FREE FAU Accounting Competency Questions and Answers
Why does accounting exist?
Explanation:
Accounting exists primarily to help people make decisions. It provides financial information and analysis that individuals, businesses, investors, and other stakeholders use to make informed decisions about allocating resources, evaluating performance, and planning for the future. While accounting can contribute to managing businesses profitably (option A), creating job opportunities (option C), and preparing tax returns (option D), its fundamental purpose is to assist decision-making by providing accurate and relevant financial information.
Who is responsible for preparing the financial accounting reports?
Explanation:
Management is responsible for preparing the financial accounting reports of an organization. These reports, such as financial statements, are prepared by management to communicate the financial performance and position of the organization to stakeholders. While independent auditors may review these reports for accuracy and compliance, the primary responsibility for their preparation lies with management.
Which of the following is not an objective of the system of internal controls?
Explanation:
The objective of the system of internal controls is to safeguard assets, ensure accurate financial reporting, promote compliance with laws and regulations, and run the business effectively and efficiently. While profitability is an important goal for a business, it is not the primary objective of internal controls. Internal controls focus on maintaining the integrity of financial information and safeguarding assets rather than directly ensuring profitability.
What area of accounting is based on the needs of the users?
Explanation:
Managerial accounting is the area of accounting that is primarily based on the needs of the users. It provides financial information and analysis to internal users, such as management, to assist in decision-making, planning, and controlling activities within the organization. While financial accounting serves external users like investors and creditors, and tax accounting deals with tax-related matters, managerial accounting is focused on meeting the needs of internal management for effective decision-making and operational control.
What area of accounting prepares multi-purpose reports?
Explanation:
Financial accounting prepares multi-purpose reports. These reports, such as balance sheets, income statements, and cash flow statements, are designed to provide information to both internal and external users, including investors, creditors, regulators, and management. Financial accounting ensures transparency and accountability by presenting the financial performance and position of an organization in a standardized format, facilitating comparisons and decision-making. Managerial accounting, while also generating reports, focuses more on internal decision-making and planning rather than external communication. Tax accounting deals specifically with tax-related matters and may not always produce multi-purpose reports.
What area of accounting follows rules set by the government?
Explanation:
Tax accounting is the area of accounting that follows rules set by the government. These rules include tax laws, regulations, and guidelines established by governmental authorities, such as the Internal Revenue Service (IRS). Tax accountants ensure compliance with these rules and help individuals and businesses accurately calculate and report their tax liabilities. Financial accounting also involves adherence to certain government regulations, but tax accounting specifically revolves around government-set rules related to taxation. Managerial accounting, however, focuses on internal decision-making and does not primarily deal with government regulations.
What rules are followed in preparing financial accounting reports?
Explanation:
Financial accounting reports are prepared following Generally Accepted Accounting Principles (GAAP). GAAP is a set of standardized accounting principles, standards, and procedures that companies use to prepare and present their financial statements. These principles ensure consistency, comparability, and transparency in financial reporting, enabling users to make meaningful comparisons and decisions.
Which of the following are the basic functions of an accounting system?
Please select 2 correct answers
Explanation:
The basic functions of an accounting system include interpreting and recording the effects of business transactions (Option A) and summarizing and communicating information to decision-makers (Option C). Accounting systems are designed to accurately capture financial transactions, process them into meaningful data, and present financial information in a format that aids decision-making. Options B and D, while important considerations in business operations are not direct functions of an accounting system.
Who are the primary users of financial accounting reports?
Explanation:
The primary users of financial accounting reports are investors and creditors. Investors use these reports to assess the financial health and performance of a company before making investment decisions. Creditors, such as banks and lenders, rely on financial reports to evaluate the creditworthiness of a company before extending loans or credit. While the IRS and SEC may utilize financial reports for regulatory purposes, their primary role is not as users of these reports.
Which of the following best describes the accounting systems of most business organizations?
Explanation:
The best description of accounting systems in most business organizations is that they are designed to meet the specific needs of each organization. Accounting systems are tailored to the size, industry, and operational requirements of the business to effectively capture, process, and report financial information. While there are common principles and standards followed in accounting, the implementation of accounting systems varies based on the unique characteristics and objectives of each business.
Which of the following best describes cost-effective?
Explanation:
Cost-effectiveness in accounting refers to the balance between the value gained from the information produced and the cost incurred to generate it. Option D accurately describes this concept, indicating that information is considered cost-effective when its benefits outweigh the expenses associated with its production. Options A, B, and C do not adequately capture the essence of cost-effectiveness in accounting.