ACTG 244 TEST 1 QUESTIONS WITH VERIFIED
ANSWERS
Three types of busineses - Answers - sole proprietorship, partnership, corporation
sole proprietorship/sole ownership - Answers - -owned by one person responsible for
business and personally liable
-business doesn't pay taxes but person does
-limited resources
Partnership - Answers - -2+ partners personally liable
-individual people pay taxes
-resources of all the partners (financial, expertise)
Corporation - Answers - -viewed as entity- limited liability
-raise lots of $
-pay taxes as a corporation, double taxation (pays owners dividends and tax those too)
Three forms of business organization - Answers - -service- activity, demand (ex. pro
sports, firms, airlines)
-manufacturing- generate new goods typically sold to other manufacturers or
merchandisers (ex. auto, food, clothing producers)
-merchandising- wholesale/retail, purchase in large quantities
Four major financial statements - Answers - balance sheet, income statement,
statement of cash flow, statement of stockholders equity
Balance Sheet - Answers - summarizes assets, liabilities, and stockholders' equity of an
entity at a specific time
Income Statement - Answers - summarizes business revenues and expenses for a
specific time period
Statement of Cash Flows - Answers - reveals how a business generated and spent
cash during an accounting period
Statement of Stockholders' Equity - Answers - The amount of money of ownership
equity components at the beginning and end of an accounting period
Fiscal Year - Answers - NOT the same as a calendar year, the entity can create their
own fiscal year starting and ending whenever they would like.
, Three types of activities a business engages in - Answers - operating- day- to-day
activities of a business that generates revenues by providing products or services to
create costs that generate the rev.
investing- involve acquisition and sale of long term assets and non- operating
investment assets.
financing- cash inflows and outflows from transactions with creditors and investors.
What financial statement uses operating, investing, and financing as headings? -
Answers - Statement of cash flows
What is the balance sheet equation - Answers - Assets= liabilities + Owners' Equity
Asset - Answers - all items own by company. can be converted to cash or used to
generate rev. most are tangible.
Liabilities - Answers - all debts owed by a company to other companies or individuals
equity - Answers - Assets minus Liabilities, also the company's worth.
Does retained earnings account contain cash? - Answers - No, it is a representation of
how the equity has increased with profit. Each year, net profit is added to retained
earnings.
-Retained earnings= yearly (revenues- expenses- dividends)
"period of time" statements - Answers - -reveal what happened during a defined period
ex) income statement, statement of cash flow, statement of stockholders equity
"point in time" statements - Answers - -Shows what is happening at a specific point in
time
ex) balance sheet
revenues - Answers - increases in assets or decreases in liabilities that result from the
profit oriented activities of the business
Gross Profit - Answers - The difference between the net revenues generated and the
cost of goods sold during a particular period.
Net Income - Answers - Gross Profit- Operating expenses
"bottom line" of income statement or profit.
What two conditions must be met for a company to recognize revenue from a
transaction or event in its accounting records? - Answers - Revenues should be realized
(assets exchanged for cash) and earned (provided product/service) before being
entered into the records.
ANSWERS
Three types of busineses - Answers - sole proprietorship, partnership, corporation
sole proprietorship/sole ownership - Answers - -owned by one person responsible for
business and personally liable
-business doesn't pay taxes but person does
-limited resources
Partnership - Answers - -2+ partners personally liable
-individual people pay taxes
-resources of all the partners (financial, expertise)
Corporation - Answers - -viewed as entity- limited liability
-raise lots of $
-pay taxes as a corporation, double taxation (pays owners dividends and tax those too)
Three forms of business organization - Answers - -service- activity, demand (ex. pro
sports, firms, airlines)
-manufacturing- generate new goods typically sold to other manufacturers or
merchandisers (ex. auto, food, clothing producers)
-merchandising- wholesale/retail, purchase in large quantities
Four major financial statements - Answers - balance sheet, income statement,
statement of cash flow, statement of stockholders equity
Balance Sheet - Answers - summarizes assets, liabilities, and stockholders' equity of an
entity at a specific time
Income Statement - Answers - summarizes business revenues and expenses for a
specific time period
Statement of Cash Flows - Answers - reveals how a business generated and spent
cash during an accounting period
Statement of Stockholders' Equity - Answers - The amount of money of ownership
equity components at the beginning and end of an accounting period
Fiscal Year - Answers - NOT the same as a calendar year, the entity can create their
own fiscal year starting and ending whenever they would like.
, Three types of activities a business engages in - Answers - operating- day- to-day
activities of a business that generates revenues by providing products or services to
create costs that generate the rev.
investing- involve acquisition and sale of long term assets and non- operating
investment assets.
financing- cash inflows and outflows from transactions with creditors and investors.
What financial statement uses operating, investing, and financing as headings? -
Answers - Statement of cash flows
What is the balance sheet equation - Answers - Assets= liabilities + Owners' Equity
Asset - Answers - all items own by company. can be converted to cash or used to
generate rev. most are tangible.
Liabilities - Answers - all debts owed by a company to other companies or individuals
equity - Answers - Assets minus Liabilities, also the company's worth.
Does retained earnings account contain cash? - Answers - No, it is a representation of
how the equity has increased with profit. Each year, net profit is added to retained
earnings.
-Retained earnings= yearly (revenues- expenses- dividends)
"period of time" statements - Answers - -reveal what happened during a defined period
ex) income statement, statement of cash flow, statement of stockholders equity
"point in time" statements - Answers - -Shows what is happening at a specific point in
time
ex) balance sheet
revenues - Answers - increases in assets or decreases in liabilities that result from the
profit oriented activities of the business
Gross Profit - Answers - The difference between the net revenues generated and the
cost of goods sold during a particular period.
Net Income - Answers - Gross Profit- Operating expenses
"bottom line" of income statement or profit.
What two conditions must be met for a company to recognize revenue from a
transaction or event in its accounting records? - Answers - Revenues should be realized
(assets exchanged for cash) and earned (provided product/service) before being
entered into the records.
