBJ: 8-2
116. The Financial Accounting Standards Board hopes to make the U.S. accounting practices
a) more consistent with those of other nations.
b) better than those of other nations.
c) less consistent with those of other nations.
d) isn’t concerned with how the U.S accounting practices compare to other nations.
117. Tiny Timber Tree Farms applied to United Bank for a business loan. Which financial statements
would the loan officer of the bank be most likely to request?
a) balance sheets, income statements, and cash flow statements
b) journals, ledgers, and trial balances
c) total debits and total credits
d) the prospectus, statement of retained earnings, and total liability statement
NAT: BUSPROG: Reflective Thinking TOP: Financial Statements: Read All About Us
118. The major output of financial accounting is a set of statements including the
a) balance sheet, income statement, and statement of cash flows.
b) general journal, cash budget, and capital budget.
c) dividend record, auditor’s opinion, and master budget.
d) annual report, social audit, and balanced scorecard.
NAT: BUSPROG: Communication TOP: Financial Statements: Read All About Us
119. The _____ summarizes a firm’s financial position at a specific point in time (i.e., a specific quarter
or year).
a) statement of cash flows
b) income statement
c) balance sheet
d) investment income statement
ANS: C DIF: Easy REF: Page 118 OBJ: 8-3
120. All of the following are assets EXCEPT

a) cash.
b) inventory.
c) salaries payable.
d) buildings.
121. _____ are valuable things owned by the firm.

a) Retained earnings
b) Owners’ equities
c) Liabilities
d) Assets
122. Lottadoe’s liabilities are $130,000, and its owners’ equity is $170,000. This means that Lottadoe’s:
a) total assets are $300,000.
b) net income is $40,000.
c) net income for the current year was $300,000.
d) net cash flow for the current year was $40,000.
KEY: Bloom’s Application
123. Sabiha is the small business loan officer at Regional National Bank. It is her job to approve loans
for small businesses so that the local economy will grow. One factor she looks at carefully when
making loan decisions is the amount of outstanding debt the firm already has. She can find this
information by looking at the firm’s
a) income statement.
b) balance sheet.
c) statement of cash flows.
d) cash budget.
124. The accounting equation shows us that the value of the firm’s assets must equal the value of the
firm’s
a) earnings at a point in time.
b) revenues minus expenses.
c) owners’ equity.
d) financing provided by owners and creditors.
125. What is the accounting equation?

a) assets = liabilities - owner’s equity
b) liabilities = assets + owner’s equity
c) assets = liabilities + owner’s equity
d) assets = liabilities + potential
126. Which of the following would be listed in the owners’ equity section of a balance sheet?
a) cash
b) accounts receivable
c) net income
d) retained earnings
127. Which of the following would be listed in the liabilities section of the balance sheet?
a) retained earnings
b) debits
c) wages payable
d) expenses
128. _____ normally is the first asset listed on a balance sheet.

a) Accounts receivable
b) Cash
c) Inventory
d) Equipment
129. _____ is/are what the firm owes its creditors.

a) Retained earnings
b) Owners’ equity
c) Liabilities
d) Assets
130. The two broad sources of financing for a firm are

a) owners and non-owners (lenders).
b) retained earnings and assets.
c) income and profit.
d) cash and credit.
131. Which assets on a balance sheet have a limited useful life and are subject to the subtraction of their
value via accumulated depreciation?
a) accounts receivable
b) accounts payable
c) buildings, machinery, equipment, and other long-term assets
d) inventory
132. By subtracting dividends paid to shareholders from the net income, managers are able to calculate
the
a) increase in net income.
b) decrease in profit margins.
c) change in the cash balance in the firm’s bank account.
d) change in retained earnings.
133. A firm’s current liabilities

