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Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The most important function of an accounting system is to: 1)


A) provide information for decision-making, planning and control.
B) collect and record data.
C) prepare accounting reports.
D) keep employees from embezzling funds.

2) The best description of the primary purpose of providing accounting information is: 2)
A) to allow the preparation of a taxation return.
B) to calculate the bank account balance.
C) to enable the financial statements to be prepared.
D) to assist users in making informed decisions.

3) The stages of an accounting system are: 3)


A) setting objectives, planning, analysis.
B) evaluation, processing, output.
C) identification, recording, analysis, reporting.
D) none of the above.

4) Four key qualities of accounting information are: 4)


A) control, planning, analysis, and comparability.
B) relevance, reliability, comparability, and understandability.
C) understandability, identification, analysis, and relevance.
D) identification, analysis, reliability, and timeliness.

5) The best explanation of relevance is: 5)


A) ensuring that information is free from bias.
B) ensuring the benefit of the information is greater than the cost of providing it.
C) ensuring that information is expressed as clearly as possible.
D) ensuring that information is useful for decision-making.

6) The quality of accounting information that requires items that are basically the same to be treated 6)
in the same manner is:
A) timeliness. B) understandability.
C) relevance. D) comparability.

7) When accounting information has the potential to change decision-making it is said to be: 7)
A) consistent. B) understandable.
C) comparable. D) material.

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8) Which of these is a reason why achieving the maximum possible profit in a particular year may not 8)
be in the best interests of a business?
A) If it is achieved with high-risk strategies, such as excessive reliance on borrowings, it could
lead to disaster in the longer term.
B) It may be achieved by causing environmental problems, which give the business a bad
reputation.
C) Concentrating on the short-term may have detrimental effects in the long-term.
D) All of the above.

9) The test to determine if an item of accounting information is worthwhile collecting is the: 9)


A) cost/benefit test. B) cost test.
C) validation test. D) worthwhile test.

10) The characteristic of accounting information that requires financial reports to be expressed as 10)
clearly as possible and to be capable of being understood by those they are addressed to, is known
as:
A) reliability. B) cost versus benefit test.
C) understandability. D) relevance.

11) The statement concerning the key qualities of accounting information that is untrue is: 11)
A) relevant information may help to predict future events or confirm past events.
B) the qualities are frequently in conflict.
C) relevant information often contains a degree of subjectivity.
D) None of the statements is untrue, i.e., all are true statements.

12) Which of these is not one of the key qualities of accounting information? 12)
A) Relevance. B) Control. C) Reliability. D) Timeliness.

13) Which statement concerned with establishing the costs and benefits of accounting information is 13)
true?
A) Both the costs and benefits are normally difficult to assess.
B) It is usually easier to establish the benefits than the costs.
C) It is normally easy to establish both the costs and the benefits.
D) The costs and benefits should be ignored when deciding on what accounting information
should be produced.

ESSAY. Write your answer in the space provided or on a separate sheet of paper.

14) Briefly explain the meaning of each of the four key qualitative characteristics of accounting information:
relevance, reliability, comparability and understandability. Also explain how the cost/benefit test acts as a limit
on the application of these characteristics.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

15) Which of these groups is a user of financial information? 15)


A) Lenders. B) Managers.
C) Owners. D) All of the above.

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16) The group of users that is most likely to require accounting information to assess the ability of a 16)
business to pay interest and repay a loan is:
A) employees. B) taxation department.
C) customers. D) lenders.

17) The main source of information for shareholders is: 17)


A) internal reports. B) external reports.
C) departmental reports. D) management reports.

18) The primary goal of management accounting is to: 18)


A) provide information to shareholders.
B) provide information that improves the quality of managers' decisions.
C) provide information that can be quantified in monetary terms.
D) provide information that conforms to the accounting regulations.

19) Which statement is correct? 19)


A) Financial reports provide more forecast data than management reports.
B) Financial reports are prepared for internal users whereas management reports are prepared
for external users.
C) Financial reports reflect past performance whereas management reports are concerned with
the future as well as the past.
D) Financial reports are produced at more frequent intervals than management reports.

20) Standardised formats are most relevant to: 20)


A) internal reports. B) external financial reports.
C) departmental reports. D) management reports.

