Financial vs Managerial Accounting

Practice Test

Practice Test

Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.

1. Which of the following most accurately describes information that
is prepared to be used by management?

a. useful, historical, precise
b. comparable, verifiable, unbiased
c. budgeted, projected, flexible format
d. exact, actual only, external

C. Management used information to help them make decisions. This information is forward looking and uses projections and budgets, therefore it is not historical or precise and is not given outside the company. Projections and budgets can not be verified until performance actually occurs. There are no required formats.
2. A managerial accountant communicating information without bias is following which of these ethical standards?

a. integrity
b. competence
c. confidentiality
d. objectivity

D. Providing information without bias and attempting to sway the user’s opinion is being objective. Integrity is related to avoiding conflicts of interest, competence is the ability to provide useful information, and confidentiality is not sharing information with those who should not have access.
3. A management accountant who prepares a useful report after analyzing
data is exhibiting

a. competence
b. objectivity
c. confidentiality
d. neutrality

A.  A competent accountant has the ability to provide useful information that management can use to make a decision. Objectivity and neutrality are related to not swaying the users decision. Confidentiality is not sharing information with those who should not know.
4. Managerial accounting standards

a. are issued by the Management Accounting Standards Board.
b. are legal standards issued by the Institute of Managerial Accountants
that must be followed
c. do not exist except for the area of government contracting
d. are legally binding for certified managerial accountants

C. There are no specific managerial accounting standards, except those established by the government specifically for the bidding of government contracts. Managerial accountants do follow common formats that have proven to be effective in providing information useful for internal decision making.
5. Managerial accounting is primarily concerned with

a. generally accepted accounting principles
b. providing information to creditors and investors
c. historical transactions
d. decisions management must make to operate the business

D.  All of the above are related to financial accounting, except (d.) which is related to managerial accounting..
6. In a decentralized organization, most decisions are made by

a. the chief executive officer
b. divisional / department managers
c. shareholders
d. the board of directors

B. A decentralized organization provides for decisions to be made by the managers of each division / department. Decisions are made by those responsible for getting the particular objective accomplished.ove.
7. The Standards of Ethical Conduct for Management Accountants states
that when an ethical issue is discussed with a direct supervisor and
resolution is not satisfactory, the management accountant should

a. take the issue to the chief executive officer
b. take the issue to the audit committee
c. take the issue to the next higher level of management
d. take the issue to outside legal council

C. The issue should be taken up the chain of command one level at a time until the issue is resolved.
8. The process of comparing actual costs to budgeted costs and taking
corrective action is called

a. planning
b. controlling
c. implementing
d. monitoring

B. By definition, this process is called controllingusiness.
9. The CMA examination is sponsored by

a. internal auditors association
b. Institute of Management Accountants
c. Financial Executives Association
d. State regulators for each state

b. The Institute of Management Accountants sponsors and regulates the certification of management accountants.
10. Management accounting information assists management in making which of the following decisions?

a. how to advertise the product
b. how to price the product
c. planning for profitability
d. both b. and c.

D.  Management reports are most often relevant to cost of the product or cost of operations. Management accountants must first determine costs which allows management to properly price the product to cover the cost and plan for profitability.
11. The process of relying on feedback to ensure a plan is being implemented is

a. planning
b. directing
c. controlling
d. measuring

C. The act of controlling can be described as comparing actual results to planned results to determine if the organization is accomplishing planned goals.
12. Planning and control are

a. the same thing, just two different terms
b. two of the basic functions of management
c. similar to budgeting and performance evaluation
d. both b. and c.

D. Planning and control are two of the basic functions of management and are also part of performance evaluation and preparing budgets. They are not the same thing, as control involves comparing actual results to planned results.
13. Determining the selling price of a particular product is an example of

a. planning
b. controlling
c. directing
d. decision making

D.  Determining the selling price is a decision that management makes after analyzing cost and market data.

14. The accounting function within an organization is usually the
responsibility of

a. the chief financial officer
b. the managerial accountant
c. the financial analyst
d. the controller

A. or D. Some textbooks state it is the chief financial officers responsibility and some state it is the controller. You will not see both in the answer, so chose whichever one is listed.
15. Which of the following is a component of integrity required under
the Standard of Ethical Conduct for Management Accounting

a. Maintain an appropriate level of professional competency
by ongoing development of knowledge and skills
b. Refrain from disclosing confidential information
c. Avoid actual and apparent conflicts of interest
d. Communicate information fairly and objectively

C. Avoiding actual and apparent conflicts of interest is a component of integrity. a. is a component of competence. b. is a component of confidentiality. d. is a component of objectivity. These are the 4 key ethical standards required for management accountants.