Final Exam Review- Key Accounting Principles and
Concepts for ACCT 253 Introductory Financial
Accounting Athabasca University
ACCT253 EXAM REVIEW
Accounting Principles (GAAPs)
• Business Entity: every business is accounted for separately from its owner’s personal
activities.
• Cost Principle: all transactions are recorded based the amount of cash received.
• Going Concern Principle: financial statement users assume the statement reflects a business
that is going to continue its operations.
• Monetary Unit Principle: transactions are expressed using units of money as the common
denominator; it’s assumed that values are stable and will not have to be adjusted for changes
in currency or inflation.
• Revenue Recognition Principle: revenue is recorded at the time it is earned regardless of if
payment occurred.
• Objectivity Principle: transactions are recorded at the basis of source documents.
• Full Disclosure Principle: financial statements are to report all relevant information about the
operations and financial position of the entry.
• Consistency Principle: a company to use the same accounting methods period after period.
• Prudence Principle: inventory must be reported at NRV when NRV is lower than cost.
Lesson 1 – Intro to Financial Accounting and Financial
Statements
1. Describe accounting and its goals and uses.
Accounting is an information system that identifies, measures, records, and communicates
understandable, relevant, reliable and comparable information about an organization’s economics
activities. The goal of accounting is to provide useful information for decision making. The uses of
accounting include helping people in business to identify and react to investment opportunities and to
better assess opportunities, products, investments, and social and responsibility.
2. Describe forms of business organizations.
There are 3 forms of business organizations; sole proprietorship, partnership, and corporation. Sole
Proprietorships are owed by one person, the same legal entity as the owner, and subject to unlimited
liability (owner is responsible for debts greater than the business’ resources). Partnerships are owned by
2 or more people, and can either be a limited partnership (partners with unlimited liability + partners
with limited liability restricted to the amount invested) or limited liability partnership (restricts partners’
,liabilities to their own acts). Corporations are a separate legal entity from the owners (shareholders) by
law, have limited liability, and owners are legally distinct from the company.
, Organizations can be business or non-business. Non-business organizations have goals other than
generating profits. These include government organizations focused on religion, education, culture, and
social activities.
3. Identify users and uses of accounting.
There are both internal and external users of accounting. External users are those who are not directly
involved in running the organization and include shareholders, lenders, directors, customers, suppliers,
and brokers. Internal users are those who are involved in operating and managing and organization.
Financial accounting is aimed at serving external users and managerial accounting is aimed at serving
internal users.
Some uses of accounting consist of: control, monitoring and planning; making decisions regarding loans;
making investment decisions; overseeing management; and judging employment opportunities. Internal
controls are the procedures that protect assets, ensure accounting reports are reliable, promote
efficiency, and ensure company policy is followed.
4. Explain why ethics and social responsibility are crucial to accounting.
The goal of accounting is to provide useful information for decision making, and for information to be
useful it must by trustworthy. Ethics and social responsibility provide trustworthy information. Without
abiding by these practices, accounting loses its reliability.
Accountants have 4 general ethical obligations. First maintain high level of professional competence.
Second treat sensitive information as confidential. Third exercise personal integrity. Fourth be objective
in matters of financial disclosure.
5. Identify opportunities in accounting and related fields.
Accountants work in 4 general fields: financial, managerial, taxation, and accounting-related. Managerial
accounting can be divided into 5 specializations: general, cost, budgeting, internal auditing, and
management consulting.
6. Identify and explain the content and reporting aims of financial statements.
Financial statements show the financial performance and condition of an organization. There are 4:
income statement, balance sheet, statement of changes in equity and statement of cash flows. Balance
sheet reports on the assets, liabilities and equity at one point in time. Income statement shows revenues
earned less expenses incurred. Statement of changes in equity shows the changes in equity over a
reporting period by adjusting equity for owner investments less owner withdrawals and net income.
Statement of cash flows shows sources and uses of cash over a period of time and is organized into
operating, investing, and financing.