21) Management reports, compared to financial reports, are: 21)


A) prepared less frequently. B) prepared with the same frequency.
C) prepared infrequently. D) prepared more frequently.

22) Management reports, compared to financial reports, are: 22)


A) aggregated. B) standardised. C) detailed. D) summarised.

23) The statement concerning differences between financial and management accounting which is false 23)
is:
A) the distinction between the two areas, to some extent, reflects differences in access to
financial information.
B) management accounting is less constrained than financial accounting.
C) managers have much more control over the form and content of their reports.
D) there is no overlap between management accounting and financial accounting.

24) How many of these are differences between management and financial accounting? 24)

• Nature of reports produced.


• Frequency of reports.
• Level of detail in the reports.
• Degree of regulation.

A) One. B) Two. C) Three. D) Four.

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25) Financial accounting reports, compared to management reports, tend to be: 25)
A) unstructured. B) detailed.
C) qualitative. D) general purpose.

26) The set of financial reports made available for external publication by an entity is typically 26)
produced:
A) weekly. B) yearly. C) fortnightly. D) daily.

27) Management accounting reports are principally used by managers to: 27)
A) reconcile with the financial accounting reports.
B) calculate the amount of taxation owed to the government.
C) control the operations of an entity on a regular basis.
D) report to shareholders.

28) Financial accounting reports concentrate on: 28)


A) current events. B) future events.
C) past events. D) current and future events.

29) Management accounting reports tend to contain: 29)


A) non-financial information only.
B) financial information only.
C) both financial and non-financial information.
D) information that complies with the accounting standards.

30) Businesses tend to resist providing forecast data to those outside the organisation mainly because: 30)
A) it is too difficult.
B) it is too costly.
C) the data is inaccurate.
D) of fear of the loss of competitive advantage.

31) An objective of a business could be: 31)


A) maximise profit. B) maximise sales.
C) financial survival. D) all of the above.

32) The goal of business in relation to profit is generally taken as: 32)
A) profit maximisation. B) profit stabilisation.
C) profit generation. D) profit planning.

33) The commonly accepted overall financial objective of business can best be summed up as: 33)
A) enhancing wealth.
B) stabilising profit.
C) promoting good corporate relations.
D) satisfying everyone within the organisation.

34) A statement of financial position shows: 34)


A) details of how much profit was earned in the period.
B) the financial position at the end of the period.
C) the change in financial position over a particular period.
D) the cash movements that took place over a particular period.

Full file at https://testbanku.eu/Test-Bank-for-Accounting-An-Introduction-6th-Edition-by-Atrill


35) Another name for the statement of comprehensive income is: 35)
A) statement of financial performance. B) statement of financial position.
C) statement of change in owners' equity. D) balance sheet.

36) Another name for the balance sheet is: 36)


A) statement of change in owners' equity. B) statement of financial performance.
C) profit and loss statement. D) statement of financial position.

37) The accounting report that is specifically designed to answer the question, 'What cash movements 37)
took place over a particular period?' is:
A) the statement of cash flows. B) the statement of comprehensive income.
C) the statement of financial position. D) all of the above.

38) Which accounting report is specifically designed to answer the question, 'What profit was earned 38)
in a particular period?'
A) Statement of financial position. B) Statement of comprehensive income.
C) Statement of cash flows. D) All of the above.

39) Which accounting report is prepared at a particular point of time rather than over a period of time? 39)
A) Statement of change in owners' equity. B) Statement of comprehensive income.
C) Statement of financial position. D) Both B and C.

40) Calculate the cash available at the end of the day if cash at the beginning is $450, receipts from 40)
customers are $600 and payments to suppliers are $350.
A) $700. B) $1,400. C) $200. D) $750.

41) Calculate the cash available at the beginning of the day if cash at the end is $540, receipts from 41)
customers are $630 and payments to suppliers are $250.
A) $920. B) $340. C) $160. D) $150.

42) Paul commenced business with $100 cash. He purchased goods for $50 that were later sold for 42)
$150. The statement of financial position, after the sale, would show a total business wealth of:
A) $50. B) $150. C) $100. D) $200.