a) are what it owes to its shareholders.
b) are due to lenders in less than a year.
c) do not have to be repaid on any specific date. Instead, repayment can be deferred as long
as the firm is willing and able to make the required interest payments.
d) must equal its current assets.
134. _____ is/are the claims owners have against their firm’s assets.
a) Loans payable
b) Owners’ equity
c) Liabilities
d) Assets
135. A business has two sources of funds: the owners and the non-owners. The financing provided by
owners is represented on the balance sheet as _____, and the financing provided by non-owners is
represented on the balance sheet as _____.
a) liabilities; retained earnings
b) dividends; interest
c) owners’ equity; liabilities
d) revenues; expenses
ANS: C DIF: Challenging REF: Pages 119-120
136. Which of the following statements is the rationale for the accounting equation?
a) What the firm owns minus what it owes creditors equals what it is worth to its owners.
b) A firm is worth its equity minus its assets.
c) The firm’s profit is equal to its revenue minus its expenses.
d) Assets must equal earnings minus expenses.
ANS: A DIF: Challenging REF: Pages 119-120
137. The _____ indicates whether a firm earned a profit or suffered a loss over the past accounting
period.
a) balance sheet
b) income statement
c) statement of cash flows
d) cash budget
138. On an income statement, which of the following is the profit or loss a firm earns in the time period
covered?
a) gross profit
b) net income
c) taxable income
d) net operating income
139. As the owner of 100 shares of Megabux Corporation’s stock, Elbert Treble wants to know whether
his company earned a profit or loss during the past year. He can find the answer to this by looking
at Megabux’s
a) master budget.
b) income statement.
c) statement of cash flows.
d) revenue report.
140. According to the _____ method of accounting, revenues are recognized when they are earned, and
payment is reasonably assured
a) accrual-basis
b) actuarial
c) managerial
d) LIFO
NAT: BUSPROG: Communication .
141. According to accrual-basis accounting, expenses are

a) listed on the firm’s balance sheet as liabilities.
b) recognized as soon as cash is paid.
c) not tax deductible.
d) matched with the revenues they help generate.
142. All of the following are liabilities EXCEPT

a) bank loans.
b) wages payable.
c) accounts payable.
d) cost of goods sold.
143. If a firm’s assets equals $6,000 and its liabilities equals $3,500, then owners’ equity equals
a) $6,000.
b) $2,000.
c) $2,500.
d) $4,500.
KEY: Bloom’s Application
144. Which of the following items would be listed on an income statement?

a) cost of goods sold
b) current liabilities
c) cash flows from operations
d) accounts receivable
145. A firm’s cost of goods sold is subtracted from the _____ on the _____ in order to compute the
firm’s _____.
a) total assets; balance sheet; net worth
b) revenue; statement of cash flows; cash balance
c) revenue; income statement; gross profit
d) liabilities; balance sheet; total profit
146. Which item would be listed first on the income statement?

a) revenue
b) cost of goods sold
c) net operating income
d) retained earnings
147. The _____ shows the cash flowing in and out of a firm through its operating, investing, and
financing activities.
a) retained earnings
b) statement of cash flows
c) income statement
d) operating budget
148. The amount of cash at the end of the period, as reflected on the statement of cash flows, should
match the
a) retained earnings for the same period.
b) cash on the current balance sheet.
c) liabilities for next accounting period.
d) retained earnings for the previous reporting period.
149. Profit is the difference between

a) retained earnings and cost of goods sold.
b) notes payable and accounts payable.
c) revenue and expenses.
d) assets and liabilities.
150. The _____ would provide stakeholders with information about how a firm obtained and used cash
in the most recent accounting period, as well as its cash balance at the end of the accounting
period.
a) cash budget
b) income statement
c) stockholders’ equity statement
d) statement of cash flows
151. Cash flows from _____ show the amount of cash received from the sale of fixed assets such as
land and building and other financial assets.
a) operating activities
b) financing activities
c) investing activities
d) net cash activities
152. What two pieces of information are arguably the most important to any business?
a) cash flow--how and why it changes
b) compliance with government regulators and the report of an independent auditor
c) retained earnings and disbursements
d) financing activities and operating activities
153. The notes to financial statements included in an annual report

