ACG 2021 Practice Test Questions and Complete Answers
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Course
ACG 2021
Institution
ACG 2021
Financial Accounting 1. Measure business activity 2. Communicate measurements to people for decision making
Primary external users of financial accounting info Investors and creditors
Financing Activities Involves funding from external sources such as, owners of company who invest their own funds...
ACG 2021 Practice Test Questions and
Complete Answers
Financial Accounting ✅1. Measure business activity
2. Communicate measurements to people for decision making
Primary external users of financial accounting info ✅Investors and creditors
Financing Activities ✅Involves funding from external sources such as, owners of
company who invest their own funds into business and creditors who lend money to the
company
Investing Activities ✅Involves purchase and sale of long-term resources such as, land,
buildings, equipment, and machinery
Operating Activities ✅Involves transactions in primary operations of business/
Providing products and services to customers and associated costs of doing so Ex.
utilities, wages, rent, maintenance
Accounting Equation ✅Assets=Liabilities+Stockholders' Equity/ Resources=Claims to
resources
Accounting Equation used to ✅measure business transactions
Assets def ✅Resources owned by a company
Liabilities ✅Amounts owed to creditors
Stockholders' Equity ✅Stockholders' or owners' claims to resources
Corporation Pros ✅Limited liability: Only lose how much you invested/ Not obligated to
pay corporation's debts
Corporation Cons ✅Double taxation:
1. @ corporate level (taxed more)
2. @ personal income tax when dividends are distributed (less of a tax)
CPA ✅Certified Public Accountant- serves general public
CMA ✅Certified Management Accountants- specialize in accounting and financial
management for private industries
, Generally Accepted Accounting Principles (GAAP) ✅Rules of financial accounting
Functions of GAAP ✅Allows comparison of financial info among companies
Financial Accounting Standards Board (FASB) ✅Independent private body that has
primary responsibility for the establishment of GAAP in the U.S.
Functions of FASB ✅Creates rules and standards that govern financial accounting/
Responsibility, but not authority, to set standards
SEC ✅Securities and Exchange Commission
Functions of SEC ✅Oversees US financial markets/ Requires companies that publicly
trade stock to prepare financial statements for investors and creditors
Auditors ✅Trained individual hired by a company as an independent party to express
professional opinion of accuracy of that company's financial statements/ Makes sure
financial statements are in accordance with GAAP/ Add credibility
Flow of Accounting ✅GAAP(rules) formulated by FASB -> Accounting Equation:
Assets=Liabilities+Stockholders' Equity -> Income Statement -> Statement of
Stockholders' Equity -> Balance Sheet -> Statement of Cash Flows
Cash ✅Liquid assets
Accounts Receivable ✅Amounts the company expects to collect from customers
Notes Receivable ✅Amounts company expects to collect from a party who has a
signed promissory note with company
Inventory ✅Items for sale by company
Supplies ✅Items that will be consumed by the company during the operation of the
business Ex. copy toner, pens, pencils
Prepaid expenses ✅Costs of assets acquired in one period that will be expensed in a
future period, such as advertisements, rent, insurance, and supplies Ex. prepaying six
months of car insurance
Property, Plant, Equipment ✅Land, buildings, computers, store fixtures, manufacturing
equipment used in the operation of the business
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