1. Accounting is the information system that identifies, records, and communicates the economic events of an organizat
Answer: True
2. A working knowledge of accounting can be useful to doctors or lawyers.
Answer: True
3. The main objective of financial statements is to provide useful information to management.
Answer: False
4. Sales managers are an example of an external user of accounting information.
Answer: False
5. Creditors are an example of an internal user of accounting information.
Answer: False
6. Accounting information is used only by external users with a direct financial interest in a company.
Answer: False
7. In a proprietorship, there may be two or more owners.
Answer: False
8. One of the disadvantages of a proprietorship is that there is unlimited liability for the owner.
Answer: True
9. Under the proprietorship form of business organization, no legal distinction is made between the business as an econ
Answer: True
10. A partnership must have at least two people in the partnership.
Answer: True
11. In a partnership, all of the partners will generally have unlimited liability for the debts of the partnerships.
Answer: True
12. A corporation may only be formed under federal legislation.
Answer: False
13. A corporation is only subject to the federal laws of corporations.
,Answer: False
14. A corporation may be formed under either provincial legislation or federal legislation.
Answer: True
15. A corporation’s ownership is divided into transferable shares.
Answer: True
16. One of the main advantages of a corporation is limited liability for the shareholders of the corporation.
Answer: True
17. Owners of a corporation are responsible for reporting the business profits on their personal income taxes.
Answer: False
18. An advantage of the corporation is that the shares of the corporation are easily transferable.
Answer: True
19. Ethics are critical in the preparation of accounting information.
Answer: True
20. Only the accountants should be concerned with ethics when the financial statements are being prepared.
Answer: False
21. In a situation with an ethical consideration, there is only one ethical course of action which can be followed.
Answer: False
22. A private company is one that issues shares to the public.
Answer: False
23. GAAP stands for Generally Accepted Accounting Principles.
Answer: True
24. In Canada, the main standard setting board is the Accounting Standards Board.
Answer: True
25. Corporations incorporated under provincial legislation report under ASPE and corporations incorporated under fede
Answer: False
26. Publicly traded corporations can choose to report under either ASPE or IFRS.
Answer: False
27. Both IFRS and ASPE are considered “principles-based” as opposed to “rules-based” standards.
Answer: True
28. The going concern assumption is the assumption that a company will continue to operate in the foreseeable future.
Answer: True
,29. The going concern assumption is the assumption that a company will NOT be successful in the foreseeable future.
Answer: False
30. The reporting entity concept requires that an entity’s business activities be combined with the activities of its owner
Answer: False
31. Recognition is the process of recording a transaction in the accounting records.
Answer: True
32. Measurement is the process of determining the amount that should be recognized.
Answer: True
33. Fair value measurements are always more relevant to users of the financial statements.
Answer: False
34. The cost and fair value of an asset are the same at the time of acquisition and in all subsequent periods.
Answer: False
35. The monetary unit concept assumes that all transactions will take place in Canadian dollars.
Answer: False
36. The monetary unit concept prevents some relevant information from being recorded in the accounting records.
Answer: True
37. Assets are present obligations, arising from past events, to make a future payment or to provide services.
Answer: False
38. Liabilities are the resources controlled by a business that are expected to provide future economic benefits.
Answer: False
39. Accounts payable is the asset created when a company sells services or products to customers who promise to pay c
Answer: False
40. An obligation to pay cash to a supplier in the future is called accounts payable.
Answer: True
41. The owner’s claim on the assets of the company is known as owner’s equity.
Answer: True
42. Owner’s claims to total business assets take precedence over the claims of creditors because owners invest assets in
Answer: False
43. Expenses are the costs of assets that are consumed or services used in ordinary business activities.
Answer: True
, 44. A balance sheet presents the revenues and expenses, and the resulting profit or loss for a specific period of time.
Answer: False
45. Profit results when a company’s expenses are higher than its revenues.
Answer: False
46. A balance sheet reports the assets, liabilities, and owner’s equity at a specific date.
Answer: True
47. An Income statement will give the answer to the question – “where did all the cash get used during this month?”
Answer: False
48. A cash flow statement is organized into three categories: operating, financing, and investing activities of the compan
Answer: True
50. A balance sheet can also be called a statement of financial position.
Answer: True
51. An accounting transaction occurs when assets, liabilities, or owner’s equity items change as the result of some econo
Answer: True
52. Purchasing supplies on credit will result in an increase in assets and an increase in liabilities.
Answer: True
53. The annual report is a document that includes both financial and non-financial information.
Answer: True
MULTIPLE CHOICE QUESTIONS
54. An external user could be
a) production manager.
b) marketing manager.
c) Canada Revenue Agency.
d) the human resource director.
Answer: c
55. An external user would NOT include
a) a creditor of the company.
b) Canada Revenue Agency.
c) human resources personnel.
d) the company’s bank.
Answer: c
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