ACC 131 Exam 1 UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
What are the different forms of business organizations - CORRECT ANSWER -sole
proprietorship
-partnership
-corporation
Advantages of
-sole proprietorship
-partnership
-corporation - CORRECT ANSWER sole. pro- tax advantages, easy to start
part- tax advantages, easy to start, access to skills and financial resources other person has
corp.- easier to raise money, limited liability
Disadvantages of
-sole proprietorship
-partnership
-corporation - CORRECT ANSWER sole. pro- limited life, personal liability
part- limited life, shared control, personal liability
corp.- harder to start, higher taxes
What are the main activity categories businesses engage in? Be able to explain what they are. -
CORRECT ANSWER Financing Activities
- obtaining funds to begin/operate business
Investing Activities
-buying assets to enable business operations
Operating Activities
-earning/incurring revenue/expenses
, Define retained earnings. How is it calculated? Be able to use the formula to calculate each of its
components (beginning retained earnings, net income, dividends, and ending retained earnings) -
CORRECT ANSWER How much money a business retains, invests back into business
Beginning RE + net income - dividends = ending RE
Which of the financial statements are prepared for a period of time? Which are prepared for a specific
point in time? - CORRECT ANSWER Income statement, retained earnings statement, and
statement of cash flows all prepared for a PERIOD of time
Balance sheet is prepared for a SPECIFIC time
What is the objective of financial reporting? - CORRECT ANSWER To communicate
important financial information to interested third parties, i.e. creditors, investors
What is the definition of a current asset and a current liability? - CORRECT ANSWER Current
assets: can be converted to cash quickly
current liability: due within 1 year
*key is one year liquidity
What classes of accounts are listed on the balance sheet? - CORRECT ANSWER assets,
liabilities, stockholder's equity
What is the historical cost principle? - CORRECT ANSWER the activities of a company are
measured at the initial cost of the transaction, e.g. can't change the amount later to adjust for
inflation/market value fluxuation
What is the process of transferring data from the journal to the ledger called - CORRECT ANSWER
posting to the ledger
What is a journal, ledger, and t-account? - CORRECT ANSWER journal: chronological record
of debit/credit transactions that have occurred
ledger: collection of all individual financial statement accounts that a company uses, info from journal
is posted here
t-account: chart used to analyze account, debit on the left/credit on the right
QUESTIONS AND CORRECT ANSWERS
What are the different forms of business organizations - CORRECT ANSWER -sole
proprietorship
-partnership
-corporation
Advantages of
-sole proprietorship
-partnership
-corporation - CORRECT ANSWER sole. pro- tax advantages, easy to start
part- tax advantages, easy to start, access to skills and financial resources other person has
corp.- easier to raise money, limited liability
Disadvantages of
-sole proprietorship
-partnership
-corporation - CORRECT ANSWER sole. pro- limited life, personal liability
part- limited life, shared control, personal liability
corp.- harder to start, higher taxes
What are the main activity categories businesses engage in? Be able to explain what they are. -
CORRECT ANSWER Financing Activities
- obtaining funds to begin/operate business
Investing Activities
-buying assets to enable business operations
Operating Activities
-earning/incurring revenue/expenses
, Define retained earnings. How is it calculated? Be able to use the formula to calculate each of its
components (beginning retained earnings, net income, dividends, and ending retained earnings) -
CORRECT ANSWER How much money a business retains, invests back into business
Beginning RE + net income - dividends = ending RE
Which of the financial statements are prepared for a period of time? Which are prepared for a specific
point in time? - CORRECT ANSWER Income statement, retained earnings statement, and
statement of cash flows all prepared for a PERIOD of time
Balance sheet is prepared for a SPECIFIC time
What is the objective of financial reporting? - CORRECT ANSWER To communicate
important financial information to interested third parties, i.e. creditors, investors
What is the definition of a current asset and a current liability? - CORRECT ANSWER Current
assets: can be converted to cash quickly
current liability: due within 1 year
*key is one year liquidity
What classes of accounts are listed on the balance sheet? - CORRECT ANSWER assets,
liabilities, stockholder's equity
What is the historical cost principle? - CORRECT ANSWER the activities of a company are
measured at the initial cost of the transaction, e.g. can't change the amount later to adjust for
inflation/market value fluxuation
What is the process of transferring data from the journal to the ledger called - CORRECT ANSWER
posting to the ledger
What is a journal, ledger, and t-account? - CORRECT ANSWER journal: chronological record
of debit/credit transactions that have occurred
ledger: collection of all individual financial statement accounts that a company uses, info from journal
is posted here
t-account: chart used to analyze account, debit on the left/credit on the right
