Question

1) The financial reports of a business include only the results of that business’s activities. This is:
A) required only for large corporations.
B) the separate entity assumption.
C) true only for financial statements prepared under IFRS.
D) the accounting equation. the cost principle.

1-1) Which of the following statements about financial accounting is correct?

A)		Financial accounting reports are primarily prepared to provide information for external decision makers.
B)		Financial accounting reports are used primarily by employees to make business decisions related to production.
C)		Financial accounting reports are used primarily by management to understand whether a product line should be discontinued.
D)		Financial accounting reports primarily contain detailed internal records of the company.

1-2) Investing activities on the statement of cash flows arise from transactions:

A)		with stockholders, selling company stock and paying dividends.
B)		directly related to running the business to earn profit.
C)		related to buying or selling productive resources with long lives.
D)		with lenders, borrowing and repaying cash.

1-3) The obligations and debts of a business are referred to as:

A)		liabilities.
B)		assets.
C)		equities.
D)		dividends.

Answer 1

1. Option B - the separate entity assumption. separate entity assumption - An accounting concept which treats a business separately from its owner. The separate entity assumption states that the transactions conducted by a business are separate to those conducted by its owners.

1-1 Option A - Financial accounting reports are primarily prepared to provide information for external decision makers.

1-2. Option C - related to buying or selling productive resources with long lives.

1-3 Option A - Liabilities