Accounting Environment

Question 1

What are the three activities that accounting consists of?

Answer 1

Identification, Recording, Communication

Question 2

What is the purpose of accounting for internal users?

Answer 2

To provide information for decision-making regarding finance, marketing, human resources, and management

Question 3

What is the purpose of accounting for external users?

Answer 3

To assess the financial performance and stability of the business

Question 4

True or False: The three steps in the accounting process are identification, recording, and communication.

Answer 4

True

Question 5

True or False: Bookkeeping encompasses all steps in the accounting process.

Answer 5

False

Question 6

What is the Sarbanes-Oxley Act (SOX) designed to address?

Answer 6

To reduce unethical behavior and decrease the likelihood of corporate scandals

Question 7

What are the two primary qualities that make accounting information useful?

Answer 7

Relevance and Faithful Representation

Question 8

Define the Historical Cost Principle.

Answer 8

Record assets at their cost

Question 9

Define the Fair Value Principle.

Answer 9

Assets and liabilities should be reported at fair value

Question 10

Fill in the blank: The _______ assumption states that only transaction data that can be expressed in terms of money should be included in accounting records.

Answer 10

Monetary Unit

Question 11

Fill in the blank: The _______ assumption requires that the activities of the entity be kept separate from the activities of its owner.

Answer 11

Economic Entity

Question 12

What are the three forms of business ownership?

Answer 12

• Proprietorship
• Partnership
• Corporation

Question 13

True or False: A corporation is a business organized as a separate legal entity under state law having ownership divided into shares of stock.

Answer 13

True

Question 14

What does the accounting equation represent?

Answer 14

Assets = Liabilities + Owner’s Equity

Question 15

What are the components of the accounting equation?

Answer 15

• Assets
• Liabilities
• Owner’s Equity

Question 16

What is the effect on owner’s equity when an owner invests cash in the business?

Answer 16

Increase in Owner’s Equity

Question 17

What is the effect on owner’s equity when an owner withdraws cash for personal use?

Answer 17

Decrease in Owner’s Equity

Question 18

What is net income?

Answer 18

The result when revenues exceed expenses

Question 19

True or False: The Income Statement covers a specific period of time.

Answer 19

True

Question 20

What does the Balance Sheet report?

Answer 20

Assets, liabilities, and owner’s equity at a specific date

Question 21

What type of information does the Statement of Cash Flows provide?

Answer 21

Information on cash receipts and payments for a specific period of time

Question 22

Fill in the blank: The _______ statement reports changes in owner’s equity for a specific period of time.

Answer 22

Owner’s Equity

Question 23

True or False: The Balance Sheet provides a snapshot of the company’s financial condition at a specific moment in time.

Answer 23

True

Question 24

What financial statement is prepared as of a specific date?

Answer 24

Balance sheet

The balance sheet provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time.

Question 25

What are the components of total assets for Flanagan Company at December 31, 2027?

Answer 25

* Cash: $8,000 * Accounts Receivable: $9,000 * Equipment: $10,000 * Total Assets: $27,000 ## Footnote Total assets are calculated by summing all current and non-current assets.

Question 26

What is the net income reported for Flanagan Company for December 2027?

Answer 26

$14,000 ## Footnote Net income is calculated as total service revenue minus total expenses.

Question 27

What is the owner's equity for Flanagan Company at December 31, 2027?

Answer 27

$8,500 ## Footnote Owner's equity is calculated by subtracting total liabilities from total assets.

Question 28

Fill in the blank: Careers in auditing, taxation, and management consulting serve the _______.

Answer 28

general public

Question 29

What are the career opportunities in private accounting?

Answer 29

* Cost accounting * Budgeting * Accounting information systems * Taxation ## Footnote Private accountants work within a specific company or organization, focusing on internal financial processes.

Question 30

What type of accounting career involves working with the IRS, FBI, SEC, and governmental agencies?

Answer 30

Governmental Accounting ## Footnote Governmental accountants ensure compliance with laws and regulations and manage public funds.

Question 31

True or False: Forensic accounting uses skills in accounting and auditing to investigate theft and fraud.

Answer 31

True

Question 32

What is the total service revenue reported by Flanagan Company?

Answer 32

$36,000 ## Footnote Service revenue represents the income generated from providing services to customers.

Question 33

What are the expenses reported by Flanagan Company for December 2027?

Answer 33

* Rent Expense: $11,000 * Salaries and Wages Expense: $7,000 * Utilities Expense: $4,000 ## Footnote These expenses are subtracted from service revenue to calculate net income.