a) often disclose information about changes in accounting practices and about any special
circumstances that had an impact on the firm’s financial performance.
b) cite the specific GAAP rulings applied by the auditor and explain the reasons for any
concerns the auditor has.
c) show the actual calculations used to derive all key figures reported in the financial
statement, thus enabling stakeholders to compare the results of different companies more
accurately.
d) are important to management, but usually have little significance to investors and other
external stakeholders.
154. In evaluating companies across industries, financial managers will often read the _____ as a means
of interpreting the statements correctly.
a) balance sheet
b) income statement
c) retained earnings statement
d) independent auditor’s report
TOP: Interpreting Financial Statements: Digging Beneath the Surface
155. The external audit process includes all of the following EXCEPT:
a) make sure accounting and booking staff have a clear understanding of GAAP.
b) review sales receipts an invoices.
c) check the accuracy of every transaction.
d) count the supplies in inventory.
156. The auditor’s _____ indicate(s) whether the firm’s financial statements are prepared and presented
in a way that is likely to fairly represent the firm’s financial condition.
a) letter to the CEO
b) footnotes
c) opinion
d) certification statement
157. You recently considered investing in a publicly traded Texas-based company InnRonn, Inc. You
decided not to buy shares in the company after reading the independent auditor’s report and
discovering the auditor offered a(n) _____ opinion of the company’s financial statements.
a) qualified
b) disinterested
c) unqualified
d) disparaging
158. A(n) _____ is issued if the external auditor does not find any problems with the way a firm
prepares and reports its financial statements.
a) qualified opinion
b) unqualified opinion
c) adverse opinion
d) no opinion
159. An auditor issuing a(n) _____ has uncovered serious and widespread problems with the
preparation of a firm’s financial statements.
a) qualified opinion
b) unqualified opinion
c) adverse opinion
d) untenured opinion
160. Investors are provided with _____ from the firms whose stock they own. These documents
provide additional information about the firm’s practices and operations.
a) profitability quotients
b) annual reports
c) vertical analysis
d) pro rata analysis
161. One of the purposes of the Sarbanes-Oxley Act of 2002 was to

a) ban firms from using the same CPA firm as a competitor firm.
b) develop new asset management techniques.
c) prevent relationships that created conflicts of interest between CPA firms and the firms
they audit.
d) encourage relationships between CPA firms and the firms they audit that included
strategic consulting to improve financial performance.
162. The Sarbanes-Oxley Act created the _____ to protect the interests of investors and further the
public interest in the preparation of fair and informative financial statements.
a) Public Company Accounting Oversight Board (PCAOB)
b) Securities and Exchange Commission (SEC)
c) Financial Accounting Standards Board (FASB)
d) Forensic Accounting Standards Commission (FASC)
163. Which of the following statements is true?

a) CPA firms will only audit companies in the private sector.
b) In order for CPA firms to provide legitimate audits, they need to make certain that the
firms always use MTM (mark to market accounting).
c) CPA firms will only audit publicly traded firms.
d) In order for CPA firms to provide audits with integrity, they must be independent of the
firms they are auditing.
164. According to the text, what is the most important thing for CPA firms with integrity to do when
auditing a firm?
a) Auditors must remain independent of the firms they audit.
b) Auditors must get to know the firms’ management in order to perform a fair audit.
c) Auditors should enter into lucrative consulting contracts with the firms they audit.
d) Auditors should overlook small discrepancies in order to protect the interests of the firms’
investors and of the public.
165. Radcliffe McCoy is the financial manager for his company. He is comparing income statements
from the past three years to see the trend (if any) in cost of goods sold and other expenses. He is
using:
a) vertical analysis.
b) horizontal analysis.
c) ratio analysis.
d) managerial analysis.
166. _____ compares information contained in a firm’s financial statements over a period of two or
more years.
a) Profitability analysis
b) Ratio analysis
c) Vertical analysis
d) Horizontal analysis
167. _____ provide reports, information, and analysis to managers to assist them with making better
informed decisions.
a) Auditors
b) Technological accountants
c) Financial accountants
d) Managerial accountants
168. Managerial accounting primarily serves the needs of a firm’s

a) suppliers.
b) customers.
c) managers.
d) investors.
169. While _____ is concerned with preparing financial statements for external stakeholders according
to a fixed schedule, _____ provides information to internal stakeholders on an “as needed” basis.
a) financial accounting; managerial accounting
b) managerial accounting; financial accounting
c) audit results; ratio analysis
d) a master budget; the three basic financial statements
170. In what key ways does managerial accounting differ from financial accounting?
a) Managerial accounting is a system of bookkeeping run by the managers of the accounting
pool.
b) Managerial accounting exclusively provides financial information.
c) Managerial accounting practices are subject to the GAAP, and it helps to summarize past
performance.
d) Managerial accounting is primarily focused inward for benefit of the company.
171. Accountants define cost as

