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Depreciation is a systematic write-off of the cost of a tangible asset that is listed on ___________.


A) the statement of cash flows.
B) the balance sheet.
C) the income statement.
D) the statement of retained earnings.

E) All of the above
F) B) and D)

Correct Answer

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After recording a business's transactions, bookkeepers usually classify the recorded transactions into groups with common characteristics.

A) True
B) False

Correct Answer

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Cash flow difficulties are unlikely for a firm that is profitable.

A) True
B) False

Correct Answer

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A firm's financial statements represent a health report regarding the condition of the firm.

A) True
B) False

Correct Answer

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The debt to owners' equity ratio is a common type of liquidity ratio.

A) True
B) False

Correct Answer

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During a period of rising prices, if a firm desires to report a low gross profit figure in hopes of reducing their income tax liability, the firm will use the __________ inventory valuation method.


A) FIFO (first-in, first-out)
B) LIFO (last-in, first-out)
C) sliding scale
D) average cost

E) A) and C)
F) B) and D)

Correct Answer

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In the course of their jobs, bookkeepers:


A) interpret accounting data.
B) approve decisions about major expenditures.
C) record business transactions.
D) prepare financial statements.

E) B) and C)
F) A) and B)

Correct Answer

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Good decisions are based on good information. Organizations need accounting-to provide good financial information.

A) True
B) False

Correct Answer

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A firm's annual report is a yearly statement of the financial condition, progress, and expectations of the organization during one year.

A) True
B) False

Correct Answer

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Hendry, Inc., has recorded its unpaid bill for supplies under a current liabilities account on the balance sheet. This payment will be due to the supplier in less than a year.

A) True
B) False

Correct Answer

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Becky Hunter is an accountant employed by FAF Enterprises. Recently she has spent much of her time working on defining measures of costs for the production department and checking to ensure that various departments are staying within their budgets. Becky is a:


A) public accountant whose work is mainly concerned with auditing.
B) public accountant whose work is mainly concerned with financial accounting.
C) private accountant whose work is mainly concerned with managerial accounting.
D) private accountant whose work is mainly concerned with financial accounting.

E) B) and C)
F) A) and D)

Correct Answer

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As mentioned in the Adapting to Change box, accountants that search for fraudulent activities are called forensic accountants.

A) True
B) False

Correct Answer

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The income statement reports the difference between a firm's assets and its liabilities as of a certain date.

A) True
B) False

Correct Answer

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The current ratio is used to evaluate a firm's ability to pay its short-term debts.

A) True
B) False

Correct Answer

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Monica noted that she disbursed $6,347 in payments for operations in her travel agency and received $6,189 in cash receipts for services rendered. She had no cash receipts or disbursements from investments or financing activities. Thus, Monica had a:


A) positive disbursement.
B) negative cash flow.
C) bad debt allowance.
D) tax credit payment.

E) C) and D)
F) A) and B)

Correct Answer

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Retailers attempt to sell older merchandise before more recently acquired merchandise is sold. The assumptions made by the __________ method of inventory valuation are most consistent with this approach.


A) FIFO (first-in, first-out)
B) LIFO (last-in, first-out)
C) average costing
D) accelerated costing

E) C) and D)
F) A) and D)

Correct Answer

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At present, accounting software packages have proven to be too complex and expensive to be useful for owners of small businesses.

A) True
B) False

Correct Answer

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The steps in the accounting cycle do not need to be followed in the order stated. Monthly financial statements can be prepared with a good amount of accuracy, prior to posting in the ledger or preparing the trail balance.

A) True
B) False

Correct Answer

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Jeremy operates his own small business, but he doesn't want to be bothered with accounting information. He tells his friends, "All I need accounting for is to prepare my income tax return for my business. I'll hire someone to do that for me." Jeremy's attitude would be disastrous if he managed a large firm, but is a reasonable view for a small business owner.

A) True
B) False

Correct Answer

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The area of accounting that provides managers inside the organization with information they need to make decisions is called:


A) tax accounting.
B) managerial accounting.
C) informational accounting.
D) financial accounting.

E) All of the above
F) B) and D)

Correct Answer

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