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Environment of Financial Accounting and Reporting: False

The document discusses key concepts in financial accounting and reporting including: 1. Financial accounting measures business activities and communicates those measurements internally and externally. Auditors express opinions on financial statement accuracy. 2. Financial statements like the income statement and balance sheet are the primary means to communicate financial information outside the company. They are used by investors and creditors for decision making. 3. The conceptual framework establishes concepts like recognition and measurement used in setting accounting standards. It aims to provide useful information to present and potential investors.

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kris m
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89 views

Environment of Financial Accounting and Reporting: False

The document discusses key concepts in financial accounting and reporting including: 1. Financial accounting measures business activities and communicates those measurements internally and externally. Auditors express opinions on financial statement accuracy. 2. Financial statements like the income statement and balance sheet are the primary means to communicate financial information outside the company. They are used by investors and creditors for decision making. 3. The conceptual framework establishes concepts like recognition and measurement used in setting accounting standards. It aims to provide useful information to present and potential investors.

Uploaded by

kris m
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Environment of Financial Accounting and Reporting

1. The primary functions of financial accounting are to measure business activities of a


company and to communicate those measurements to internal parties for decision-
making purposes
True
False
2. Financial statements are the principal means through which financial information is
communicated to those outside an enterprise.
True
False
3. One weakness of accrual accounting is that it does not provide a good indication of
the enterprise's present and continuing ability to generate favorable cash flows
True
False
4. Users of financial accounting statements have both coinciding and conflicting needs
for information of various types
True
False
5. Auditors are trained individuals hired by a company as an independent party to
express a professional opinion of the accuracy of that company's financial statements
True
False
6. Investors and creditors rely heavily on financial accounting information in making
investment and lending decisions.
True
False

7. The objectives of financial reporting are to provide information:


A. that is useful to present and potential investors and creditors and other users in
making rational investment, credit, and similar decisions.
B. clearly portraying the economic resources of an enterprise, the claims to those
resources, and the effects of transactions, events, and circumstances that change
its resources and obligations.
C. to help users in assessing the amounts, timing, and uncertainty of prospective
cash flows.
D. All of these are part of the objective of financial reporting
8. One objective of financial reporting is to provide

a. information about the liquidation values of the resources held by the enterprise.
b. information about the investors in the business entity.
c. information that is useful in assessing cash flow prospects.
d. information that will attract new investors.

9. The accounting standard-setting process


A. can be described as a social process which reflects various interested user groups
as well as a product of research and logic.
B. is based solely on research and empirical findings.
C. is a legalistic process based on rules promulgated by governmental agencies.
D. is democratic in the sense that a majority of accountants must agree with a
standard before it becomes enforceable.

Conceptual Framework

1. The matching principle states that debits must equal credits in each transaction
True
False

2. Which of the following is not at implication of the going concern assumption?


A. The historical cost is credible
B. Depreciation and amortization policies are justifiable
C. Assets are to be measured at their liquidating values
D. The current and noncurrent classification of assets and liabilities is justifiable and
significant

3. The first level of the conceptual framework identifies the recognition and measurement
concepts used in establishing accounting standards
True
False

4. If an item of income is not material, then the manner of presenting that information, or
whether or not it is disclosed
A. Will be included directly in retained earnings
B. Should not affect the economic decisions of users
C. Will have an impact on the economic decisions of users
D. Should not be included in the determination of profit or loss for the period

5. Which basic assumption may not be followed when an entity in bankruptcy reports
financial results?
A. Economic Entity
B. Going Concern
C. Monetary Unit
D. Revenue Recognition

6. Which is not an important characteristic of the financial statements that accountants


currently prepare?
A. The information in the financial statements is expressed in units of money with
adjustments for inflation
B. Financial statements articulate with one another because measuring the financial
position is related to measuring the changes in the financial position
C. The information in the financial statements is summarized and classifies to help the
users’ needs
D. Financial statements can be justified only if the benefits exceed the costs

7. What is the authoritative status of the Conceptual Framework?


A. The Conceptual Framework has the highest level of authority
B. In the absence of a standard or an interpretation that specifically applies to a
transaction, Conceptual Framework should be followed.
C. In the absence of a standard or an interpretation that specifically applies to a
transaction, management shall consider the applicability of the Conceptual
Framework in developing and applying an accounting policy which results in
information that is relevant and reliable.
D. The Conceptual Framework applies only when the IASB develops new or revised
standards.

8. Which is not a requisite of 'faithful representation' of financial statements?


A. Income tax returns are properly filed
B. Selection and application of standard must be without bias
C. Disclosures, even if not required by the standards but are necessary for
understanding financial information, must be completely disclosed
D. numbers and descriptions match what really existed or happened

9. According to the matching principle, costs that can be reasonably associated with
specific revenue should be
A. Charge immediately to expense
B. Expensed on the period as management mandates
C. Expensed on the period in which the related revenue is recognized
D. Capitalized and amortized over a reasonable period

10. What is the only underlying assumption mentioned in the Conceptual Framework for
Financial Reporting?
A. Going Concern
B. Accounting Entity
C. Time Period
D. Monetary Unit

11. The underlying theme of the conceptual framework is


A. decision usefulness.
B. understandability.
C. reliability.
D. comparability.

12. The economic entity assumption


A. Is inapplicable to unincorporated businesses
B. Follows the legal aspects of business organizations
C. Requires periodic income measurement
D. Is applicable in all forms of business organization

PAS 1

1. Companies may determine cash provided by operating activities by converting


net income on an accrual basis to a cash basis.
True
False

2. It is reqiured that a complete set of financial statements be presented annually


and that for comparative purposes, companies must include three complete
sets of financial statements and related notes.
True
False

3. A strength of the income statement as compared to the balance sheet is that


items that cannot be measured reliably can be reported in the income
statement.
True
False

4. Disclosing information about the nature of their operations and the use of
estimates in preparing financial statements are optional for companies
presenting general-purpose financial statements.
True
False

5. According to standards, non-cash activities are reported as either investing or


financing activities in the body of the statement of cash flows.
True
False

6. Generally, companies may offset assets and liabilities; for example, accounts
payable may be offset against cash to report net cash available for other
expenses.
True
False
7. The statement of cash flows reports only the cash effects of operations during
a period and financing transactions.
True
False
8. Both revenues and gains increase both net income and owners’ equity.
True
False
9. The current assets section of the statement of financial position should include
A. machinery.
B. patents.
C. goodwill.
D. inventory.
10. What is the purpose of reporting comprehensive income?
A. To replace, net income with a better measure
B. To report a measure of overall enterprise performance
C. To report changes in equity due to transactions with owners
D. To combine income from continuing operations and extraordinary items
11. Glenda Corporation prepares its financial statements in accordance with PFRS.
Glenda must report finance costs on the statement of cash flows:
A. In financing activities.
B. In operating activities.
C. In investing activities or financing activities.
D. Either in operating activities or financing activities.
12.

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