a) actual expenditure of money or other resources.
b) opportunity given up to use as an asset in an alternative way.
c) the price of something.
d) the value of what is given up in exchange for something.
172. Out-of-pocket costs are also referred to as

a) implicit costs.
b) explicit costs.
c) direct costs.
d) indirect costs.
173. When managerial accountants assign costs to the production of specific products, the costs that are
easiest to assign are
a) property taxes and income taxes.
b) insurance premiums and depreciation expenses.
c) general maintenance expenses and direct labor.
d) direct labor and direct materials costs.
174. Pierre’s Gourmet Foods produces high-quality desserts and appetizers that are distributed by
upscale grocery stores. When assigning production costs to its various food products, the costs of
ingredients used to make a product are _____, the cost of the workers who prepare the product are
_____, and the cost of the rent and insurance on the building are _____.
a) direct costs; derived costs; fixed costs
b) tax-exempt costs; taxable costs; depreciable expenses
c) fixed costs; proportional costs; capital costs
d) direct materials costs; direct labor costs; overhead costs
175. _____ is a technique used by managerial accountants to assign product costs based on links
between activities that drive costs and the production of specific products.
a) Actual basis costing
b) Activity-based costing
c) Actuarial-based costing
d) Break-even analysis
ANS: B DIF: Easy REF: Pages 127-128
176. Small business owner Barry Shain has always paid all of his current bills on time. However, this
year he has more bills coming due than normal. Barry may want to explore a more recent method
of assigning costs to various products and services of his firm known as
a) activity-based costing.
b) managerial-based costing.
c) direct labor costing.
d) product costing.
ANS: A DIF: Challenging REF: Pages 127-128
177. Activity-based costing is a(n)

a) three-stage process dealing with direct costs.
b) “one size fits all” process.
c) two-stage process dealing with indirect costs.
d) systematic examination of how direct costs relate to individual goods.
ANS: C DIF: Moderate REF: Pages 127-128
178. Tiny Timber Tree Farms has decided to adopt activity-based costing. One likely reason the firm’s
accountants decided on this approach was to
a) provide a more meaningful way to assign overhead costs to specific products.
b) simplify the process of assigning costs to specific products.
c) base costing on the amount of direct labor used to produce each product.
d) move from a system that focuses on assigning costs to goods and services to a system that
assigns costs to activities.
179. Preparing a good budget is beneficial because

a) it fosters better communication and coordination among members of various departments
with direct responsibility for producing products and services.
b) it provides direction through the identification of goals and plans of action.
c) it provides an effective way to monitor progress.
d) All of these statements are benefits of budgeting.
NAT: BUSPROG: Reflective Thinking TOP: Budgeting: Planning for Accountability
180. In its sales budget, BigBux Inc. indicates that in the second quarter it expects to sell 64,000 units
of a product at $4.00 each. What is the projected sales revenue for this product?
a) $200,000
b) $16,000
c) $256,000
d) $164,000
181. The process of developing the operating budget begins with the
a) sales budget.
b) income statement.
c) production schedule.
d) capital expenditure budget.
182. The _____ budget brings together all of the firm’s budgeting documents to provide a unified plan
for the a specific budget period.
a) operating
b) master
c) fiscal
d) A-level
183. The _____ budget deals with the firm’s plans for investing in major fixed assets and long-term
projects
a) strategic
b) long-term
c) capital expenditure
d) operating
184. The financial budget of a firm includes

a) both the capital expenditure budget and cash budget.
b) the sales budget, marketing budget, and tax budget.
c) both the revenue budget and cost budget.
d) all of the budget documents developed for a given fiscal period.
185. As a financial manager for his firm, Martin Meyer is worried about possible cash shortages his
firm might face over the next few months. The _____ budget would help him identify periods
when cash might be very tight.
a) revenue
b) sales
c) liquidity
d) cash
ESSAY
186. Define the term accounting, and explain how accounting information is used by a variety of
stakeholders.
ANS:
Accounting is a system for recognizing, recording, organizing, summarizing, analyzing, and
reporting information about the financial transactions that affect an organization. This system
provides its users with relevant, timely information that allows them to make sound economic
decisions. In fact, accounting is so important, that it’s sometimes called the language of business.
DIF: Challenging REF: Page 115 OBJ: 8-1

