A100 IU EXAM 2 QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026

A100 IU EXAM 2 QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026 Business activities activities - Answers Operating, Investing, and Financing Sources of funds - Answers liabilities and stockholders equity Uses of funds - Answers assets Equity Investors - Answers Owners/shareholders Care about earnings retained from profitable business operations Legal rights of stockholders - Answers Ownership, hope for profit Benefits of stockholders - Answers Increased value of shares, possible dividends Risks of stockholders - Answers May not receive ROI, can lose some or all investment, may not receive dividend Debt Investors - Answers Creditors (banks, leasing, bond holders) reported as liability principle and interest must be paid Legal rights of debt investors - Answers Interest and principle must be paid able to demand payment , confiscate items, or "call the note" Benefits of Debt investors - Answers Earn a return greater than that of the borrowed funds, net benefits retained by the owners Risks of debt investors - Answers Financial risks may have to liquidate assets could cause bankrupcy Examples of External users - Answers Owners, creditors, potential investors, general public, customers, and more What is accural accounting? - Answers Revenue is recognized when goods are delivered (earned). Accounts payable - Answers Liability, Recieved goods but not payed yet Accounts recieveable - Answers Asset, provided a service but not payed yet Prepaid expenses - Answers Asset, Paid cash but not revieved goods or service Unearned Revenue - Answers Liability, Paid cash but done nothing to earn it Arrticulation - Answers Relationship between financial statements Matching principle - Answers Recording revenues in the same period with the expenses Auditing - Answers An assurance service/independent professional service that improves information for decision makers Management responsibilities - Answers Implements internal controls, prepares financial statements Auditor - Answers Issues audit report to accompany financial statements Audit risk - Answers Risk that auditors issue a "clean" opinion when there actually are material misstatements, can never be zero Audit opinion - Answers Based on risk based testing issue report as to the fairness of the financial statements. 2 types of fraud - Answers Misappropriation (stealing) and Fraudulent Financial Reporting Fraud triangle - Answers Rationalization, Opportunity, Pressure Sources of tax revenue - Answers Local, State, Federal Local tax revenue - Answers County, city, real estate State tax revenue - Answers Sales, individual income tax Federal tax revenue - Answers Individual income tax, federal payroll, medicare, social security Pass-through entity - Answers pass through the owner of the business and are taxed on an individual rate. Ex: LLC Articulation of the financial statements - Answers (1) the statement of cash flows links the beginning and ending cash in the balance sheet (2) the income statement links the net income into the ending retained earnings formula which creates the ending retained earnings. (3) the statement of stockholders' equity links the ending equity in the balance sheet througj stockholders equity Purpose of Income statement - Answers summarize the profitability of a company over the financial year and give that info to investors and creditors Purpose of Balance sheet - Answers to report a company's financial position on a particular date (snapshot) Purpose of statement of retained earnings - Answers Details the earnings of a company over a specific period of time Purpose of Cash Flow Statement - Answers Provide info on financial health and efficiency in terms of cash Accrual VS Cash Basis Accounting - Answers Accrual basis records transactions in the period where the events occurred (GAAP). Cash basis records transactions when cash changes hands. Primary Federal Income Taxpayers - Answers Individuals and C Corporations Cash Basis Accounting - Answers Records transactions in the period in which cash changes hands, not when actually occurred. NOT GAAP Accrual Basis Accounting - Answers Records transactions in the period in which the events actually occurred, not when cash changes hands.