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Accounting Exam 1 questions review & correct answers.
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Accounting Exam 1 questions review &correct answers.
What is accounting? ANS - is the information system that measures business activities, processes the
information into reports, and communicates the results to decision makers.
Briefly describe the two major fields of accounting ANS - Financial accounting is an external decision
maker such as investments and loans. Managerial accounting is internal decision making such as
budgeting
Describe the various types of individuals who use accounting information and how they use that
information to make important decisions ANS - Business owners use accounting info to set goals.
Outside investors provide money to get a business going. Governments use the info to levy taxes
What are the 2 certifications available for accountants ANS - Certified Public Accountants are licensed
professionals who serve the general public. Certified Management Accountants work for a single
company
What is the role of the Financial Accounting Standards Board? ANS - Privately funded and creates the
rules and standards that govern financial accounting
Explain the purpose of Generally Accepted Accounting Principles including the organization currently
responsible for the creation and governance of the GAAP ANS - Establishes the rules for recording
transactions and preparing financial statements. The FASB is responsible for it
Propietorship ANS - has a single owner, called the proprietor, who often manages the business.
Proprietorships tend to be small retail stores or professional businesses, such as attorneys and
accountants. From an accounting perspective, every sole proprietorship is distinct from its owner: The
accounting records of the proprietorship do not include the proprietor's personal records. However,
from a legal perspective, the business is the proprietor. A proprietorship has one owner called a
proprietor.
, Partnership ANS - A partnership joins two or more individuals as co-owners. Each owner is a partner
and can commit the partnership in a binding contract. This is called mutual agency. Mutual agency
means that one partner can make all partners mutually liable. Many retail stores and professional
organizations of physicians, attorneys, and accountants are partnerships. Most partnerships are small or
medium-sized, but some are gigantic, with thousands of partners. For accounting purposes, the
partnership is a separate organization, distinct from the partners. A partnership has two or more owners
called partners.
Corporation ANS - A corporation is a business owned by stockholders, or shareholders. These are the
people who own shares of stock in the business. Stock is a certificate representing ownership interest in
a corporation. A business becomes a corporation when the state approves its articles of incorporation
and the first stock share is issued. The articles of incorporation are the rules approved by the state that
govern the management of the corporation. Unlike a proprietorship and a partnership, a corporation is a
legal entity distinct from its owners. A corporation has one or more owners called shareholders.
LLC and LLP ANS - In a limited-liability partnership, each member/partner is liable (obligated) only for
his or her own actions and those under his or her control. Similarly, a business can be organized as a
limited-liability company. In an LLC, the business—and not the members of the LLC—is liable for the
company's debts. This arrangement prevents an unethical partner from creating a large liability for the
other partners, much like the protection a corporation has. Today most proprietorships and partnerships
are organized as LLCs and LLPs. An LLC has one or more owners called members.
Not for profit ANS - A not-for-profit is an organization that has been approved by the Internal Revenue
Service to operate for a religious, charitable, or educational purpose. A board, usually composed of
volunteers, makes the decisions for the not-for-profit organization. Board members have fiduciary
responsibility, which is an ethical and legal obligation to perform their duties in a trustworthy manner. A
not-for-profit has no owners.
A business purchases an acre of land for $5000. Current value is $5550. What should the value be
recorded at? ANS - $5000
What does the going concern assumption mean for a business? ANS - It assumes that the business will
remain in operation for the forseeable future
Which concept states that accounting info should be complete, neutral, and free from material error?
ANS - Faithful Representation
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