TOP: Accounting: Who Needs It--and Who Does It?
187. List and describe at least three users of a firm’s accounting information.
ANS:
Students will most probably draw from the key users discussed in the text.
Managers: Marketing managers, for instance, need information about sales in various regions and
for various product lines. Financial managers need up-to-date facts about debt, cash, inventory,
and capital.
Stockholders: As owners of the company, most stockholders have a keen interest in its financial
performance, especially as indicated by the firm’s financial statements. Has management
generated a strong enough return on their investment?
Employees: Strong financial performance would help employees make their case for nice pay
raises and hefty bonuses. But if earnings drop—especially multiple times—many employees
might decide to polish their résumés!
Creditors: Bankers and other lenders want to know that a company has the financial resources
needed to pay back what it borrows.
However, note that other stakeholders could also be correctly listed, including government
regulators, competitors, and the media.

TOP: Accounting: Who Uses It?
188. Discuss the career opportunities available to accountants.
ANS:
Students might list several of the following types of accounting careers:
Management accountants work within an organization, analyzing financial information and
preparing reports and statements for that organization.
Internal auditors are private accountants who play an important role by verifying the accuracy of
their firm’s internal records and the validity of its accounting procedures.
Public accountants provide a broad range of accounting and consulting services to clients on a fee
basis. They may help clients set up accounting systems or assist in tax preparation.
Government accountants work for a wide variety of government agencies at the local, state, and
federal levels. In general, they perform tasks similar to those of public and private accountants.
Forensic accountants combine in-depth knowledge of accounting with training in law and
investigative techniques to help detect and investigate white-collar crimes, such as tax evasion,
embezzlement, money laundering, and securities fraud.
DIF: Challenging REF: Pages 115-116 OBJ: 8-1

189. Discuss the duties and responsibilities of several types of accountants.
ANS:
· Management accountants: Many accountants work within an organization, preparing reports

and analyzing financial information specific to that organization. These private accountants
perform a wide variety of tasks, including budgeting, cost and asset management, the
preparation of reports for managers, and the preparation of financial statements for owners and
other stakeholders. While most private accountants work within profit-seeking businesses,
many work for nonprofit organizations, such as charities, private schools, and churches.
· Internal auditors: Internal auditors are private accountants who are responsible for verifying
the accuracy of their organization’s internal records and the validity of its accounting
procedures. They can identify areas where mismanagement, waste, and fraud may exist.
· Public accountants: Public accountants provide a broad range of accounting and consulting
services to clients on a fee basis. These clients may be individuals, corporations, nonprofit
organizations, or government agencies. Typical public accounting services include income tax
preparation, external auditing services, and consultation on a variety of accounting issues and
problems. Public accountants often help new companies design their accounting systems and
procedures. They also update and improve accounting systems for mature companies.
· Government accountants: As their name implies, government accountants work for a wide
variety of government agencies at the local, state, and federal levels. In general, they perform
tasks similar to those of public and private accountants. The IRS, the Securities and Exchange
Commission, the FBI, and other government agencies involved in law enforcement and
regulation employ forensic accountants, who combine knowledge of accounting with
investigative skills. Forensic accountants can help detect and investigate white-collar crimes
such as tax evasion, embezzlement, money laundering, and securities fraud. They’re often
called on to serve as expert witnesses in court cases involving these crimes.

190. Identify the four goals of Generally Accepted Accounting Principles (GAAP).
ANS:
Generally accepted accounting principles (GAAP) are rules that govern the practice of financial
accounting. The goal of these rules is to ensure that financial statements are:
Relevant: They contain information that helps the user understand the firm’s financial
performance and condition.
· Reliable: They provide information that is objective, accurate, and verifiable.
· Consistent: They provide financial statements based on the same core assumptions and
procedures over time; if a firm introduces any significant changes in how it prepares its
financial statements, GAAP requires it to clearly identify and describe these changes.
Comparable: They present accounting statements in a reasonably standardized way, allowing

users to track the firm’s financial performance over a period of years and compare its results with
those for other firms.

