MBA 700 Exam 1 Questions and
Answers|Latest Version 2026/2027|
Guaranteed Pass
What is financial accounting? -Answer--Financial accounting encompasses the rules
and procedures to convey financial information about an organization. It is the
communication of information about a business or other type of organization so that
individuals can assess its financial health and prospects.
How does financial accounting differ from managerial accounting?
-Answer--Financial accounting deals with external decisions, whereas managerial
accounting deals with internal decisions.
List the potential uses of the information provided by financial accounting
-Answer--Assessing employment potential, lending money, granting credit, and
buying or selling ownership shares.
What is a corporation? -Answer--A corporation is an organization that has been
formally recognized by the government as a legal entity.
How does a business become a corporation? -Answer--Through incorporation -
owners apply to the state government to have it identified as an entity legally
separate from its owners
What is the board of directors of a corporation? -Answer--the governing body of a
corporation, elected by the shareholders to establish corporate policy, appoint
executive officers, and make major business and financial decisions
Why do individuals or entities choose to invest in the capital stock of corporation?
-Answer--Shares of stock can be issues that give the holder an ownership right.
How does an investor differ from a creditor? -Answer--Investors buy and sell the
capital stock, whereas creditors choose to loan money to the same orgs.
What is financial information? -Answer--Information expressed in monetary terms
, Why is it acceptable for financial accounting to be imprecise? -Answer--Because
such accuracy is often impossible to achieve and not really required by decision
makers.
What is materiality? -Answer--refers to the impact of an omission or misstatement of
information in a company's financial statements on the user of those statements.
How is materiality determined? -Answer--Both the size and cause should be weighed
in judging whether the presence of a misstatement has the ability to impact a
decision maker's actions.
What is a misstatement? -Answer--Inaccurate information reported by accident (an
error) or intentionally (fraud)
When is a misstatement considered fraud? -Answer--Fraud is intentional and usually
involves deliberate concealment of the facts.
Give 3 examples of uncertainties faced by businesses -Answer--1. Settlement of
litigation
2. Collection of a receivable
3. An amount of a commissioned bonus.
Define U.S. GAAP -Answer--Generally Accepted Accounting Principles
Why is GAAP so important to the capital market system in the US? -Answer--
Who creates US GAAP? -Answer--the Financial Accounting Standards Board
(FASB)
Define "asset" and give an example of one -Answer--Future economic benefits
owned or controlled by an organization.
Example: Cash, inventory, land, buildings, and equipment.
Define "liability" and give an example of one -Answer--Debts of the reporting entity
Example: Salary payable, rent payable, and notes payable
Define "revenue" -Answer--Inflow of cash or receivables that comes from generating
sales.
"The lifeblood of any organization"
Answers|Latest Version 2026/2027|
Guaranteed Pass
What is financial accounting? -Answer--Financial accounting encompasses the rules
and procedures to convey financial information about an organization. It is the
communication of information about a business or other type of organization so that
individuals can assess its financial health and prospects.
How does financial accounting differ from managerial accounting?
-Answer--Financial accounting deals with external decisions, whereas managerial
accounting deals with internal decisions.
List the potential uses of the information provided by financial accounting
-Answer--Assessing employment potential, lending money, granting credit, and
buying or selling ownership shares.
What is a corporation? -Answer--A corporation is an organization that has been
formally recognized by the government as a legal entity.
How does a business become a corporation? -Answer--Through incorporation -
owners apply to the state government to have it identified as an entity legally
separate from its owners
What is the board of directors of a corporation? -Answer--the governing body of a
corporation, elected by the shareholders to establish corporate policy, appoint
executive officers, and make major business and financial decisions
Why do individuals or entities choose to invest in the capital stock of corporation?
-Answer--Shares of stock can be issues that give the holder an ownership right.
How does an investor differ from a creditor? -Answer--Investors buy and sell the
capital stock, whereas creditors choose to loan money to the same orgs.
What is financial information? -Answer--Information expressed in monetary terms
, Why is it acceptable for financial accounting to be imprecise? -Answer--Because
such accuracy is often impossible to achieve and not really required by decision
makers.
What is materiality? -Answer--refers to the impact of an omission or misstatement of
information in a company's financial statements on the user of those statements.
How is materiality determined? -Answer--Both the size and cause should be weighed
in judging whether the presence of a misstatement has the ability to impact a
decision maker's actions.
What is a misstatement? -Answer--Inaccurate information reported by accident (an
error) or intentionally (fraud)
When is a misstatement considered fraud? -Answer--Fraud is intentional and usually
involves deliberate concealment of the facts.
Give 3 examples of uncertainties faced by businesses -Answer--1. Settlement of
litigation
2. Collection of a receivable
3. An amount of a commissioned bonus.
Define U.S. GAAP -Answer--Generally Accepted Accounting Principles
Why is GAAP so important to the capital market system in the US? -Answer--
Who creates US GAAP? -Answer--the Financial Accounting Standards Board
(FASB)
Define "asset" and give an example of one -Answer--Future economic benefits
owned or controlled by an organization.
Example: Cash, inventory, land, buildings, and equipment.
Define "liability" and give an example of one -Answer--Debts of the reporting entity
Example: Salary payable, rent payable, and notes payable
Define "revenue" -Answer--Inflow of cash or receivables that comes from generating
sales.
"The lifeblood of any organization"
