Chapter 1 Nature And Purpose Of Accounting Quiz

1. What is accounting?

A way to calculate personal expenses

A tool for managing social media accounts

A method for predicting stock market trends

Accounting is a systematic way of tracking and reporting financial information for businesses or other economic entities to help in decision-making processes.

Explanation

Accounting is a systematic way of tracking and reporting financial information for businesses or other economic entities to help in decision-making processes.

2. What are the 4 key features of accounting?

Quantitative, Financial, Useful, Future Decisions

Subjective, Non-Financial, Present Focus, Compliance

Tangible, Operational, Past Data, Controlling

Qualitative, Historical, Predictive, Strategic

The correct answer includes key features such as being quantitative, financial, useful, and helping in future decision-making in the realm of accounting.

Explanation

The correct answer includes key features such as being quantitative, financial, useful, and helping in future decision-making in the realm of accounting.

3. What does a Balance Sheet report?

Cash Flow Statement

Profit and Loss Statement

Income Statement

The Balance Sheet specifically focuses on the assets, liabilities, and owners' equity of a company, whereas the Profit and Loss Statement, Cash Flow Statement, and Income Statement provide different financial information and are not the same as the Balance Sheet.

Explanation

The Balance Sheet specifically focuses on the assets, liabilities, and owners' equity of a company, whereas the Profit and Loss Statement, Cash Flow Statement, and Income Statement provide different financial information and are not the same as the Balance Sheet.

4. What is the purpose of an Income Statement?

The income statement provides information about the company's cash flow.

The income statement reports the amount of net income earned by a company during a period

The income statement lists all the expenses of a company.

The income statement shows the total assets of a company.

The income statement is a financial statement that summarizes a company's revenues and expenses during a specified period to show its net income or net loss. It does not report total assets, list expenses solely, or provide details on cash flow.

Explanation

The income statement is a financial statement that summarizes a company's revenues and expenses during a specified period to show its net income or net loss. It does not report total assets, list expenses solely, or provide details on cash flow.

5. What does the Statement of Cash Flows report?

The net income of the company

The inventory turnover ratio of the company

The market capitalization of the company

The Statement of Cash Flows focuses on cash flows related to operating, investing, and financing activities, rather than other financial metrics like net income, inventory turnover ratio, or market capitalization.

Explanation

The Statement of Cash Flows focuses on cash flows related to operating, investing, and financing activities, rather than other financial metrics like net income, inventory turnover ratio, or market capitalization.

6. Who sets accounting standards in the U.S.?

Internal Revenue Service (IRS)

Financial Accounting Standards Board (FASB)

American Institute of Certified Public Accountants (AICPA)

Securities and Exchange Commission (SEC)

In the U.S., the Financial Accounting Standards Board (FASB) is responsible for setting accounting standards. The Internal Revenue Service (IRS) focuses on tax regulations, the Securities and Exchange Commission (SEC) oversees financial reporting by public companies, and the American Institute of Certified Public Accountants (AICPA) sets professional standards for accountants.

Explanation

In the U.S., the Financial Accounting Standards Board (FASB) is responsible for setting accounting standards. The Internal Revenue Service (IRS) focuses on tax regulations, the Securities and Exchange Commission (SEC) oversees financial reporting by public companies, and the American Institute of Certified Public Accountants (AICPA) sets professional standards for accountants.

7. What is the role of the Public Company Accounting Oversight Board (PCAOB)?

Inspects and disciplines the auditors of publicly traded companies, inlcluding the AICPA

Regulates the private accounting practices of individuals and small businesses.

Audits the financial records of government agencies at the state level.

Provides tax advice and guidance to non-profit organizations.

The PCAOB is specifically focused on overseeing the auditors of publicly traded companies to ensure they adhere to appropriate standards and regulations. The incorrect answers provided do not accurately reflect the PCAOB's main functions.

Explanation

The PCAOB is specifically focused on overseeing the auditors of publicly traded companies to ensure they adhere to appropriate standards and regulations. The incorrect answers provided do not accurately reflect the PCAOB's main functions.

8. What is the purpose of the International Accounting Standards Board (IASB)?

Enforce accounting regulations in the United States.

Set standards for national accounting practices in Germany.

Develop worldwide accounting rules(other than US)

Advocate for tax reforms in France.

The IASB's main objective is to develop a single set of worldwide accounting standards to be used in financial reporting by companies and organizations across the globe, except for US-based companies who follow the standards set by the Financial Accounting Standards Board (FASB).

Explanation

The IASB's main objective is to develop a single set of worldwide accounting standards to be used in financial reporting by companies and organizations across the globe, except for US-based companies who follow the standards set by the Financial Accounting Standards Board (FASB).