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Questions and Answers
What information does the statement of cash flows for Northeast Art Supply, Inc. provide?
What information does the statement of cash flows for Northeast Art Supply, Inc. provide?
How is the Net Profit Margin calculated?
How is the Net Profit Margin calculated?
What does Inventory Turnover measure?
What does Inventory Turnover measure?
In evaluating the financial health of Park Avenue Furniture, why might a bank officer decline a loan request?
In evaluating the financial health of Park Avenue Furniture, why might a bank officer decline a loan request?
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Which of the following is NOT a component of the statement of cash flows?
Which of the following is NOT a component of the statement of cash flows?
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What is the primary function of a Management Information System (MIS)?
What is the primary function of a Management Information System (MIS)?
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Which area of management requires detailed information about competitors and products?
Which area of management requires detailed information about competitors and products?
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What is one of the costs associated with implementing a Management Information System?
What is one of the costs associated with implementing a Management Information System?
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Which function is NOT part of the five functions of a Management Information System?
Which function is NOT part of the five functions of a Management Information System?
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What type of information can accounting systems primarily prepare?
What type of information can accounting systems primarily prepare?
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An effective Management Information System should be tailored to which of the following?
An effective Management Information System should be tailored to which of the following?
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Which of the following is a potential negative effect of information overload in MIS?
Which of the following is a potential negative effect of information overload in MIS?
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What are the components of a spreadsheet primarily used for?
What are the components of a spreadsheet primarily used for?
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What does the pie chart represent in a business presentation?
What does the pie chart represent in a business presentation?
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Which of the following is included in the accounting equation?
Which of the following is included in the accounting equation?
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What is the total number of salespeople in the provided territories?
What is the total number of salespeople in the provided territories?
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Why are audited financial statements considered important?
Why are audited financial statements considered important?
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How does double-entry bookkeeping maintain the balance shown in the accounting equation?
How does double-entry bookkeeping maintain the balance shown in the accounting equation?
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What is the main purpose of the annual report?
What is the main purpose of the annual report?
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Which of the following items is considered an asset?
Which of the following items is considered an asset?
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What do Generally Accepted Accounting Principles (GAAP) provide for companies?
What do Generally Accepted Accounting Principles (GAAP) provide for companies?
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What is included in a personal balance sheet as part of assets?
What is included in a personal balance sheet as part of assets?
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Which of the following best describes current assets?
Which of the following best describes current assets?
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What does net worth represent in a personal balance sheet?
What does net worth represent in a personal balance sheet?
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How are liabilities categorized in a business balance sheet?
How are liabilities categorized in a business balance sheet?
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Which of the following describes depreciation?
Which of the following describes depreciation?
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What is the primary purpose of the statement of cash flows?
What is the primary purpose of the statement of cash flows?
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What are intangible assets?
What are intangible assets?
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What do cash flows from investing activities encompass?
What do cash flows from investing activities encompass?
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What is the primary difference between data and information?
What is the primary difference between data and information?
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How do decision-support systems (DSS) assist employees in an organization?
How do decision-support systems (DSS) assist employees in an organization?
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What role does knowledge management play in a business?
What role does knowledge management play in a business?
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Which of the following statements about expert systems is accurate?
Which of the following statements about expert systems is accurate?
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Which type of software is primarily used for creating professional reports and publications?
Which type of software is primarily used for creating professional reports and publications?
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Why are accurate accounting information and audited financial statements crucial for a business?
Why are accurate accounting information and audited financial statements crucial for a business?
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What is a database in the context of business information systems?
What is a database in the context of business information systems?
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How can information reduce risk when making decisions?
How can information reduce risk when making decisions?
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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
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Accounting: The process of systematically collecting, analyzing, and reporting financial information
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Audit: An examination of a company's financial statements
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Generally accepted accounting principles (GAAPs): Guidelines and practices for U.S. companies reporting financial information for the accounting profession
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Accounting Fraud, Ethical Behavior, and Reform: Accounting problems have forced many investors to question the motives behind fraudulent and unethical accounting practices
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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.
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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
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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
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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
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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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