Accounting for Decision Making
Chapter Exam Questions
Course Introduction
Accounting for Decision Making introduces students to the fundamental principles and practices of accounting with a focus on its critical role in business decision-making. The course covers essential topics such as financial statements analysis, budgeting, cost behavior, and performance evaluation, equipping students with the tools needed to interpret accounting information and apply it in real-world managerial contexts. Through case studies and practical exercises, students learn how to utilize accounting data to support planning, control, and strategic decisions, fostering a deeper understanding of how accounting impacts organizational effectiveness and financial health.
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Accounting Business Reporting for Decision Making 6th Edition by Jacqueline Birt
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Page 2
Chapter 1: Introduction to Accounting and Business Decision Making
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Q1) Which of the following is not an accounting report?
A) Statement of employee job satisfaction .
B) Balance sheet.
C) Income statement.
D) Statement of cash flows.
Answer: A
Q2) Companies operating in Australia and overseas must follow which accounting standards?
A) Both IFRS and local GAAP.
B) Local generally accepted accounting principles only.
C) IFRS only.
D) FASB.
Answer: A
Q3) The Financial Reporting Council is responsible for overseeing the accounting and auditing _________________ process for all accounting sectors in Australia.
Answer: standard-setting
Q4) Accounting is the process of identifying,communicating,and _______________ economic information for the purposes of decision-making.
Answer: measuring
3
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Chapter 2: Accounting in Society
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Q1) The ______________ Act identifies specific duties,responsibilities,and potential liabilities of directors of a company.
Answer: Corporations
Q2) The ASX guidelines for company directors and the code of ethics for accountants both require the following:
A) consideration of the public interest.
B) minimum technical and professional standards.
C) need for transparency and accountability.
D) all of the above.
Answer: D
Q3) Which of the following statements concerning ethical egoism is not true?
A) It underlies the assumptions in stakeholder theory.
B) It is a teleological theory.
C) It is where the decision maker decides what is best for him/herself.
D) It is relevant to modern corporate governance.
Answer: A
Q4) _____________________ theory suggests that entities must operate within the bounds and norms of society.
Answer: Legitimacy
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Chapter 3: Business Structures
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Q1) Retained earnings at the end of the period are equal to:
A) assets minus dividends.
B) retained earnings at the beginning of the period plus profit earned for the period.
C) retained earnings at the beginning of the period plus profit earned for the period minus dividends.
D) retained earnings at the beginning of the period plus profit earned for the period minus expenses.
Answer: C
Q2) A major (advantage/disadvantage)____________________ of a sole trader is the set up costs.
Answer: advantage
Q3) 'For-profit' business structures differ in terms of:
A) equity structure.
B) owner liability.
C) taxation.
D) all of the above.
Answer: D
Q4) A company is a separate _______________ entity to the owners of the business. Answer: legal
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Chapter 4: Business Transactions
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Q1) Assets should always be:
A) equal to liabilities.
B) greater than equity.
C) less than liabilities + equity.
D) equal to liabilities + equity.
Q2) An error that occurs when only one part of a transaction is recorded is known as a __________ - __________ error.
Q3) Occurrences that have the potential to affect the entity in some way,but that will not be recorded as business transactions until an exchange of goods or services takes place between the entity and an outside party are known as ______________
Q4) For the accounting equation to balance each transaction must:
A) affect the same number of asset and liability accounts.
B) always affect two accounts.
C) affect two or less accounts.
D) affect two or more accounts.
Q5) Profit (or loss)= ___________________ less expenses
Q6) A worksheet is a ___________ spreadsheet used by accountants to organise information and assist in the preparation of financial statements.
Page 6
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Chapter 5: Balance Sheet
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Q1) Which of the following is not part of shareholders' equity in the balance sheet?
A) Dividends payable.
B) Share capital.
C) Retained earnings.
D) General reserve.
Q2) Which of the following is a limitation of an entity's balance sheet?
A) If the business is cyclical, the balance sheet prepared at the end of the financial period may not be representative of the financial position at other times during the financial period.
B) The balance sheet may not include all items that create value for the entity.
