Chapter 12 Deck

Question 1

( ) is a system for measuring and summarizing business activities, interpreting financial information, and communicating the results to management.

Answer 1

Accounting

Question 2

Accounting can be divided into two major fields:

Answer 2

1. Management Accounting

2. Financial Accounting

Question 3

( ) provides information and analysis to decision-makers inside the organization (such as owners and managers) to help them operate the business.

Answer 3

Management Accounting

Question 4

( ) provides information not only to internal managers, but also to people outside the organization (such as investors, creditors, government agencies, suppliers, employees, and labor unions) to assist them in assessing a firm’s financial performance.

Answer 4

Financial Accounting

Question 5

Rather than record sales and purchases made on credit, your statement of ( ) tells you where your cash came from and where it went.

Answer 5

cash flows

Question 6

If a company arranges to pay later rather than in cash for materials and other expenses, its accountant must set up accounts ( ).

Answer 6

payable

Question 7

The debt owed by a business to an outside individual or organization is called its ( ).

Answer 7

liability

Question 8

If you buy something with the intent to pay later rather than in cash, the seller will set up an account ( ).

Answer 8

receivable

Question 9

Accountants do all of the following except ( ).

Answer 9

locate capital

Question 10

( ) shows when your total sales revenues exactly equal your expenses.

Answer 10

breakeven analysis

Question 11

The difference between your sales and your cost of goods sold is known as your ( ).

Answer 11

gross profit or gross margin

Question 12

Firms that provide clients with accounting and tax services are called ( ) accounting firms.

Answer 12

certified public

Question 13

The ( ) ratio shows how much of each sales dollar is left after certain costs have been covered.

Answer 13

profit margin

Question 14

( ) is the same thing as the item called net profit on an income statement.

Answer 14

the bottom line

Question 15

( ) analysis expresses each item on the income statement as a percentage of a specified base (usually sales).

Answer 15

vertical percentage

Question 16

You can calculate inventory turnover by dividing cost of goods sold by ( ).

Answer 16

inventory

Question 17

( ) costs vary with quantity of goods sold but remain constant on a per-unit basis.

Answer 17

variable

Question 18

( ) costs don’t vary with quantity of goods sold.

Answer 18

fixed

Question 19

Companies that manufacture goods and hold onto them for a while before selling them and companies that buy goods and hold them temporarily for resale have created ( ).

Answer 19

inventories

Question 20

( ) are principles for financial reporting established by an independent agency called the Financial Accounting Standards Board.

Answer 20

Generally accepted accounting principles

Question 21

When preparing a company’s income statement, you report on all of the following items except ( ).

Answer 21

short term assets

Question 22

A company’s ( ) ratio indicates that it is making a reasonable profit on sales, even if profitability is declining.

Answer 22

profit margin

Question 23

Many companies outside the United States follow a set of accounting principles called ( ).

Answer 23

International Financial Reporting Standards

Question 24

In accounting ( ) refers to the money you have in checking and savings accounts.

Answer 24

“cash”

Question 25

The ( ) shows a firm’s revenues and expenses and whether it made a profit.

Answer 25

income statement

Question 26

The difference between your gross profit and operating expenses is your ( ).

Answer 26

net income or profit

Question 27

The balance sheet is based on the accounting equation:

Answer 27

assets = liabilities + owner’s equity

Question 28

Prepared financial statements on a twelve-month basis is a ( ).

Answer 28

fiscal year

Question 29

The ( ) reports the changes in owner’s equity that have occurred over a specified period of time.

Answer 29

statement of owner’s equity

Question 30

Financial statements should be completed in a certain order:

Answer 30

1. income statements
2. statement of owner’s equity
3. balance sheet

Question 31

To break even, total sales revenue must ( ) all your expenses

Answer 31

equal to

Question 32

To calculate the breakeven point in units to be sold, you divide fixed costs by( ).

Answer 32

contribution margin per unit

Question 33

There are two different methods for reporting financial transactions:

Answer 33

1. cash-basis accounting

2. accrual accounting

Question 34

Companies using ( ) recognize revenue as earned only when cash is received and recognize expenses as incurred only when cash is paid out.

Answer 34

cash-basis accounting

Question 35

Companies using ( ) recognize revenues when they’re earned (regardless of when the cash is received) and expenses when they’re incurred (regardless of when the cash is paid out).

Answer 35

accrual accounting

Question 36

An asset that will be used for several years (say, a truck) appears on the balance sheet as a ( ). Its cost is allocated over its useful life and appears on the income statement as a ( ).

Answer 36

long-term asset/depreciation expense

Question 37

A ( ) separates assets and liabilities into two categories—current and long-term:

Answer 37

classified balance sheet

Question 38

On a classified balance sheet, assets are listed in order of ( )—how quickly they can be converted into cash.

Answer 38

liquidity

Question 39

A ( ) is a company that makes a profit by selling goods.

Answer 39

merchandiser

Question 40

The statement of cash flows furnishes information about three categories of activities that cause cash either to come in or to go out:

Answer 40

1. operating activities
2. investing activities
3. financing activities.

Question 41

Cash flows from ( ) come from day-to-day operations of your main line of business.

Answer 41

operating activities

Question 42

Cash flows from ( ) result from buying or selling long-term assets.

Answer 42

investing activities

Question 43

Cash flows in ( ) result from obtaining or paying back funds used to finance your business.

Answer 43

financing activities.

Question 44

( ) analysis is used to assess a company’s performance and financial condition over time and to compare one company to similar companies or to an overall industry.

Answer 44

ratio

Question 45

The ( ) ratio (which compares current assets to current liabilities) provides a measure of a company’s ability to meet current liabilities.

Answer 45

current

Question 46

The ( ) ratio (which measures the number of times a firm’s operating income can cover its interest expense) assesses a company’s ability to make interest payments on outstanding debt.

Answer 46

interest coverage

Question 47

The federal ( ) of 2002 was designed to encourage ethical corporate behavior and to discourage fraud and other forms of corporate malfeasance.

Answer 47

Sarbanes-Oxley Act (SOX)

Question 48

( ) provide clients with external ( ) in which they examine a company’s financial statements and submit an opinion on whether they’ve been prepared in accordance with GAAP.

Answer 48

public accounting firms/audits

Question 49

( ) often called management or corporate accountants, work for specific companies, nonprofit organizations, or government agencies. They also conduct ( ).

Answer 49

private accountants/internal audits

Question 50

Accountants who pass a special exam and meet other professional requirements in the field of management accounting are designated ( ).

Answer 50

certified management accountants (CMAs).

Question 51

Most members of public accounting firms are ( ) who have met required educational and work requirements.

Answer 51

certified public accountants (CPAs)

Question 52

A firm’s chief accounting officer is called a ( ).

Answer 52

controller