II. Comprehension exercises

1. Complete the statements:

1. Accounting is the system a business uses

a) to keep and examine money accounts

b) to establish objectives and goals for the organization and determine the

best ways to achieve them

c) to measure, interpret, and communicate financial information to support

internal and external decision making

2. The area of accounting concerned with preparing financial information for

use by managers within the organization is called

a) financial accounting

b) management accounting

c) tax accounting

3. Suppliers, bankers, and other creditors are interested in accounting

information to determine the company’s

a) profit potential

b) tax liability

c) creditworthiness

4. Bookkeeping is

a) just the same as accounting

b) much broader and far more sophisticated than accounting

c) much narrower and far more mechanical than accounting

5. A book or computer program that shows all the expenditures and all the

earnings of the company is called

a) a ledger

b) a journal

c) a trial balance

6. Trial balances are usually drawn

a) every week

b) every month

c) every quarter

7. Accountants who are independent of the businesses, organizations, and

individuals they serve are

a) governmental accountants

b) public accountants

c) private accountants

8. Forensic accounting, a growing area for public accountants, involves

a) analyzing financial documents in search of fraudulent entries or financial

misconduct

b) computing and analyzing production costs

c) evaluating the operation of company departments to determine their

efficiency

9. Most public accountants are

a) certified internal auditors

b) certified management accountants

c) certified public accountants

10. Private accountants work

a) solely for private companies and corporations

b) solely for government agencies and nonprofit organizations

c) for any organization that hires them to maintain financial records

11. An internal financial plan for some future period is termed

a) a business plan

b) a budget

c) a financial statement

12. A person in charge of every aspect of a company’s finance

operation is called

a) the chief executive officer

b) the financial manager

c) the controller

2. Review questions

1. What is accounting? Why is it called “the language of business”?

2. What is the basic purpose of accounting?

3. Why is accounting important to business?

4. What is the difference between financial accounting and management accounting?

5. Who are the major users of accounting information?

6. Which is a broader term – bookkeeping or accounting? Explain why.

7. What are the responsibilities of the accountant?

8. How can accounting professionals be classified?

9. What services do public accountants provide?

10. What areas of accounting do private accountants specialize in?

11. What is the role of the controller?