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What information does the statement of cash flows for Northeast Art Supply, Inc. provide?

  • It summarizes all asset valuations for the year.
  • It lists the company’s sales revenue.
  • It shows cash flows from operating, investing, and financing activities. (correct)
  • It details the company's stock market performance.
  • How is the Net Profit Margin calculated?

  • Net income after taxes divided by net sales. (correct)
  • Total assets divided by total liabilities.
  • Operating income divided by total revenue.
  • Net sales divided by net income after taxes.
  • What does Inventory Turnover measure?

  • The company's ability to pay its long-term debts.
  • The rate at which inventory is being replaced. (correct)
  • The number of units sold in a year.
  • The total sales revenue relative to inventory.
  • In evaluating the financial health of Park Avenue Furniture, why might a bank officer decline a loan request?

    <p>The company has been experiencing financial difficulties.</p> Signup and view all the answers

    Which of the following is NOT a component of the statement of cash flows?

    <p>Total asset valuation</p> Signup and view all the answers

    What is the primary function of a Management Information System (MIS)?

    <p>To provide managers and employees with necessary information</p> Signup and view all the answers

    Which area of management requires detailed information about competitors and products?

    <p>Marketing</p> Signup and view all the answers

    What is one of the costs associated with implementing a Management Information System?

    <p>High cost of computers and software</p> Signup and view all the answers

    Which function is NOT part of the five functions of a Management Information System?

    <p>Specification of data</p> Signup and view all the answers

    What type of information can accounting systems primarily prepare?

    <p>Routine financial transactions and reports</p> Signup and view all the answers

    An effective Management Information System should be tailored to which of the following?

    <p>The specific needs of the organization</p> Signup and view all the answers

    Which of the following is a potential negative effect of information overload in MIS?

    <p>The presence of worthless information</p> Signup and view all the answers

    What are the components of a spreadsheet primarily used for?

    <p>Organizing numerical data into rows and columns</p> Signup and view all the answers

    What does the pie chart represent in a business presentation?

    <p>Sales figures for selected products</p> Signup and view all the answers

    Which of the following is included in the accounting equation?

    <p>Assets = Liabilities + Owners' Equity</p> Signup and view all the answers

    What is the total number of salespeople in the provided territories?

    <p>45</p> Signup and view all the answers

    Why are audited financial statements considered important?

    <p>They ensure the accuracy of financial information</p> Signup and view all the answers

    How does double-entry bookkeeping maintain the balance shown in the accounting equation?

    <p>By making two entries for each transaction</p> Signup and view all the answers

    What is the main purpose of the annual report?

    <p>To describe the firm's operating activities and financial condition</p> Signup and view all the answers

    Which of the following items is considered an asset?

    <p>Cash held by the business</p> Signup and view all the answers

    What do Generally Accepted Accounting Principles (GAAP) provide for companies?

    <p>A framework for financial reporting</p> Signup and view all the answers

    What is included in a personal balance sheet as part of assets?

    <p>Television</p> Signup and view all the answers

    Which of the following best describes current assets?

    <p>Assets quickly convertible into cash or used within one year</p> Signup and view all the answers

    What does net worth represent in a personal balance sheet?

    <p>Total assets minus total liabilities</p> Signup and view all the answers

    How are liabilities categorized in a business balance sheet?

    <p>Current, long-term liabilities, and stockholders' equity</p> Signup and view all the answers

    Which of the following describes depreciation?

    <p>Apportioning cost of fixed assets over their useful lifespan</p> Signup and view all the answers

    What is the primary purpose of the statement of cash flows?

    <p>To show how operating, investing, and financing activities affect cash</p> Signup and view all the answers

    What are intangible assets?

    <p>Non-physical assets with value based on rights or privileges</p> Signup and view all the answers

    What do cash flows from investing activities encompass?

    <p>Purchase and sale of equipment and investments</p> Signup and view all the answers

    What is the primary difference between data and information?

    <p>Data is raw facts, while information is data presented in a useful form.</p> Signup and view all the answers

    How do decision-support systems (DSS) assist employees in an organization?

    <p>By providing relevant data and information for decision-making.</p> Signup and view all the answers

    What role does knowledge management play in a business?

    <p>It generates and shares important data and information within the firm.</p> Signup and view all the answers

    Which of the following statements about expert systems is accurate?

    <p>They utilize artificial intelligence to replicate human reasoning.</p> Signup and view all the answers

    Which type of software is primarily used for creating professional reports and publications?

    <p>Desktop Publishing Software</p> Signup and view all the answers

    Why are accurate accounting information and audited financial statements crucial for a business?

    <p>They provide transparency and support informed decision-making.</p> Signup and view all the answers

    What is a database in the context of business information systems?

    <p>A centralized storage of data that aids in decision-making.</p> Signup and view all the answers

    How can information reduce risk when making decisions?

