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Exam 16: Understanding Accounting and Financial Information

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Question 51

Multiple Choice

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Jill wants to start her own business,but knows little about how to set up an accounting system or interpret financial information."I'm not worried about accounting",she tells her friends."I'll just hire a part-time bookkeeper to handle all that type of stuff,and focus my attention on what I like-finding ways to satisfy my customers".Which of the following is the best response to Jill's comments?

A) Jill should make sure the bookkeeper she hires knows how to use a database,since this type of software is the heart of any efficient accounting system.
B) Although Jill can hire someone for bookkeeping,she'll still need to know how to read,understand,and interpret basic accounting reports in order to make good business decisions.
C) Most entrepreneurs would agree with Jill's opinion.The work done by accountants is mainly clerical in nature,so time spent by business owners on accounting tends to take them away from more important tasks.
D) Jill has a good plan.Only managers of large firms require knowledge of accounting.Owners and managers of small businesses can easily get away with just a part-time bookkeeper.

E) B) and D)
F) None of the above

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Question 52

Multiple Choice

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The reports and financial statements prepared by accountants:

A) are much more useful for profit-seeking businesses than for non-profit organizations.
B) are mainly used to help the firm complete its tax forms.
C) provide information that can be used by decision-makers both inside and outside the organization.
D) have lost much of their relevance as firms have moved into a more global environment.

E) B) and C)
F) A) and B)

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Question 53

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A lower than average inventory turnover ratio indicates excellent inventory management practices.

Hap owns and operates a small business with only four full time employees and less than $500 thousand in annual sales.He currently uses a manual accounting system and relies on a part-time bookkeeper to keep his records in order.In evaluating the possible adoption of a computerized accounting system,Hap will probably discover that:

Managerial accountants primarily work in industry,but have recently been given the right to work in public practice.

Deron has a bachelor's degree in accounting and additional training in tax law.He is responsible for preparing tax returns and developing tax strategies for his employer,Lighting Freight Service,and has done so for the last seven years.Deron is a certified government accountant.

Computer-based continuous auditing can be used to discover cash flow problems.

Which of the following would be found on an income statement?

The debt to owners' equity ratio is a common type of liquidity ratio.

Patents and copyrights would be classified as:

Liquidity refers to how soon liabilities must be paid.

An independent audit is an evaluation and unbiased opinion about the accuracy of a company's financial statements.

Bookkeeping is part of accounting,but accounting goes far beyond the activities involved in bookkeeping.

Different amortization methods could result in a different net income for a company.

Which group of ratios would you be most interested in if you wanted to determine how efficiently your managers were using the assets that are available to them?

Generally accepted accounting principles permit accountants to use different methods of valuing a firm's inventory.

Explain the differences between managerial and financial accounting,and give examples of the types of problems and issues examined by each of these areas of accounting.

What are the benefits of computerized accounting software programs to managers?

In businesses that handle a lot of perishable items (such as supermarkets)the actual movement of goods through inventory most closely resembles the assumed movement in the LIFO inventory valuation technique.

McCartney Consulting Group is a management-consulting firm that provides its expertise to businesses that employ its services.Since it does not hold an inventory of goods or produce any goods itself: