INTRO TO FINANCIAL ACCOUNTING
EXAM 1 QUESTIONS AND VERIFIED
RATIONALIZED ANSWERS 100%
GUARANTEE PASS
u Accounting consists of three basic activities - Identifies, records, communicates
Who uses Accounting Data - External Users: Creditors and Investors
Recent Financial Scandals - Enron, WorldCom, HealthSouth, AIG
Sarbanes-Oxley Act of (SOX). - Added new criminal charges for accounting scandals
Financial Statements - Balance Sheet
Income Statement
Statement of Stock Holder's Equity
Statement of Cash Flows
Note Disclosure
Generally Accepted Accounting Principles (GAAP) - Standards generally accepted and universally
practiced
Standard Setting Bodies - Financial Accounting Standards Board (FASB)
(SEC)
International Accounting Standards Board
(IASB)
, Historical Cost Principle - dictates that companies record assets at their cost.
Fair Value Principle - states that assets and liabilities should be reported at a fair value
Monetary Unit Assumption - companies include in accounting records only transaction data expressed in
money.
Economic Entity Assumption - Requires that activities of the entity be kept separate and distinct from
activities of the owner
Combining activities of Kellogg and General Mills would violate? - Economic Entity Assumption
Corporation - Ownership divided into shares of stock
Accounting Equation - Assets= Liabilities + Stockholder's Equity
Assets - Resources a business owns
Provide future service or benefits
Cash, Supplies, Equipment
Liabilities - Claims against assets (Debts and Obligations)
Creditors- Party to whom money is owed
Accounts Payable, Notes Payable
Stockholder's Equity - Ownership claim on total Assets
Referred to as residual Equity
Common Stock and Retained Earnings
Dividends - distribution of cash or other assets to stockholders. They reduce retained earnings but are
not an expense.
EXAM 1 QUESTIONS AND VERIFIED
RATIONALIZED ANSWERS 100%
GUARANTEE PASS
u Accounting consists of three basic activities - Identifies, records, communicates
Who uses Accounting Data - External Users: Creditors and Investors
Recent Financial Scandals - Enron, WorldCom, HealthSouth, AIG
Sarbanes-Oxley Act of (SOX). - Added new criminal charges for accounting scandals
Financial Statements - Balance Sheet
Income Statement
Statement of Stock Holder's Equity
Statement of Cash Flows
Note Disclosure
Generally Accepted Accounting Principles (GAAP) - Standards generally accepted and universally
practiced
Standard Setting Bodies - Financial Accounting Standards Board (FASB)
(SEC)
International Accounting Standards Board
(IASB)
, Historical Cost Principle - dictates that companies record assets at their cost.
Fair Value Principle - states that assets and liabilities should be reported at a fair value
Monetary Unit Assumption - companies include in accounting records only transaction data expressed in
money.
Economic Entity Assumption - Requires that activities of the entity be kept separate and distinct from
activities of the owner
Combining activities of Kellogg and General Mills would violate? - Economic Entity Assumption
Corporation - Ownership divided into shares of stock
Accounting Equation - Assets= Liabilities + Stockholder's Equity
Assets - Resources a business owns
Provide future service or benefits
Cash, Supplies, Equipment
Liabilities - Claims against assets (Debts and Obligations)
Creditors- Party to whom money is owed
Accounts Payable, Notes Payable
Stockholder's Equity - Ownership claim on total Assets
Referred to as residual Equity
Common Stock and Retained Earnings
Dividends - distribution of cash or other assets to stockholders. They reduce retained earnings but are
not an expense.