    <p>By providing insights that can guide rational choices and avoid mistakes.</p> Signup and view all the answers

    Study Notes

    Chapter 15: Using Management and Accounting Information

    • This chapter explores information and accounting
    • It covers why employees need information, management information systems, and the importance of accounting information and financial statements
    • It also examines how managers evaluate a firm's financial health

    Learning Objectives

    • Examine how information can reduce risk when making a decision
    • Discuss management's information requirements
    • Outline the five functions of an information system
    • Explain why accurate accounting information and audited financial statements are important
    • Interpret a balance sheet
    • Interpret an income statement
    • Describe business activities that affect a firm's cash flow
    • Summarize how managers evaluate the financial health of a business

    15-1: How Can Information Reduce Risk When Making a Decision?

    • Business people try to gather information to reduce the time needed to analyze choices
    • They continuously look for new rules to use and discredit old ones
    • Data are numerical or verbal descriptions from measurement
    • Information is data presented in a form useful for a purpose

    15-1: Knowledge Management

    • Database: A single collection of data and information
    • Knowledge Management (KM): A firm's procedures for generating, using, and sharing important data and information
    • Decision-support system (DSS): Software to provide relevant data and information to help employees make decisions
    • Expert system: Computer program that uses artificial intelligence to mimic human thought

    Table 15-1: Current Business Application Software Used to Improve Productivity

    • Word processing: Prepare and edit documents and store them
    • Desktop publishing: Combine text and graphics in professional reports, newsletters, and pamphlets
    • Accounting: Record transactions and prepare financial reports
    • Database management: Electronically store and transform data into information
    • Graphics: Display and print pictures, drawings, charts, and diagrams
    • Spreadsheets: Organize numerical data in rows and columns

    15-2: What is a Management Information System?

    • Management information system (MIS): A system that provides managers and employees with needed information to perform their jobs effectively
    • Firms are organized into five areas of management: Finance, Operations, Marketing, Human Resources, and Administration
    • Each area needs specific information for effective decision-making
    • Costs and Limits of the System: Too much information can be a problem, leading to information overload. The cost of computers, software, and related equipment can also be significant.

    15-3: How Do Employees Use a Management Information System?

    • Five Functions of an MIS:
      • Collect data
      • Store data
      • Update data
      • Process data into information
      • Present information to users

    15-4: Why Accounting Information Is Important

    • Accounting: The process of systematically collecting, analyzing, and reporting financial information

    • Audit: An examination of a company's financial statements

    • Generally accepted accounting principles (GAAPs): Guidelines and practices for U.S. companies reporting financial information for the accounting profession

    • Accounting Fraud, Ethical Behavior, and Reform: Accounting problems have forced many investors to question the motives behind fraudulent and unethical accounting practices

    • Sarbanes-Oxley Act: To help ensure that corporate financial information is accurate and to prevent accounting scandals

      • Required to establish a full-time five-member public company accounting oversight board. -Executive and financial officers are responsible for accuracy, documentation, and submission of financial reports and are liable for intentional violations of securities reporting requirements.
      • Accounting firms are prohibited from providing many types of non-audit and consulting services to the companies they audit.
      • Auditors or accountants must maintain financial documents and audit work papers.
    • Different Types of Accounting:

      • Managerial accounting: Provides managers and employees with needed information for making business decisions
      • Financial accounting: Generates financial statements and reports used by people outside the organization.
      • Additional areas include: cost accounting, tax accounting, government accounting, and not-for-profit accounting
    • Careers in Accounting:

      • Be responsible, honest, and ethical
      • Have a strong background in financial management
      • Know how to use computers and software
      • Be able to communicate with people who need accounting information

    15-5: The Accounting Equation and the Balance Sheet

    • Assets: The resources a business owns
    • Liabilities: Debts and obligations of a firm
    • Owners' equity: The difference between assets and liabilities (Assets = Liabilities + Owners' Equity)
    • Double-entry bookkeeping system: Each financial transaction recorded as two separate entries
    • Annual report: Describes a firm's operating activities and financial status
    • Balance sheet: A summary of a firm's assets, liabilities, and owners’ equity

    15-6: The Income Statement

    • Income statement: A summary of revenues and expenses
    • Difference between income and expenses—cash surplus or deficit
    • Revenues: Dollar amount earned from selling goods or services
    • Gross sales: The total dollar amount of goods and services sold during the accounting period
    • Net sales: The actual dollar amounts received from sales after deductions
      • Deductions include sales returns, sales allowances, and sales discounts
    • Cost of goods sold: Beginning inventory + net purchases − ending inventory
    • Gross profit: Net sales − cost of goods sold
    • Operating expenses: Costs other than the cost of goods sold (selling expenses and general expenses)
    • Net income: Occurs when revenues exceed expenses
    • Net loss: Occurs when expenses exceed revenues

    15-7: The Statement of Cash Flows

    • Statement of cash flows: Illustrates how a company's operating, investing, and financing activities affect cash during an accounting period
    • Cash flows from:
      • Operating activities (firm's primary revenue source)
      • Investing activities (equipment, land, assets and investments)
      • Financing activities (debt obligations, owners' equity, loans, company stock, dividends)

    15-8: Evaluating Financial Statements

    • Financial Ratios:

      • Net profit margin (return on sales): Net income / Net sales
      • Inventory turnover: Cost of goods sold / Average value of inventory
      • Current ratio: Current assets / Current liabilities
    • Financial statement analysis compares a firm's financial statements for recent periods to each other as well as industry averages and competing companies as well

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