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Accounting Principles and Practices
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Accounting Principles and Practices
Accounting Principles and Practices
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1
Question
What is the main role of accountants in business?
Answer
Accountants are responsible for collecting, analyzing, and communicating financial information in a business.
2
Question
What are the different types of accountants mentioned?
Answer
1. Public Accountants 2. Private Accountants 3. Management Accountants 4. Forensic Accountants
3
Question
What is the accounting equation?
Answer
Assets = Liabilities + Owners' Equity
4
Question
What are the three basic financial statements?
Answer
1. Balance Sheet 2. Income Statement 3. Statement of Cash Flows
5
Question
What are GAAP?
Answer
Generally Accepted Accounting Principles, which are accounting guidelines that govern the content and form of financial reports.
6
Question
Why is computing financial ratios important?
Answer
Computing financial ratios helps investors and other stakeholders obtain more information from financial statements to assess the financial strengths of a business.
7
Question
What is an Accounting Information System (AIS)?
Answer
AIS is an organized procedure for identifying, measuring, recording, and retaining financial information for use in accounting statements and management reports.
8
Question
What do business managers use accounting information for?
Answer
To develop goals and plans, set budgets, and evaluate future prospects.
9
Question
What does a Controller do?
Answer
A Controller manages all of a firm's accounting activities and is known as the chief accounting officer.
10
Question
What designation does a Certified Management Accountant (CMA) signify?
Answer
It is a professional designation awarded by the Institute of Management Accountants (IMA) recognizing qualifications in management accounting.
11
Question
What is forensic accounting?
Answer
The practice of accounting for legal purposes.
12
Question
What is the Sarbanes-Oxley Act of 2002 (Sarbox or Sox)?
Answer
A federal regulation enacted to restore public trust in accounting practices by imposing new requirements on financial activities in publicly traded corporations.
13
Question
List three selected provisions of the Sarbanes-Oxley Act.
Answer
1. Creates a national Accounting Oversight Board. 2. Requires auditor rotation after 5 consecutive years. 3. Imposes criminal penalties for falsifying or concealing records.
14
Question
What is a balance sheet?
Answer
A financial statement that supplies detailed information about a firm's assets, liabilities, and owners' equity.
15
Question
Define current asset.
Answer
An asset that can or will be converted into cash within a year.
16
Question
What does liquidity refer to?
Answer
The ease with which an asset can be converted into cash.
17
Question
What are retained earnings?
Answer
Earnings retained by a firm for its use rather than paid out as dividends.
18
Question
What is the purpose of an income statement?
Answer
To list a firm's annual revenues and expenses, showing the bottom line profit or loss.
19
Question
What does the term 'net income' refer to?
Answer
Net income, or net profit, is calculated as gross profit minus operating expenses and income taxes.
20
Question
What is the statement of cash flows?
Answer
A financial statement describing a firm's yearly cash receipts and cash payments.
21
Question
What is a budget in terms of financial statements?
Answer
A detailed statement of estimated receipts and expenditures for a future period of time.
22
Question
What is a solvency ratio?
Answer
A financial ratio for estimating a borrower's ability to repay debt.
23
Question
What are profitability ratios used for?
Answer
To measure a firm's potential earnings.
24
Question
Why is the AICPA's Code of Professional Conduct important?
Answer
It serves as a code of ethics for CPAs, maintaining professional standards and responsibilities.
25
Question
What should a CPA demonstrate to maintain integrity?
Answer
Commitment to the profession by respecting and maintaining the public trust and serving the public honorably.
26
Question
Why should CPAs be independent from clients when certifying to the public?
Answer
CPAs should be independent from clients to ensure that the client's statements are true and genuine.
27
Question
What is meant by 'due care' in the context of a CPA's professional conduct?
Answer
'Due care' refers to the CPA exercising professional improvement, abiding by ethical standards, updating personal competence through continuing accounting education, and improving the quality of services.
28
Question
What should CPAs in public practice abide by when providing services?
Answer
CPAs in public practice should abide by the meaning and intent of the Code of Professional Conduct when deciding on the kinds of services and the range of actions to be supplied competently and diligently for clients.
29
Question
What was the settlement amount Kraft Foods Inc. had to pay for their accounting violation?
Answer
Kraft Foods Inc. had to pay a fine of 16 million in settlement after the CFTC accused them of using manipulative market strategies.
30
Question
What accounting violation did Steinhoff commit according to PwC?
Answer
Steinhoff recorded fictitious transactions that totaled 7.4 billion over the period 2009-2017.