ACCOUNTING EXAM 1 (CHAPTERS 1 & 2)
1. Accounting
Answer The information system that measures business activities, processes the information into reports, and communicates
the results to decision makers.
2. Financial Accounting and its Users
Answer Provides information for external decision makers like investors, lenders, customers, and the federal government.
3. Managerial Accounting and its Users
Answer Focuses on information for internal decision makers, such as the company's managers and employees.
4. Financial Accounting Standards Board (FASB)
Answer A privately funded organization that oversees the creation and governance of accounting standards.
5. Securities and Exchange Commission (SEC)
Answer A U.S. governmental agency that oversees the U.S. financial markets.
6. Generally Accepted Accounting Principles (GAAP)
Answer The main U.S. accounting rule book that is currently created and governed by the FASB. It identifies the
framework of financial statements and creates the acceptable accounting practices.
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, 7. Objective of Financial Reporting
Answer Provide information useful for making investment and lending
decisions.
8. Criteria Information Required
Answer Relevant and faithful representation
9. Cost Principle
Answer Acquired assets and services should be recorded at their actual cost (historical cost)
10. Going Concern Assumption
Answer Assumes the entity will remain in operation for the foreseeable future.
The business will remain in operation long enough to use existing resources for their intended purposes.
11. Accounting Equation
Answer Assets = Liabilities + Equity
12. Assets
Answer An economic resource that is expected to benefit the business in the future (ex., Cash, Supplies,
Furniture, Accounts Receivable, etc.)
13. Liability
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1. Accounting
Answer The information system that measures business activities, processes the information into reports, and communicates
the results to decision makers.
2. Financial Accounting and its Users
Answer Provides information for external decision makers like investors, lenders, customers, and the federal government.
3. Managerial Accounting and its Users
Answer Focuses on information for internal decision makers, such as the company's managers and employees.
4. Financial Accounting Standards Board (FASB)
Answer A privately funded organization that oversees the creation and governance of accounting standards.
5. Securities and Exchange Commission (SEC)
Answer A U.S. governmental agency that oversees the U.S. financial markets.
6. Generally Accepted Accounting Principles (GAAP)
Answer The main U.S. accounting rule book that is currently created and governed by the FASB. It identifies the
framework of financial statements and creates the acceptable accounting practices.
1/9
, 7. Objective of Financial Reporting
Answer Provide information useful for making investment and lending
decisions.
8. Criteria Information Required
Answer Relevant and faithful representation
9. Cost Principle
Answer Acquired assets and services should be recorded at their actual cost (historical cost)
10. Going Concern Assumption
Answer Assumes the entity will remain in operation for the foreseeable future.
The business will remain in operation long enough to use existing resources for their intended purposes.
11. Accounting Equation
Answer Assets = Liabilities + Equity
12. Assets
Answer An economic resource that is expected to benefit the business in the future (ex., Cash, Supplies,
Furniture, Accounts Receivable, etc.)
13. Liability
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