Fundamentals of Accounting Textbook
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Course Introduction
Fundamentals of Accounting introduces students to the core principles and practices underlying the field of accounting. This course covers essential topics such as the accounting cycle, double-entry bookkeeping, preparation and analysis of financial statements, and the role of accounting information in organizational decision-making. Emphasis is placed on understanding Generally Accepted Accounting Principles (GAAP), recording business transactions, and applying basic accounting concepts to real-world scenarios. Through a blend of theoretical knowledge and practical exercises, students will develop a foundational skill set for further study in accounting and related business disciplines.
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Accounting Business Reporting for Decision Making 6th Edition by Jacqueline Birt
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Chapter 1: Introduction to Accounting and Business Decision Making
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Q1) The work of recording financial transactions is normally carried out by a _______________ not an accountant.
Answer: bookkeeper
Q2) A bank requesting accounting information is looking for:
A) the amount of tax that should be paid.
B) cash flows from dividends paid.
C) the ability of the entity to repay a loan.
D) environmental aspects of the business.
Answer: C
Q3) The time delay in Australia in providing the annual report of large companies to external users after the end of the financial year is:
A) often only two weeks.
B) always one month.
C) often up to three months.
D) nil.
Answer: C
Q4) The information provided in financial statements is the result of past transactions and does not provide information.
Answer: forecast
3
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Chapter 2: Accounting in Society
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Q1) Deontological theories are concerned with an accountant's sense of duty.Which of the following philosophies is part of this group of theories?
A) Kantianism.
B) Ethical egoism.
C) Psychological egoism.
D) Utilitarianism.
Answer: A
Q2) A factor which has not been a major reason for heightened interest in business ethics is:
A) the introduction of the GST.
B) corporate collapses.
C) the community becoming more educated and aware.
D) globalisation.
Answer: A
Q3) The minimum acceptable standards for accountants,issued by the professional bodies,are known as the code of professional ________________.
Answer: conduct
Q4) Directors owe a legal duty to their company to act with _______ and _________.
Answer: care,diligence
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Chapter 3: Business Structures
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Q1) Private companies in Australia are permitted to have how many shareholders?
A) A maximum of two.
B) At least two but no more than one hundred.
C) At least one but no more than fifty.
D) At least one but no more than twenty.
Answer: C
Q2) Limited liability for a company applies to the:
A) shareholders.
B) executive directors.
C) all members of the board of directors.
D) managers.
Answer: A
Q3) Individuals who pay tax on the income distributed to them may have received that income from a:
A) sole trader.
B) partnership.
C) trust.
D) all of the above.
Answer: D
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Page 5
Chapter 4: Business Transactions
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Q1) A business purchased inventory for $15 000,paying $8 000 cash and the balance of $7 000 due at the end of the following month.The debit and credit entries are:
A) debit cash $8 000, debit accounts payable $7 000; credit inventory $15 000.
B) debit inventory $8 0000; credit cash $8 000.
C) debit inventory $15 000; credit cash $8 000, credit accounts payable $7 000.
D) debit inventory $8 000; credit cash $15 000, credit accounts payable $7 000.
Q2) Which of the following statements is incorrect?
A) A debit entry is used to increase expenses.
B) A credit entry is used to increase equity.
C) A credit entry is used to increase assets.
D) A debit entry is used to increase assets.
Q3) If total claims equal $950 000 and equity is $460 000,assets must be:
A) $590 000
B) $490 000
C) $950 000
D) $460 000
Q4) A common error that occurs when a transaction is recorded with two increases (or decreases)to one side of the accounting equation is known as a(n)__________ error.
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Page 6
Chapter 5: Balance Sheet
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Q1) Office furniture was purchased for $15 000.The residual value of the furniture is $1000 and its useful life is estimated to be 7 years.The annual depreciation amount will be:
A) $14 000
B) $2 000
C) $1 400
D) $1 000
Q2) An accountant is required to make choices in measuring the value of:
A) property, plant and equipment.
B) development expenditure.
C) inventory.
D) all of the above.