43) The financial reports comprising the 'final accounts' are the: 43)
A) statement of comprehensive income, statement of financial position, statement of cash flows
and statement of change in owners' equity.
B) statement of financial position, statement of cash flows and statement of comprehensive
income.
C) statement of cash flows and statement of comprehensive income.
D) statement of comprehensive income and statement of financial position.

44) Which statement is true? 44)


A) The statement of financial position links two statements of comprehensive income.
B) The statement of cash flows summarises the movements in the bank account over an
accounting period.
C) The statement of cash flows explains the changes between the statement of comprehensive
income and the statement of financial position.
D) None of the statements is true.

Full file at https://testbanku.eu/Test-Bank-for-Accounting-An-Introduction-6th-Edition-by-Atrill


45) The accounting reports concerned with measuring flows over a period of time are: 45)
A) statement of comprehensive income and statement of cash flows.
B) statement of comprehensive income, statement of cash flows and statement of financial
position.
C) statement of comprehensive income and statement of financial position.
D) statement of cash flows and statement of financial position.

46) The financial statement which shows all the changes in the owners' interest in the net assets of the 46)
business is:
A) statement of cash flows. B) statement of comprehensive income.
C) statement of changes in owners' equity. D) none of the above.

ESSAY. Write your answer in the space provided or on a separate sheet of paper.

47) Set out the main purpose of each of the three main financial reports  the statement of comprehensive income,
the statement of financial position and the statement of cash flows  and briefly explain how each achieves its
purpose.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

48) The most complete description of the planning process for a business is: 48)
A) setting objectives and detailed budgets.
B) setting long-term objectives and long-term plans.
C) setting objectives, long-term plans, and short-term plans.
D) setting objectives and short-term plans.

49) The planning role within a company is principally undertaken by: 49)
A) consultants. B) shareholders. C) managers. D) lenders.

50) Knowledge of the objectives or mission of a business will be most useful in assisting users of 50)
financial reports in understanding:
A) the financial reporting cycle.
B) what the business is trying to achieve.
C) the liquidity position of the business.
D) why it is taking longer than it should to collect money from accounts receivable.

51) Budgets are typically set for: 51)


A) one month. B) one year. C) a decade. D) five years.

52) Control is best defined as: 52)


A) making the employees work harder.
B) making the directors perform according to plan.
C) giving orders.
D) making events conform to plan.

53) The planning and control process within an entity means that: 53)
A) business is only concerned with actual performance.
B) plans and actual performance do not vary.
C) business can respond to variances between plans and actual performance.
D) plans are followed rigidly at all times.

Full file at https://testbanku.eu/Test-Bank-for-Accounting-An-Introduction-6th-Edition-by-Atrill


54) The term that describes differences between actual and budgeted results is: 54)
A) mistake. B) discrepancy. C) variance. D) divergence.

55) Which statement is incorrect? 55)


A) A budget defines precise targets, e.g., level of sales, levels of inventory.
B) A budget is a short-term plan.
C) A budget summarises past information.
D) A budget is expressed in monetary terms.

56) The three most common types of structures used by businesses in Australia are: 56)
A) sole proprietor, partnership, limited company.
B) partnership, limited company, association.
C) sole proprietor, limited company, co-operative.
D) partnership, private company, trust.

57) A business that is not a legal entity, where there is one owner who is fully liable for all debts, is: 57)
A) a partnership. B) a sole proprietorship.
C) a proprietary company. D) none of the above.

58) Advantages of operating as a sole proprietor are: 58)


A) total control by the owner over all decisions.
B) low start-up costs.
C) limited liability.
D) Both A and B.

59) Which of these is an accounting entity? 59)


A) Partnership. B) Sole proprietor.
C) Company. D) All of the above.

60) The business most likely to operate as a sole proprietorship is: 60)
A) bank. B) private hospital.
C) airline. D) medical specialist.

61) The principle whereby each partner is responsible for the business actions of all other partners 61)
when the actions are carried out in the normal course of business, is known as:
A) the rule in Garner versus Murray. B) perpetual life.
C) unlimited liability. D) mutual agency.

62) An advantage of a partnership compared to a sole proprietorship is: 62)


A) mutual agency. B) greater access to funds.
C) sharing of profits. D) Both B and C.

63) In comparison to a company, a disadvantage of operating as a partnership is: 63)


A) limited life. B) mutual agency.
C) unlimited liability. D) all of the above.

