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Accounting Exam 1 and 2 Study Guide Questions with Correct Answers
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Accounting Exam 1 and 2 Study Guide Questions with Correct Answers
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Accounting Exam 1 and 2 Study GuideQuestions with Correct Answers
What is financial Accounting? - Answer-Measurement of business activities of a
company and communication of those measurements to external parties for decision-
making purposes.
who are external users of a company? - Answer-on the other hand, are not involved in
the operations of the company but hold some financial interest, transactions the firm
conducts with a separate economic entity, financial accounting
who are internal users of a company? - Answer-refer to managers who use accounting
information in making decisions related to the company's operations, information
provided for internal users is known as managerial accounting
What is the Accounting equation? - Answer-Assets= Liabilities + Stockholder's Equity
(Common stock + Retained earnings)
Assets= Liabilities+Common Stock+Retained Earnings
What are all the operating activities? (you will be asked to add them together) - Answer-
include cash receipts and cash payments for transactions involving revenue and
expense activities during the period. in other words, they include the cash effects of the
same activities that are reported in the income statement to calculate net income.
-salaries, rent, from customers,
what are all the investing activities? - Answer-generally include cash transactions for the
purchase and sale of investments and long-term assets (resources owned by a
company that are thought to provide benefits for more than one year)
-purchase equipment
What are all the financing activities? - Answer-transactions with lenders such as
borrowing money and repaying debt, and with stockholders, such as issuing stock and
paying dividends
-issue common stock
-borrow from a bank
-pay dividends
What are the 3 types of business - Answer-sole proprietorship, partnership and
corporation.
,Advantages/Disadvantages of sole proprietorship? - Answer-business owned by one
person
-Adv: lower taxes compared to corporations (personal income tax rate which is lower
than the corporate income tax rate)
-Dis: owners must have sufficient personal funds to finance the business, in addition to
the ability ot borrow money, neither offer limited liability
Advantages/Disadvantages of Partnership? - Answer-business owned by two or more
people
-Adv: lower taxes compared to corporations (personal income tax rate which is lower
than the corporate income tax rate)
-Dis: owners must have sufficient personal funds to finance the business, in addition to
the ability ot borrow money, neither offer limited liability
Advantages/Disadvantages of Corporation? - Answer-an entity that is legally separate
from its owners and even pays its own income tax. some owned by many stockholder's,
some just one individual.
-adv: limited liability, and the ability to raise capital and transfer ownership; additional
taxes and more paperwork
Assets - Answer-Resources of a company
Liabilities - Answer-Amounts owed to creditors
Revenues - Answer-Amounts recorded when the company sells products or services to
customers
Expenses - Answer-Costs of providing products and services
Dividends - Answer-Distributions by a corporation to its stockholders
Stockholder's Equity - Answer-owners', claims to resources, which equal the difference
between total assets and total liabilities.
What are the 4 financial statements? (Know whats in them see paper) - Answer-income
statement
balance sheet
statement of cash flows
statement of stockholder's equity
income statement definition
whats in it? - Answer-A financial statement that reports the company's revenues and
expenses over an interval of time.
Company Title
, Income Statement
Service Revenue: 7,600
Expenses:
Salaries Expense 1,350
Utilities Expense 1,000
Total Expenses 2,350
Net Income (rev-exp) 5,250
Balance sheet definition
Whats in it? (see below) - Answer-A financial statement that presents the financial
position of the company on a particular date.
Statement of Cash flows definition
Whats in it? - Answer-A financial statement that measures activities involving cash
receipts and cash payments over a period of time.
business title
Statement of cash flows
cash flows from operating activities
cash flows from investing activities
cash flows from financing activities
net increase in cash
cash at the beginning of the year
cash at the end of the year
Statement of Stockholder's equity
Whats in it? - Answer-A financial statement that summarizes the changes in
stockholders' equity over an interval of time.
business title
statement of stockholder's equity
common stock RE Total SE
beg balance (dec. 1)
issuances
Add: net income
less: dividends
Ending balance (dec. 31)
Examples of Expense Items - Answer-operating expenses (salaries, rent, utilities),
Depreciation expense, interest expense, income tax expense
Examples of Revenue Items * - Answer-Amount that is expensed immediately, being
matched with revenues of the current accounting period. expenditure incurred for
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