ACG 2021 Practice Exam Questions and Correct Answers
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Course
ACG 2021
Institution
ACG 2021
Financial Accounting information for external user such as investors, creditor (banks), or the government
Managerial Accounting Information for internal users such as managers and employees.
Corporation a business owned by Shareholder (issue stock) -Advantages: easy to transfer ownership (buy/ se...
ACG 2021 Practice Exam Questions and
Correct Answers
Financial Accounting ✅information for external user such as investors, creditor
(banks), or the government
Managerial Accounting ✅Information for internal users such as managers and
employees.
Corporation ✅a business owned by Shareholder (issue stock)
-Advantages: easy to transfer ownership (buy/ sell stock), easy to raise money (issue
stock), no personal liability
-Disadvantages: tough to start, double taxation.
Proprietorships, partnerships ✅- 1 or 2 owners
o Advantages: easy to establish, tax advantage, more control
o Disadvantage: personal liability (could lose everything)
Securities and Exchange Commission (SEC) ✅- An agency of the U.S. government
that is responsible for monitoring the U.S. financial markets and accounting standards-
setting bodies (watch dog)
Financial Accounting Standards board (FASB) ✅- A private organization that is the
main standard setting body in the U.S., and is given the authority to establish most of
the accounting rules and guidelines. (makes rules)
Generally Accepted Accounting Principles (GAAP) ✅- A set of rules and practice,
having substantial authoritative support, that the accounting profession recognizes as a
general guide for financial purposes. (the actual rules)
- Most important rule: use of accrual accounting
Sarbanes- Oxley Act ✅- Top management must certify the accuracy of financial
information (must sign)
- Penalties for fraudulent activities increased
- Independent oversight by the board's selection and supervision of the independent
auditor.
- Designed to reduce unethical behavior
Three types of business activity ✅- Financing, Operating, and investing
Financing Activities ✅- Borrowing money (debt financing)
o Amounts owed are liabilities
, o Owed to crditors
- Issuing (selling stock) shares of stock for cash
o Payments to stockholder are dividends
- Usually only involves either: 1. bank or 2. stockholders
Investing Activities ✅- Purchase of resources a company needs to operate
o Buy/ sell PPE (equipment..)
o Investments are an example
Operating Activities ✅- Revenues and expenses are main two
- Others include: Inventory, liabilities (payables not including banks), receivables, net
income, net loss.
Financial Statements ✅- Income Statement, retained earnings (or statement of
stockholders equity), balance sheet, statement of cash flow
Income Statement ✅- Measures a company's financial performance over a specific
period of time period.
- Revenue first amount on right (credit), expense second amounts on left (debit)
- Revenues- expenses = net income
- If net income is negative it is called net loss
- Net income will either go to dividends or retained earnings
Retained Earnings Statement ✅- Represents the portion of the net income that the firm
has kept (as opposed to paying out in the form of dividends).
- ERE= BRE + NI - dividends
- If statement of stockholders equity then would include common stock: ERE= BRE +
common stock (owner contribution) + NI- dividends
Balance sheet ✅- Reports assets and claims to assets (liability) at a specific point in
time
- Assets= Liabilities + Stockholder equity
- Assets first then liabilities and stockholder equity
- Assets- economic resources used to produce future benefit (items owned or owed to
us) in order of liquidity
- Liabilities - outsider claims and debts owed to others in order of maturity
- Stockholders Equity - Insider claims, ownership by stockholders
Fundamental Accounting Equation ✅- A=L+ SE
Statement of Cash Flows ✅- Operating - Revenues or expenses
- Investing - buy/sell PPE
- Financing - borrowing from bank or stockholder
- Ending cash balance must equal amount on balance sheet
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