Full file at https://testbanku.eu/Test-Bank-for-Accounting-An-Introduction-6th-Edition-by-Atrill


64) A common aspect of questionable figures in financial reports is: 64)
A) overstating figures for expenses and liabilities.
B) overstating figures for income and assets.
C) understating figures for income and expenses.
D) overstating figures for income and understating figures for assets.

65) Sustainability reporting focuses on: 65)


A) environmental and social factors. B) financial aspects.
C) customer satisfaction. D) Both A and C.

66) Which of these is not generally regarded as a reason for the recent spate of dubious accounting 66)
practices by large companies?
A) Lack of accounting standards.
B) Too rapid growth financed by borrowing, which leads to a liquidity crisis.
C) Greed by executives.
D) Pressure on managers to meet investors' unrealistic expectations for continually rising
profits.

67) Which of the following is not an aspect of accounting and finance potential managers need to 67)
understand?
A) The design of the accounting information system.
B) How investment decisions are made.
C) How businesses are financed.
D) Reading and interpreting financial reports.

Full file at https://testbanku.eu/Test-Bank-for-Accounting-An-Introduction-6th-Edition-by-Atrill


Answer Key
Testname: UNTITLED1

1) A
2) D
3) C
4) B
5) D
6) D
7) D
8) D
9) A
10) C
11) D
12) B
13) A
14) Relevance means that accounting information should have the ability to influence decision-making. Relevance may
refer to helping to confirm past events or assisting in the prediction of future events. If information is not relevant to
decision-making, it is not useful and should not be produced.

Reliability means accounting information should be objective and able to be independently verified. For example,
transaction-based information is reliable as it is evidenced by documents such as invoices, cheques, credit notes and
contracts. Reliable information should be free from bias and material error. Historical cost information is generally
regarded as more reliable than alternatives such as estimated market values.

Comparability means that valid comparisons can be made between accounting reports across a number of accounting
periods. For comparisons to be valid, items which are basically the same must be consistently measured and presented
in the same manner.

Understandability means that to be most useful, accounting reports should be expressed as clearly as possible and
should be capable of being understood by the user groups they are prepared for.

The cost/benefit test provides a limit on the production of relevant, reliable comparable and understandable
accounting information as, even if the information has all four qualities, it only makes economic sense to produce it if
the benefit of its being available is greater than the cost of providing it. A problem of applying the cost/benefit test is
that, in practice, both the costs and the benefits of accounting information are difficult to identify with accuracy.
15) D
16) D
17) B
18) B
19) C
20) B
21) D
22) C
23) D
24) D
25) D
26) B
27) C
28) C
29) C
30) D
31) D
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Full file at https://testbanku.eu/Test-Bank-for-Accounting-An-Introduction-6th-Edition-by-Atrill


Answer Key
Testname: UNTITLED1

32) A
33) A
34) B
35) A
36) D
37) A
38) B
39) C
40) A
41) C
42) D
43) A
44) B
45) A
46) C
47) The purpose of the statement of comprehensive income is to show how much profit was generated by the entity from
its operating activities during a particular period. This is achieved by recording all the income earned in the period
and deducting from it all the expenses incurred in earning that income. If income exceeds expenses, a profit is earned.
If income is less than expenses, there is a loss.

The purpose of the statement of financial position is to show the financial position of the entity at the end of an
accounting period. This is achieved by listing the assets controlled by the entity on a particular date and deducting all
amounts owed to parties other than the owner. Total assets held less liabilities owed is the amount of equity the owner
has in the entity. Examples of assets owned are: cash at bank, inventory, land and buildings, equipment, motor
vehicles. Examples of liabilities are amounts owing to creditors and lenders.

The purpose of the statement of cash flows is to show the change in the cash position over a particular period and the
movements in cash that caused that change. This is achieved by listing all inflows and outflows of cash for the period.
If inflows exceed outflows, there has been a net increase in cash. If the opposite is true, then there has been a net
outflow of cash.
48) C
49) C
50) B
51) B
52) D
53) C
54) C
55) C
56) A
57) B
58) D
59) D
60) D
61) D
62) B
63) D
64) B
65) A
66) A
67) A
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