Q3) An essential characteristic of an asset is that the resource must be _________________ by the entity.
Q4) The balance sheet does not reflect an entitys full __________ as some economic benefits do not satisfy the definition of an asset.
Q5) Goodwill is regarded as an ______________ intangible asset.
Q6) The accrual of annual leave and long-service leave for employees is classed as a ______________ in the liabilities section of the balance sheet.
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Chapter 6: Statement of Profit or Loss and Statement of
Changes in Equity
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Q1) Which of the following transactions will be recorded as income?
A) Borrow $50 000 from the bank.
B) A. J. Smith pays $2 500 for goods sold to him on credit last month.
C) Sold inventory on credit for $5 000.
D) Owner contributes $8 000 of personal funds to the business.
Q2) An ______________ expense is recognised when the value of an asset is determined to be lower than its carrying amount.
Q3) A loss reported on the statement of profit or loss decreases the __________ section of the balance sheet.
Q4) Which of the following statements relating to the presentation of the statement of profit or loss by non-reporting entities is not true?
A) There is no prescribed format.
B) The statement of profit or loss must be prepared in accordance with the AASB accounting standards.
C) The purpose of the statement of profit or loss is to report the profit or loss for the entity for the reporting period.
D) Income is usually more detailed and less aggregated than that prepared for a reporting entity.
Page 8
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Chapter 7: Statement of Cash Flows
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Q1) The ___________ method of preparing a statement of cash flows adjusts an entity's profit or loss for the effects of non-cash transactions and deferrals or accruals of operating activities.
Q2) The amount owing to suppliers for inventory purchases at the beginning of the year is $118 000 and at the end of the year is $94 000.If total credit purchases of inventory for the year are $160 000,the cash paid to suppliers of inventory for the year is:
A) $184 000
B) $66 000
C) $278 000
D) $254 000
Q3) Cash receipts from dividends are classified as which activity in the statement of cash flows?
A) Financing.
B) Investing.
C) Operating.
D) Financing or investing.
Q4) The receipt of dividends would be classified as a cash inflow from ______________ activities.
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Chapter 8: Analysis and Interpretation of Financial Statements
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Q1) If the ____________________ ratio is less than 50%,the entity relies more on debt funding than equity funding.
Q2) _________________ analysis assists users in their decision making by expressing an entity's financial performance and position in relative terms.
Q3) From the information provided below,management of an entity calculate the return on assets (rounded to the nearest whole number)to be: \(\begin{array}{|l|r|}
\hline\text{ Net profit after-tax }& \$ 109000 \\
\hline \text{Net profit before interest and tax }& 152000 \\
\hline \text{Beginning balance of total assets} & 620000 \\
\hline \text{Ending balance of total assets} & 840000 \\ \hline \end{array}\)
A) 15%
B) 21%
C) 18%
D) 13%
Q4) Ratios can be impacted by the accounting policy choices and ___________ made by an entity.
Page 10
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Chapter 9: Budgeting
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Q1) Which of the following budgeted expenses has a favourable variance?
A) Advertising $30 000, actual advertising $40 000.
B) Telephone $4 000, actual telephone $3 700.
C) Salary and wages $52 000, actual salary and wages $56 000.
D) Interest $500, actual interest $500.
Q2) Requiring managers to prepare the budgets from scratch or zero-base may help them to overcome the problem of:
A) motivation.
B) budget ownership.
C) embedded budget slack.
D) unattainable targets.
Q3) The cash budget shows the ____________ future cash receipts and cash payments.
Q4) Which of the following describes a way in which budgeting can assist in decision making?
A) Identifying expected cash shortages.
B) Determining inventory levels.
C) Setting production targets for managers.
D) All of the above.
Q5) ____________________ management involves setting business targets in other than just financial terms.
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Chapter 10: Costvolumeprofit Analysis
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Q1) The contribution margin ratio is:
A) the contribution margin shown as a percentage of revenue.
B) determines the sales dollars required to achieve a desired profit.
C) total contribution margin divided by total sales and then multiplied by 100.
D) all of the above.