191. Define the purpose of the Financial Accounting Standard Board (FASB).
ANS:
The Financial Accounting Standards Board is a private, self-regulating board that oversees the
practice of financial accounting in the United States. One of its most important functions is the
development and interpretation of generally accepted accounting principles (GAAP). Through
GAAP, the FASB aims to ensure that financial statements are:
Relevant: They contain information that helps the user understand the firm’s financial
performance and condition.
Reliable: They provide information that is objective, accurate, and verifiable.
Consistent: They provide financial statements based on the same core assumptions and procedures
over time; if a firm introduces any significant changes in how it prepares its financial statements,
GAAP requires it to clearly identify and describe these changes.
Comparable: They present accounting statements in a reasonably standardized way, allowing
users to track the firm’s financial performance over a period of years and compare its results with
those for other firms.

192. What are the major financial statements? Describe the key elements of those financial statements.
ANS:
The major financial statements are the balance sheet, income statement, and statement of cash
flows. The balance sheet shows the firm’s financial position at a specific point in time by
identifying and reporting the value of its assets, liabilities, and owners’ equity. The income
statement shows the net income (profit or loss) the firm earns over a stated period of time by
deducting expenses from revenues. The statement of cash flows shows the inflows and outflows of
cash that result from a firm’s operations, its financing activities, and its investing activities during
a given time period. This statement also shows the net change in cash and the total amount of cash
on hand at the end of the time period.

TOP: Financial Statements: Read All About Us
193. What is a balance sheet? What is the accounting equation? Define each term in the accounting
equation.
ANS:
The balance sheet summarizes a firm’s financial position at a specific point in time. It is organized
to reflect the most famous equation in all of accounting, so famous that it is usually referred to
simply as the accounting equation:
Assets = Liabilities + Owners’ Equity
What does each term in the accounting equation mean? And what is the logic of the relationship it
represents?
Assets are things of value that the firm owns, such as its cash, inventory of goods available for
sale, land, machinery, equipment, and buildings. Accounts receivable, which indicates the amount
of money credit customers owe to the firm, is another asset found on many balance sheets.
Liabilities indicate what the firm owes to non-owners or, put another way, they represent the
claims non-owners have against the firm’s assets. The amount a firm owes to a bank when it takes
out a loan is an example of a liability. Accounts payable, what the firm owes suppliers when it
buys supplies on credit, is another example of a liability.
Owners’ equity refers to the claims the owners have against their firm’s assets. In a corporation,
one of the key owners’ equity accounts is common stock, which represents the shares of ownership
investors have in a business. Retained earnings, which are the earnings that have been reinvested
in the company (rather than distributed to owners), are also included in owners’ equity.

194. Describe the purpose of an income statement. Give the equation that illustrates the logic that
explains the way the income statement is organized, and define each one of the equation’s terms.
ANS:
The income statement shows the net income (profit or loss) the firm earns over a stated period of
time. We can use a simple equation to illustrate the logic behind the way the income statement is
organized:
Revenue – Expenses = Net Income
In this equation:
· Revenue represents the increase in the amount of assets (such as cash and accounts
receivable) the firm earns in a given time period as the result of its ongoing operations. A firm
normally earns revenue by selling goods or by charging fees for providing services (or both).
· Expenses indicate the cash a firm spends or other assets it uses up to carry out the normal
business activities necessary to generate its revenue. Many of the expenses on an income
statement are referred to as costs.
· Net income is the profit or loss the firm earns in the time period covered by the income
statement. As our equation indicates, it’s the difference between the amount of revenue the
firm earns and its expenses. If the difference is positive, the firm has earned a profit. If it’s
negative, the firm has suffered a loss. Net income is often called the “bottom line” of the
income statement because it is such an important measure of the firm’s operating success.

195. Explain the Sarbanes-Oxley Act of 2002. Include in your response purpose of this legislation as it
refers to accounting practices. Provide some history as to why this act became necessary.
ANS:
Sarbanes-Oxley Act of 2002 is a law that created the Public Company Accounting Oversight
Board (PCAOB), a private-sector, nonprofit corporation. It contains provisions to improve
external auditing practices. One of its main purposes is to deter conflict of interest between a client
firm and its CPA (outside auditor) firm. It states that if CPA firms are to maintain integrity, they
must remain independent of client firms. In the early 1990s, some major CPA firms became
consultants to their clients. The CPA firm’s consulting services were in conflict with the CPA
firm’s auditing arm.

