Accounting Questions and Answers

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accounting quiz 1
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1 The primary purpose of accounting is to determine whether the business entity is profitable or unprofitable in its operations.

A) True
B) False This is the correct answer.
Feedback: The primary purpose of accounting is to provide information that is useful for decision-making purposes. Accounting is 'not an end', but rather it is a 'means to an end.' LO 1 2 Costs, prices, sales volume, profits, and return on investment are all accounting measurements.

A) True This is the correct answer.
B) False
Feedback: A clear understanding of accounting terms and concepts is required of those who have a financial interest in an enterprise if they are to understand and communicate about the enterprise. Accounting is sometimes referred to as the 'language of business.' LO 1 3 The types of accounting information are limited.

A) True
B) False This is the correct answer.
Feedback: There are many types of accounting information, including financial accounting, managerial accounting, and tax accounting. 4 Accountants use the term financial position to describe an entity's activities during the year.

A) True
B) False This is the correct answer.
Feedback: Financial position refers to an entity's financial resources and obligations at one point in time. The term 'results of operations' is used to describe an entity's financial activities during the year. 5 Financial accounting information is designed primarily to assist investors and creditors in deciding where to place their scarce investment resources. This is the correct answer.

A) True This is the correct answer.
B) False
Feedback: Such decisions are important to society, as they determine which companies and industries will receive the financial resources necessary for growth, and which will not. 6 Management accounting involves the development and interpretation of accounting information intended specifically to aid management in acquiring investment resources.

A) True
B) False This is the correct answer.
Feedback: Management accounting involves the development and interpretation of accounting information intended specifically to aid management in running the business. Management accounting information is used in virtually all types of managerial decisions. 7 The most challenging aspect of tax accounting is in the preparation of the many forms required for an entity's tax return.

A) True
B) False This is the correct answer.
Feedback: Tax planning is the most challenging aspect of tax accounting. The fields of financial, management, and tax accounting are closely related. Decisions affecting financial and/or management accounting will most likely have an affect on tax accounting. 8 An accounting system consists of personnel, procedures, devices, and records used by an organization to develop accounting information and to communicate this information to decision makers.

A) True This is the correct answer.
B) False
Feedback: The design and capabilities of accounting systems vary greatly from one organization to the next, but in every case the basic purpose of the accounting system remains the same: to meet the organization's needs for accounting information as efficiently as possible. 9 The cost of producing the types of accounting reports required by law is always cost-effective.

A) True
B) False This is the correct answer.
Feedback: Accounting systems should be cost-effective. The value of the information produced should exceed the cost of producing it. The cost of producing accounting reports required by law is not always cost-effective since the information is not always of value to the entity. 10 External users of financial accounting information are the same users of management accounting information.

A) True
B) False This is the correct answer.
Feedback: Management accounting information is usually not available to external users. External users of financial accounting information include owners, creditors,...
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