C) The balance sheet is a historical representation of an entity's financial position and does not consider future growth potential.
D) All of the above are considered limitations of an entity's balance sheet.
Q3) If total assets equal $295 000,total liabilities are $165 000 and total equity equals $130 000 then net assets equals:
A) $295 00
B) $130 000
C) $165 000
D) $30 000
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Chapter 6: Statement of Profit or Loss and Statement of Changes in Equity
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Q1) A transaction recording accrued income will:
A) have no effect on total assets.
B) increase cash and decrease sales income.
C) increase accounts receivable and sales income.
D) increase accounts receivable and accounts payable.
Q2) Which of the following will be classified as income?
A) Interest received.
B) Fees charged for services provided.
C) Gain on sale of equipment.
D) All of the above.
Q3) For a retailing or manufacturing entity,gross profit is equal to sales less:
A) purchases.
B) all expenses.
C) cost of sales.
D) all expenses other than cost of sales.
Q4) The statement of profit or loss:
A) reports the assets, liabilities and equity at a specific point in time.
B) summarises the change in retained earnings over a specific period of time.
C) presents the income and expenses of an entity for a specific period of time.
D) reports the changes in assets, liabilities and equity over a period of time.
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Chapter 7: Statement of Cash Flows
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Q1) In the current financial period,accrued expenses are recorded as $250 000 and the cash paid for expenses,as shown in the statement of cash flows,is $180 000.This means that:
A) expenses may have been paid for in advance in the previous period.
B) expenses may have been incurred in the current period and have not been paid by the end of the current period.
C) depreciation may have been recorded in the statement of profit or loss.
D) all of the options are correct.
Q2) If the opening balance of accrued expenses is $34 000,the closing balance is $38 000 and accrued expenses recognised at the end of the period is $20 000,how much was paid for accrued expenses during the period?
A) $14 000
B) $16 000
C) $18 000
D) $28 000
Q3) The receipt of dividends would be classified as a cash inflow from ______________ activities.
Q4) A healthy business would normally expect to have a net cash __________ (inflow or outflow)from operating activities.
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Chapter 8: Analysis and Interpretation of Financial Statements
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Q1) The gross profit margin is calculated as gross profit divided by _____________
Q2) It is argued that the cash flow ratio is a better measure of ________ than the current ratio as it uses cash flows generated over the whole reporting period rather than at a particular point in time.
Q3) The dividend pay-out ratio represents:
A) the proportion of the current period's profits that are distributed to shareholders.
B) the amount of dividends that have been paid as a proportion of the number of shares issued.
C) the earnings available to be paid out per share.
D) the amount of dividends paid out as a proportion of the operating cash flows.
Q4) The profit margin ratio is calculated by dividing:
A) profit (loss) by sales revenue.
B) profit (loss) by shareholders' equity.
C) gross profit (loss) by sales revenue.
D) profit (loss) by net assets.
Q5) ________ before interest and tax divided by net finance costs equals times interest earned.
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Chapter 9: Budgeting
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Q1) Which of the following budgeted expenses has a favourable variance?
A) Advertising $30 000, actual advertising $40 000.
B) Telephone $4 000, actual telephone $3 700.
C) Salary and wages $52 000, actual salary and wages $56 000.
D) Interest $500, actual interest $500.
Q2) Which of the following budgeted revenues has an unfavourable variance?
A) Rent $4 000, actual rent revenue $4 000.
B) Dividends $7 500, actual dividends revenue $8 500.
C) Interest $2 000, actual interest revenue $1 400.
D) Cash sales $50 000, actual cash sales $70 000.
Q3) From the following options,select the budgets and the order in which they would be prepared,when developing an operating budget for a hair salon.
A) Sales budget, materials budget, operating expenses budget.
B) Production budget, sales budget, operating expenses budget.
C) Sales budget, labour budget, operating expenses budget.
D) Sales budget, production budget, labour budget.
Q4) Throughout the budgeting process,participation may be sought from the managers who are in control of the entity's ______________ centres.
Q5) Budgets provide the financial frameworks for an entity's _______________ plan.
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Chapter 10: Costvolumeprofit Analysis
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Q1) A fixed cost is a cost that:
A) changes with changes in the level of activity.
