ACG 3401 Exam 1 Review 2026
Questions and Answers Graded A+
The firm will not spend money if... - Correct answer-the accounting function is
compromised and the firm cannot obtain capital
The price list... - Correct answer-must be correct or everything else will be screwed
up. Must maintain absolute control over it
Management will be... - Correct answer-biased when doing financial statement to
look good to external users
External Auditors - Correct answer-the middleman between management and
external users; they make sure the info is reliable for the external users; provide
comfort to external users
Auditors - Correct answer-gather info on the numbers in the financial statements
Accounting - Correct answer-a way to capture transactions and communicate them
in a user friendly format
,Why do we need accounting systems? - Correct answer-to measure performance,
properly pay taxes at the end of the year (sales tax), and to try to attract capital -
such as loans or investments
Sarbanes-Oxley Act (SOX) - Correct answer-created to restore investor
confidence; more separation between a firm's attestation and non-auditing
activities; audit committee members must be independent and committee must hire
and oversee the external auditors; increased requirements for issuer and
management disclosure; new penalties for destroying or tampering with
documents, securities fraud, and taking actions against whistleblowers.
Public Company Accounting Oversight Board (PCAOB) - Correct answer-created
by SOX; set standards, inspect firms, conduct investigations and take regulator
actions
SOX 404 - Correct answer-Documentation/Reporting of Controls; requires
management to assess internal control effectiveness; have to do two reports:
opinion on effectiveness of internal controls and document all their controls and
processes
Is SOX successful? - Correct answer-No huge accounting scandals since 2001-02
(Enron)
,Double Entry System - Correct answer-Every single journal entry affects two or
more accounts
Permanent Accounts - Correct answer-Assets, liabilities, and equity
Temporary/Nominal Accounts - Correct answer-Revenues, Expenses
Closing Process - Correct answer-zeroes out the temporary accounts at the end of
the year and rolls it over to equity for the next period
Basic Accounting Equation - Correct answer-A = L + SE
Retained Earnings Formula - Correct answer-Beginning Retained Earnings + Net
Income - Dividends = Ending Retained Earnings
Asset - Correct answer-Things that are resources owned by a company and which
have future economic value that can be measured and can be expressed in dollars;
increase by debit
Liability - Correct answer-a future use of resources, cannot be avoided, its due to
some past transaction; increase by credit
Equity - Correct answer-residual claims of the owners against the resources of the
business; increase by credit
Revenue - Correct answer-increase in assets or a decrease in liabilities due to your
major course of business; recorded with a credit
, Expense - Correct answer-decrease in assets or an increase in liabilities due to your
major course of business; recorded with a debit
Gain/Loss - Correct answer-like a revenue or an expense, but they do not come
from your major course of business; gains recorded as credits, losses recorded as
debits
The Accounting Cycle - Correct answer-Transaction -> Journalization -> Posting -
> Trial Balance -> Adjustments -> Adjusted Trial Balance -> Financial Statements
-> Closing Entries -> Post-Closing Trial Balance -> Reversing Entries
Helps you take real transactions, find out what's needed, and dump it into the
accounting system
Adjusting Entry - Correct answer-A journal entry that needs to be recorded from a
transaction with a third party
Adjusting Entries include... - Correct answer-prepaids, unearneds, depreciation,
accounts based on estimates, accruals, deferrals
Accrual Basis Accounting - Correct answer-recorded when the event takes place
(better than cash basis accounting)
Cash Basis Accounting - Correct answer-recorded when cash changed hands
Questions and Answers Graded A+
The firm will not spend money if... - Correct answer-the accounting function is
compromised and the firm cannot obtain capital
The price list... - Correct answer-must be correct or everything else will be screwed
up. Must maintain absolute control over it
Management will be... - Correct answer-biased when doing financial statement to
look good to external users
External Auditors - Correct answer-the middleman between management and
external users; they make sure the info is reliable for the external users; provide
comfort to external users
Auditors - Correct answer-gather info on the numbers in the financial statements
Accounting - Correct answer-a way to capture transactions and communicate them
in a user friendly format
,Why do we need accounting systems? - Correct answer-to measure performance,
properly pay taxes at the end of the year (sales tax), and to try to attract capital -
such as loans or investments
Sarbanes-Oxley Act (SOX) - Correct answer-created to restore investor
confidence; more separation between a firm's attestation and non-auditing
activities; audit committee members must be independent and committee must hire
and oversee the external auditors; increased requirements for issuer and
management disclosure; new penalties for destroying or tampering with
documents, securities fraud, and taking actions against whistleblowers.
Public Company Accounting Oversight Board (PCAOB) - Correct answer-created
by SOX; set standards, inspect firms, conduct investigations and take regulator
actions
SOX 404 - Correct answer-Documentation/Reporting of Controls; requires
management to assess internal control effectiveness; have to do two reports:
opinion on effectiveness of internal controls and document all their controls and
processes
Is SOX successful? - Correct answer-No huge accounting scandals since 2001-02
(Enron)
,Double Entry System - Correct answer-Every single journal entry affects two or
more accounts
Permanent Accounts - Correct answer-Assets, liabilities, and equity
Temporary/Nominal Accounts - Correct answer-Revenues, Expenses
Closing Process - Correct answer-zeroes out the temporary accounts at the end of
the year and rolls it over to equity for the next period
Basic Accounting Equation - Correct answer-A = L + SE
Retained Earnings Formula - Correct answer-Beginning Retained Earnings + Net
Income - Dividends = Ending Retained Earnings
Asset - Correct answer-Things that are resources owned by a company and which
have future economic value that can be measured and can be expressed in dollars;
increase by debit
Liability - Correct answer-a future use of resources, cannot be avoided, its due to
some past transaction; increase by credit
Equity - Correct answer-residual claims of the owners against the resources of the
business; increase by credit
Revenue - Correct answer-increase in assets or a decrease in liabilities due to your
major course of business; recorded with a credit
, Expense - Correct answer-decrease in assets or an increase in liabilities due to your
major course of business; recorded with a debit
Gain/Loss - Correct answer-like a revenue or an expense, but they do not come
from your major course of business; gains recorded as credits, losses recorded as
debits
The Accounting Cycle - Correct answer-Transaction -> Journalization -> Posting -
> Trial Balance -> Adjustments -> Adjusted Trial Balance -> Financial Statements
-> Closing Entries -> Post-Closing Trial Balance -> Reversing Entries
Helps you take real transactions, find out what's needed, and dump it into the
accounting system
Adjusting Entry - Correct answer-A journal entry that needs to be recorded from a
transaction with a third party
Adjusting Entries include... - Correct answer-prepaids, unearneds, depreciation,
accounts based on estimates, accruals, deferrals
Accrual Basis Accounting - Correct answer-recorded when the event takes place
(better than cash basis accounting)
Cash Basis Accounting - Correct answer-recorded when cash changed hands
