Chapter 14

Question 1

The __________ banner (designation) is being used to unify the Canadian Accounting Profession.

Answer 1

Chartered Professional Accountant (CPA)

Question 2

What is the primary concern of financial accounting systems?

Answer 2

External information users, such as consumer groups and stakeholders

Question 3

What is determined when gross profits from operations are subtracted from operation expenses?

Answer 3

Operating income

Question 4

What ratio would be most useful in measuring a firm’s potential earnings?

Answer 4

Profitability ratio

Question 5

A(n) ________ is the person who manages all of a firm’s accounting activities by ensuring that the accounting information system provides the reports and statements needed for planning, decision making, and other management activities.

Answer 5

controller

Question 6

Which accounting principle is used to describe income for the year and payments made, acting as one of the most important statements of all?

Answer 6

Statement of cash flows

Question 7

________ is a comprehensive system for collecting, analyzing, and communicating financial information.

Answer 7

Accounting

Question 8

Which financial statement lists a firm’s annual revenues and expenses so that a bottom line shows annual profit or loss?

Answer 8

Income statement

Question 9

What is the purpose of a balance sheet?

Answer 9

To provide detailed information about a firm’s assets, liabilities, and owners’ equity

Question 10

What is the owner’s equity in a firm?

Answer 10

The value of assets after all liabilities are paid

Question 11

Normally represented by borrowed funds, ________ include debts that are not due for at least one year.

Answer 11

long-term liabilities

Question 12

When a firm is for sale, the price might include goodwill based on its reputation in the market or the location of the office. What type of asset is goodwill?

Answer 12

Intangible

Question 13

What is the formal recording and reporting of revenues at the appropriate time?

Answer 13

Revenue recognition

Question 14

What is the purpose of an Accounting Information System?

Answer 14

To identify, measure, record, and retain information to use in statements and managerial reports

Question 15

Not all profits in an organization are spent or distributed. Those profits kept by the firm for future use are _________.

Answer 15

retained earnings

Question 16

A short-term solvency ratio indicates the company’s liquidity and ability to pay immediate debts. What is indicated by a high current ratio?

Answer 16

Risk to investors is lower

Question 17

Bills that are unpaid and taxes that will be due within the year are part of _________.

Answer 17

accounts payable

Question 18

What is debt?

Answer 18

The firm’s total liabilities

Question 19

Historically, the collection and recording of records such as taxes paid, income received, and expenses was called _________ .

Answer 19

bookkeeping

Question 20

What does an activity ratio measure?

Answer 20

Management’s efficiency in using a firm’s resources

Question 21

A firm’s _______ system is concerned with external information users: consumer groups, unions, stockholders, suppliers, creditors, and government agencies.

Answer 21

financial accounting

Question 22

What is revenue?

Answer 22

When funds flow into a business when goods or services are sold

Question 23

What does a solvency ratio measure?

Answer 23

The borrower’s ability to repay debt

Question 24

Land, buildings, equipment, inventory, and accounts receivable owned by a company are ________.

Answer 24

assets

Question 25

What is the accounting equation?

Answer 25

Assets = Liabilities + Owners’ Equity.

This formula is used by accountants to balance data for the firm’s financial transactions at various points in the year.

Question 26

What is depreciation?

Answer 26

An accounting method for distributing the cost of an asset over its useful life