B) stays the same per unit as the number of units changes.
C) stays the same irrespective of changes in the level of activity.
D) is a fixed proportion of profit.
Q2) A cost that changes with the level of activity is a:
A) variable cost.
B) fixed cost.
C) total cost.
D) mixed cost.
Q3) Which of the following statements about opportunity costs is true?
A) Opportunity costs are avoidable costs.
B) Opportunity costs are not relevant in decision making.
C) Opportunity costs are the costs of forgoing benefits that would be available if the resources had been used in the next best alternative.
D) All of the statements are true.
Q4) The range of activity over which costs are assumed to be valid is the _____________ range.
Q5) As production increases,fixed costs per unit will (increase/decrease)_____________.
Page 12
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Chapter 11: Costing and Pricing in an Entity
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Q1) Which of the following can be a cost object?
A) A product.
B) A geographic location.
C) A service unit.
D) All of the options can be cost objects.
Q2) A cost object is an object that has a __________________ measurement of cost.
Q3) Period costs are:
A) manufacturing costs that are expensed in the current reporting period.
B) non-manufacturing costs that are expensed in the current reporting period.
C) costs that are allocated over several accounting periods.
D) none of the options are correct.
Q4) Bishop Pty Ltd produces a range of products through several processes.Total overhead costs for process A are $200 000 and overhead is allocated to units of product on the basis of $5 of overhead for each hour of direct labour employed.If 4000 units of product D pass through process A,requiring 1500 direct labour hours,the overhead from process A to be applied to product D is:
A) $26 667
B) $13 333
C) $20 000
D) $7 500
Page 13
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Chapter 12: Capital Investment
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Q1) Using the information in the table below,calculate the ARR. \(\begin{array}{|l|r|}
\hline\text { Expected net cash flows: } \\
\text { - Year 1 } & \$ 60000 \\
\hline\text { - Year 2 }& \$ 70000 \\
\hline \text {- Year 3 }& \$ 120000 \\
\hline\text { - Year 4 }&\$ 90000 \\
\hline\text { - Year 5 }& \$ 80000 \\
\hline \text {Annual depreciation }& \$ 12000 \\
\hline \text {Period of investment} & \text {5 years} \\
\hline \text {Initial investment} & \$ 600000 \\
\hline \text {Value at end of the investment period }& \$ 50000 \\ \hline
\end{array}\)
A) 30.55%
B) 22.15%
C) 25.85%
D) 26.18%
Q2) A disadvantage of the internal rate of return method is that it can conflict with the _________ _______________ _________ method rankings.
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Page 14
Chapter 13: Financing the Business
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Q1) Storage and display costs,insurance costs,deterioration and obsolescence are all examples of (ordering/holding)_____________ inventory costs.
Q2) Which of the following statements regarding a hire-purchase agreement is correct?
A) They are normally used to provide motor vehicles to employees as part of salary packages.
B) Equipment is purchased by a financial institution which then hires the equipment to the entity for use during the agreement period.
C) They are non-cancellable.
D) Ownership of the hire equipment stays with the financial institution at the end of the agreement period.
Q3) Which of the following is a characteristic of a fixed rate business loan?
A) The interest rate may be converted to a variable rate after the initial period expires.
B) The term of the loan is usually up to 25 years.
C) All of these options are characteristics of a fixed rate business loan.
D) The loan may be unsecured, secured with entity assets, or secured with residential property.
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Chapter 14: Performance Measurement
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Q1) Environment ____________ indicators provide information about the local,regional,national or global condition of the environment which could be impacted by an entity.
Q2) If return on investment is 12.5% and investment turnover is 1.2 times,profit margin is:
A) 15%
B) 13.7%
C) 10.42%
D) 9.6%
Q3) The Kyoto Protocol recommends a cap and trade scheme to help countries reduce their ___________ emissions.
Q4) A centre that is solely responsible for generating a target level of income is known as a/an:
A) cost centre.
B) profit centre.
C) revenue centre.
D) investment centre.
Q5) Non-financial performance measures should include _________________ such as past performance,targets,or industry averages.
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