196. Discuss the purpose of each of the following activities performed by managerial accountants:
(1) product costing
(2) role in management decision making
(3) budgeting
ANS:
Managers must have an accurate measure of the costs incurred to produce their firm’s goods and
services in order to set prices and evaluate efficiency.
Managerial accountants play a role in management decision making by analyzing financial

information and seeing the opportunity to use an asset in an alternative way, for example, if two
lawyers form a partnership and set up their office in a building that one of the partners already
owns, they feel good about their decision because they are saving on rent. A managerial
accountant might point out that they are still incurring an implicit cost because they are forgoing
the opportunity to rent the building to another business. They can also help detect internal
problems such as waste, mismanagement, embezzlement and employee theft.
A budget facilitates planning by translating goals into measurable quantities and requiring
managers to identify the specific resources needed to achieve them. A firm’s management
accounting system helps managers throughout an organization measure costs and assign them to
products, activities, and even whole divisions.

197. Explain how financial accounting and managerial accounting differ.
ANS:
Table 1: Comparison of Financial and Managerial Accounting

Financial Accounting: Managerial Accounting:
1. Primarily intended to provide information to 1. Primarily intended to provide information to
external stakeholders such as stockholders, internal stakeholders such as the managers
creditors, and government regulators. of specific divisions or departments.
2. Prepares a standard set of financial 2. Prepares customized reports designed to deal

statements. with specific problems or issues.
3. Focuses almost exclusively on financial 3. Provides both financial and nonfinancial

information. information.
4. Presents financial statements on a 4. Creates reports upon request by management

predetermined schedule (usually quarterly rather than according to a predetermined
and annually). schedule.
5. Summarizes past performance and its impact 5. Provides reports dealing with past
on the firm’s present condition. performance, but also involves making
projections about the future when dealing
with planning issues.
6. Governed by a set of generally accepted 6. Uses procedures developed internally and is

accounting principles (GAAP). not required to follow GAAP.

