ACG 4101 Exam 1Questions and Answers 100% Solved

ACG 4101 Exam 1Questions and Answers 100% Solved 1. Who Sets Accounting Standards in the U.S.? The Financial Accounting Standards Board (FASB) sets accounting standards in the U.S. under Generally Accepted Accounting Principles (GAAP). FASB operates under the authority of the SEC and Congress. 2. Activity Ratio (What It Shows) Activity ratios measure how efficiently a company manages its assets. High ratios indicate that fewer assets are needed to generate revenue, though excessively high ratios can suggest overtrading. Asset Turnover Ratio: Net Sales / Average Total Assets Receivables Turnover Ratio: Net Credit Sales / Average Accounts Receivable Inventory Turnover Ratio: COGS / Average Inventory 3. Transaction: Record Entry "You receive something from someone on account and you will pay later Journal Entry: Inventory (or other specific asset); Accounts Payable or Cash; Note Payable 5. Matching Principal Definition The matching principle requires that expenses be recorded in the same period as the revenues they help to generate. Expenses should be matched with the revenues they generate. 7. Purpose of Closing Entries Closing entries are made at the end of an accounting period to close temporary accounts (e.g., revenues and expenses) and transfer net income to retained earnings. Closing entries reset temporary accounts to prepare for the next period. 8. Types of Audit Opinions Unqualified, Qualified, Adverse, Disclaimer Unqualified: Clean opinion, no issues Qualified: Mostly correct, with some exceptions Adverse: Financial statements do not reflect the company's actual position Disclaimer: Auditor cannot give an opinion Audit opinions indicate the reliability of financial statements. 14. How Land Is Reported on the Balance Sheet Land is reported at historical cost and is not depreciated. 16. Rent Collections in Advance Rent collected in advance is classified as unearned revenue (a liability) because the company owes future services. Journal Entry: When rent is collected in advance: Debit Cash, Credit Unearned Revenue As the rent period occurs: Debit Unearned Revenue, Credit Rent Income 17. Accounting Equation Assets are increased by debit entries and decreased by credit entries. Liabilities and equity are increased by credit entries and decreased by debit entries. 18. What Items Are Included in Operating Income? Revenue from sales Cost of Goods Sold (COGS) Operating Expenses (e.g., wages, rent, utilities) Depreciation and amortization 19. Prepaid Insurance Definition Prepaid insurance is an asset on the balance sheet and is amortized over the coverage period. 22. What Is the Balance Sheet and What Does It Record? The balance sheet is a financial statement that shows a company's financial position at a specific point in time. It records assets, liabilities, and equity. The balance sheet shows the company's financial position using the accounting equation: Assets = Liabilities + Equity. 21. How to Record Revenue in a Multiple-Step Income Statement In a multiple-step income statement, revenue is recorded at the top, followed by COGS to calculate gross profit. Answer Format: Record Total Revenue, subtract COGS to calculate Gross Profit, then subtract Operating Expenses to calculate Operating Income. 23. Benefit of Recording Discontinued Operations Separately Discontinued operations are recorded separately to provide clarity about the ongoing business. Recording discontinued operations separately allows stakeholders to see the performance of the core business without the impact of discontinued segments.