Q2) If an entity has sufficient spare capacity it is more likely to accept a special order because:
A) there is no opportunity cost to accepting the order.
B) any order that uses up spare capacity will be profitable.
C) management will not want to have their machinery and employees idle.
D) the entity can demand a higher selling price for the special order.
Q3) Which of the following statements about opportunity costs is true?
A) Opportunity costs are avoidable costs.
B) Opportunity costs are not relevant in decision making.
C) Opportunity costs are the costs of forgoing benefits that would be available if the resources had been used in the next best alternative.
D) All of the statements are true.
Q4) An important assumption in CVP analysis is that all cost functions are assumed to be _______________.
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Chapter 11: Costing and Pricing in an Entity
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Q1) A predetermined indirect cost rate is calculated:
A) using budgeted costs.
B) monthly.
C) using actual costs.
D) using cash flow data.
Q2) To calculate the total cost of a cost object,________ costs need to be traced and ________ costs are allocated.
Q3) The ____________________ value chain represents all the linked activities undertaken within an entity from the inception of the product or service,to the final delivery to customers.
Q4) Which of the following can be a cost object?
A) A product.
B) A geographic location.
C) A service unit.
D) All of the options can be cost objects.
Q5) A cost pool is a grouping of similar costs that can be classified by:
A) department.
B) activity.
C) branch location.
D) all of the above.
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Chapter 12: Capital Investment
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Q1) The equation used to find the IRR is similar to the NPV equation,except that:
A) the discount rate for IRR is always higher than for NPV.
B) the discount rate for IRR is always lower than for NPV.
C) the value of the equation is set to zero when finding the IRR.
D) none of the options are true.
Q2) A likely investment to decrease costs for a retail entity is:
A) cloud computing.
B) all of these options.
C) bill payment systems.
D) computer networks to streamline the ordering process.
Q3) Most entities,when making an investment decision using the ARR method,will set a minimum level of return known as their Required Rate of Return (RRR).This RRR is based on:
A) industry averages.
B) the entity's past performances.
C) currently available returns from other investments outside the industry.
D) any of the above measures can be used to set a RRR.
Q4) The cost of forgoing benefits from an alternative investment is known as the ___________ cost.
Q5) The ___________ (shorter/longer)a payback period is,the greater the risk.
Page 14
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Chapter 13: Financing the Business
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Q1) An entity offers their customers discount terms of 2/10 net 30 to encourage payment of invoices.What does this mean?
A) Take 2% off if paying within 10 days, or pay 100% before 30 days.
B) Take 2% off if paying within 30 days.
C) Pay 10% today and the balance in 30 days.
D) In two days' time, pay 10% and the balance in 30 days.
Q2) A commercial bill is an example of a:
A) discount security.
B) a full security.
C) a bank overdraft.
D) a long-term loan.
Q3) Which of the following is a benefit of keeping inventory on hand?
A) Sales are made and profits are gained.
B) Cross-sales are made and profits increased.
C) All of these options are benefits of holding inventory.
D) Goodwill is built up and no-inventory costs are avoided.
Q4) A cash ____________ enables managers to plan for the most advantageous arrangements for investing cash surpluses or providing for cash deficits.
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Chapter 14: Performance Measurement
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Q1) Which one of these perspectives is not used by the balanced scorecard?
A) Employee.
B) Customer.
C) Financial.
D) Innovation and improvement activities.
Q2) There is a need to combine return on investment (ROI)with long-term performance measures because:
A) ROI is a short-term performance measure.
B) managers can manipulate the ROI for their own benefit.
C) managers may reject an investment because it could decrease the overall ROI.
D) all of the options are true.
Q3) Using Residual Income (RI)as a performance indicator can encourage (short-term/long-term)____________ decision making.
Q4) The investment _______________ ratio measures the amount of sales generated relative to the level of investment.
Q5) Non-financial performance measures should include _________________ such as past performance,targets,or industry averages.
Q6) The Kyoto Protocol recommends a cap and trade scheme to help countries reduce their ___________ emissions.
Page 16
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