7. Identify, explain, and apply accounting principles.
Concepts for ACCT 253 Introductory Financial
Accounting Athabasca University
ACCT253 EXAM REVIEW
Accounting Principles (GAAPs)
• Business Entity: every business is accounted for separately from its owner’s personal
activities.
• Cost Principle: all transactions are recorded based the amount of cash received.
• Going Concern Principle: financial statement users assume the statement reflects a business
that is going to continue its operations.
• Monetary Unit Principle: transactions are expressed using units of money as the common
denominator; it’s assumed that values are stable and will not have to be adjusted for changes
in currency or inflation.
• Revenue Recognition Principle: revenue is recorded at the time it is earned regardless of if
payment occurred.
• Objectivity Principle: transactions are recorded at the basis of source documents.
• Full Disclosure Principle: financial statements are to report all relevant information about the
operations and financial position of the entry.
• Consistency Principle: a company to use the same accounting methods period after period.
• Prudence Principle: inventory must be reported at NRV when NRV is lower than cost.
Lesson 1 – Intro to Financial Accounting and Financial
Statements
1. Describe accounting and its goals and uses.
Accounting is an information system that identifies, measures, records, and communicates
understandable, relevant, reliable and comparable information about an organization’s economics
activities. The goal of accounting is to provide useful information for decision making. The uses of
accounting include helping people in business to identify and react to investment opportunities and to
better assess opportunities, products, investments, and social and responsibility.
2. Describe forms of business organizations.
There are 3 forms of business organizations; sole proprietorship, partnership, and corporation. Sole
Proprietorships are owed by one person, the same legal entity as the owner, and subject to unlimited
liability (owner is responsible for debts greater than the business’ resources). Partnerships are owned by
2 or more people, and can either be a limited partnership (partners with unlimited liability + partners
with limited liability restricted to the amount invested) or limited liability partnership (restricts partners’
,liabilities to their own acts). Corporations are a separate legal entity from the owners (shareholders) by
law, have limited liability, and owners are legally distinct from the company.
, Organizations can be business or non-business. Non-business organizations have goals other than
generating profits. These include government organizations focused on religion, education, culture, and
social activities.
3. Identify users and uses of accounting.
There are both internal and external users of accounting. External users are those who are not directly
involved in running the organization and include shareholders, lenders, directors, customers, suppliers,
and brokers. Internal users are those who are involved in operating and managing and organization.
Financial accounting is aimed at serving external users and managerial accounting is aimed at serving
internal users.
Some uses of accounting consist of: control, monitoring and planning; making decisions regarding loans;
making investment decisions; overseeing management; and judging employment opportunities. Internal
controls are the procedures that protect assets, ensure accounting reports are reliable, promote
efficiency, and ensure company policy is followed.
4. Explain why ethics and social responsibility are crucial to accounting.
The goal of accounting is to provide useful information for decision making, and for information to be
useful it must by trustworthy. Ethics and social responsibility provide trustworthy information. Without
abiding by these practices, accounting loses its reliability.
Accountants have 4 general ethical obligations. First maintain high level of professional competence.
Second treat sensitive information as confidential. Third exercise personal integrity. Fourth be objective
in matters of financial disclosure.
5. Identify opportunities in accounting and related fields.
Accountants work in 4 general fields: financial, managerial, taxation, and accounting-related. Managerial
accounting can be divided into 5 specializations: general, cost, budgeting, internal auditing, and
management consulting.
6. Identify and explain the content and reporting aims of financial statements.
Financial statements show the financial performance and condition of an organization. There are 4:
income statement, balance sheet, statement of changes in equity and statement of cash flows. Balance
sheet reports on the assets, liabilities and equity at one point in time. Income statement shows revenues
earned less expenses incurred. Statement of changes in equity shows the changes in equity over a
reporting period by adjusting equity for owner investments less owner withdrawals and net income.
Statement of cash flows shows sources and uses of cash over a period of time and is organized into
operating, investing, and financing.
7. Identify, explain, and apply accounting principles.