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TAGALOGS
TAGALOS
Tagals
Tagblatt
Tahiti
Tai
tail
tailoring
tails
Taimoro
tainted
Taiping
Takamori
Takaungu
take
Taken
takers
Takes
taking
Taku
Takutu
Talajit
Talana
Talavera
tale
talent
talents
tales
Taliaferro
TALIENWAN
talisman
talk
talked
talking
talks
tall
Talmud
Tamasese
Tamaulipas
Tamayo
TAMMANY
Tampa
Tan
Tana
Tanamo
Tandubato
tang
Tanganyika
tangents
tangible
tangle
tangled
tank
tanks
Tanner
tanneries
tantamount
Tanu
TAO
Taoist
Taotai
Tapan
tape
taper
tapping
tardily
tardy
Tarfa
target
tariff
TARIFFS
Tarlac
tarnished
tarpaulin
Tartar
Tartary
task
taskmasters
tasks
TASMANIA
taste
tattered
Tau
Tauchnitz
taught
Taungs
taunting
Taussig
taut
Tawai
Tawi
tax
taxable
Taxation
taxed
taxes
taxing
taxpayer
taxpayers
Tayabas
Taylor
Tayug
Tchad
Tchernaieff
Te
tea
teach
teacher
Teachers
teaches
teaching
teachings
tear
tearing
tears
Tebet
technical
technicalities
technicality
technically
Technology
Teck
tedious
teemed
teeming
teems
teeth
teetotalers
Teheran
TEHUANTEPEC
Telegram
telegrams
Telegraph
telegraphed
telegraphic
telegraphing
Telegraphs
telegraphy
Telephone
telephones
telephonic
TELEPHONY
telescope
Telin
Tell
Teller
telling
Tello
Telloh
tells
Tembuland
Temistocle
temper
temperament
temperance
temperate
temperately
temperature
temperatures
tempered
tempest
tempests
temple
temples
Temporal
temporarily
temporary
temporize
Temps
tempt
temptation
temptations
tempting
Ten
tenable
tenacity
tenancy
tenant
tenants
tend
tended
tendencies
tendency
tender
tendered
tenderness
tenders
tending
tendons
tends
Teneriffe
tenet
tenets
TENNESSEE
Tenney
tennis
Tennyson
tenor
tens
tension
tent
tentage
tentative
Tenth
Tenthly
tenths
tents
tenure
tenures
Tepic
Terai
Teresa
term
termed
terminable
terminal
terminals
terminate
terminated
terminates
terminating
termination
terminations
termino
terminos
terminus
terms
terra
terrace
terrazzo
Terrell
terrestrial
terrestrially
terrible
terribly
terrific
terrified
terrify
Territorial
territoriality
Territories
Territory
terror
terrorise
terrorists
terrorized
terrors
tersely
TESLA
Test
testament
testamentary
tested
testifie
testified
testifies
testify
testifying
Testimony
testing
tests
Tetabiate
tetanus
Tetuan
Teuffel
Texan
Texans
Texas
text
textbooks
textile
textiles
texts
texture
th
thalers
thalweg
Thames
than
Thana
thank
thanked
thankful
thankfully
thankfulness
thanking
Thanks
Thanksgiving
that
thatched
thatches
Thayer
THE
theater
theatre
theatrical
Thebes
thee
theft
Their
theirs
them
theme
themselves
then
thence
thenceforth
theocracy
Theodor
Theodore
Theodosius
theologian
theologians
theological
theoretic
theoretical
theoretically
theories
theorist
theorists
Theory
there
Thereafter
thereby
therefor
Therefore
therefrom
therein
thereof
thereon
Theresias
thereto
theretofore
thereunder
thereunto
Thereupon
therewith
Thermometer
Thermopylæ
these
Thessalian
Thessalians
Thessaly
they
thick
thickened
thicker
thickest
thicket
thickly
thickness
Thiers
Thievery
Thieves
thigh
thimble
thin
thine
thing
things
Think
thinking
thinks
thinly
thinned
Third
Thirdly
thirds
thirst
thirteen
Thirteenth
thirtieth
Thirty
This
thither
thitherto
tho
Thomann
Thomas
Thompson
Thomson
thorn
Thornhill
thorns
Thornton
Thoroddsen
thorough
thoroughfare
thoroughfares
thoroughly
thoroughness
those
thou
Though
thought
thoughtful
thoughtless
thoughts
thousand
thousands
thraldom
thrash
thread
threadless
threads
threat
threaten
Threatened
threatening
threatenings
threatens
threats
three
threshold
thresholds
threw
thrice
thrift
thrill
thrilling
thrive
thriven
thrives
thriving
throat
Throndak
throne
throng
thronged
throttled
Through
throughout
throw
throwing
thrown
throws
thrust
Thun
thunder
thundered
thundering
Thurman
Thursday
Thurston
thus
THUTMOSIS
thwart
thwarted
thwarting
thy
Tiber
Tiberias
Tibet
Ticao
ticket
tickets
Tidal
tide
tided
tidewater
tidings
tie
tied
tien
tiens
Tientsin
ties
Tiflis
tightly
Tiglath
Tigris
Tila
Tilden
tile
tiled
tiles
Till
tillage
tilled
tillers
Tillman
timber
timbered
Time
timed
timely
Times
timid
timidity
timidly
Timothy
Tin
Tinagua
tincture
Ting
tinge
tinged
tingling
tinned
Tinneh
tinsel
tiny
tirades
Tirailleurs
tired
Tirol
Tirolese
Tiryns
Tis
tissue
title
titles
titre
titular
Tiumen
Tlaxcala
To
tobacco
Tobago
TOCHI
today
toes
together
Togo
TOGOLAND
Tohoku
toil
toiled
toiler
Toit
Tokat

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Learning Objective Easy: Moderate: Challenging:

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1. Accounting is a system for recognizing, recording, organizing, analyzing, summarizing, and

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4. Recording financial transactions is an accounting function.

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7. Some key users of a corporation’s accounting information include managers, government

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15. Internal auditors are also known as certified public accountants.

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31. Assets = Liabilities + Net Income

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36. According to the accounting equation, Assets – Expenses = Net Income

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39. Expenses are listed on the asset side of a balance sheet.

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51. Business expenses are available resources that stakeholders control.