Question

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Objectives of financial reporting to external investors and creditors include preparing information about all of the following except: (A) Information used to determine which products to produce. B) Information about economic resources, claims to those resources, and changes in both resources and claims. C) Information that is useful in making investment and credit decisions. D) Information that is useful in assessing the amount, timing, and uncertainty of future cash flows. 2) Financial statements are prepared: A) In either monetary or nonmonetary terms, depending upon the need of the decision maker B) Primarily for the benefit of persons outside of the business organization. C) For corporations, but not for sole proprietorships or partnerships D) Only for publicly owned business organizations. 3) The basic purpose of generally accepted accounting principles is to: A) Ensure that financial statements include the type of information that is best suited to every type of business decision. B) Eliminate the need for professional judgment in preparing financial statements. C) Minimize the possibility of a business becoming insolvent. (D) Provide a framework for financial reporting that is understood by both the preparers and the users of financial statements. 4) Which of the following is generally not considered one of the general purpose financial statements issued by a corporation? A) Income statement forecast for the coming year B) Statement of financial position. C) Balance sheet. D) Statement of cash flows. 5) Characteristics of internal accounting information include all of the following except: A) It must be timely. B) It measures efficiency and effectiveness. (C) It is audited by a CPA. D) It is generally oriented toward the future.

Answer 1

1.

Answer: A

Information about what to produce is required for management, internal user, of the organization. This is not required for external users.

2.

Answer: B

These are prepared mainly for external users, like banks, tax authority, lenders, suppliers, etc. Four parts of these statements are Income Statement, Balance Sheet, Retained earnings statement, and cash flow statement.

All businesses require preparing this except very small businesses.

3.

Answer: D

The purpose of GAAP is the understanding and acceptability of accounting in the wider range; makers and users are in this category.

4.

Answer: A

Forecasting of a statement is called projection; this is not required in financial statements; accounting in financial statements must be actual but not estimated.

5.

Answer: C

Auditing is not required in internal accounting, such as cost accounting. It is actually made for the management of the organization but not for the external users; therefore, there is no requirement of ensuring authenticity of such data, which is called as auditing.