ACG 2021 Test #1 Study Guide (Chapter
1 & 2) Latest Update Graded A+
What equation is essential for maintaining balance in accounting records?
✔✔The equation Assets = Liabilities + Owner's Equity
Why are Generally Accepted Accounting Principles (GAAP) important in financial accounting?
✔✔GAAP ensures that financial information is useful, trustworthy, and consistent.
Which organization is responsible for creating International Financial Reporting Standards
(IFRS)?
✔✔The International Accounting Standards Board (IASB)
Who sets the guidelines for GAAP in the United States?
✔✔The Financial Accounting Standards Board (FASB)
What components make up the accounting framework, which aims to provide useful
information?
1
,✔✔The framework consists of objectives, qualitative traits, elements, and criteria for recognition
and measurement.
Which government body oversees U.S. financial markets and accounting standards?
✔✔The Securities and Exchange Commission (SEC)
How is a sole proprietorship defined in terms of ownership and legal status?
✔✔A sole proprietorship is a business owned by a single individual and is not legally separate
from its owner.
What characterizes a partnership in terms of ownership and liability?
✔✔A partnership is a business owned by two or more individuals who share responsibilities and
liabilities.
What distinguishes a corporation from other business entities?
✔✔A corporation is a legally separate entity with shareholders who have limited liability for the
company's debts and actions.
How does revenue impact owner's equity in a business?
2
, ✔✔Revenue increases the owner's equity through the business's operations.
What are prepaid expenses, and how are they recorded in accounting?
✔✔Prepaid expenses are payments made in advance for future expenses, recorded as assets until
they are incurred.
How is unearned revenue treated until the associated goods or services are delivered?
✔✔Unearned revenue is recorded as a liability until the company fulfills its obligation by
providing the goods or services.
Ex) If you subscribe to a magazine, you generally pay a one-year subscription in advance. For
the publishing company, cash is received but nothing has been done to earn the revenue. As the
magazine is delivered to you, the publishing company recognizes a portion of the money
received as revenue. At the end of the year, all the revenue will be earned and the liability no
longer exists.
current assets ✔✔cash and other assets expected to be exchanged for cash or consumed within a
year
3
1 & 2) Latest Update Graded A+
What equation is essential for maintaining balance in accounting records?
✔✔The equation Assets = Liabilities + Owner's Equity
Why are Generally Accepted Accounting Principles (GAAP) important in financial accounting?
✔✔GAAP ensures that financial information is useful, trustworthy, and consistent.
Which organization is responsible for creating International Financial Reporting Standards
(IFRS)?
✔✔The International Accounting Standards Board (IASB)
Who sets the guidelines for GAAP in the United States?
✔✔The Financial Accounting Standards Board (FASB)
What components make up the accounting framework, which aims to provide useful
information?
1
,✔✔The framework consists of objectives, qualitative traits, elements, and criteria for recognition
and measurement.
Which government body oversees U.S. financial markets and accounting standards?
✔✔The Securities and Exchange Commission (SEC)
How is a sole proprietorship defined in terms of ownership and legal status?
✔✔A sole proprietorship is a business owned by a single individual and is not legally separate
from its owner.
What characterizes a partnership in terms of ownership and liability?
✔✔A partnership is a business owned by two or more individuals who share responsibilities and
liabilities.
What distinguishes a corporation from other business entities?
✔✔A corporation is a legally separate entity with shareholders who have limited liability for the
company's debts and actions.
How does revenue impact owner's equity in a business?
2
, ✔✔Revenue increases the owner's equity through the business's operations.
What are prepaid expenses, and how are they recorded in accounting?
✔✔Prepaid expenses are payments made in advance for future expenses, recorded as assets until
they are incurred.
How is unearned revenue treated until the associated goods or services are delivered?
✔✔Unearned revenue is recorded as a liability until the company fulfills its obligation by
providing the goods or services.
Ex) If you subscribe to a magazine, you generally pay a one-year subscription in advance. For
the publishing company, cash is received but nothing has been done to earn the revenue. As the
magazine is delivered to you, the publishing company recognizes a portion of the money
received as revenue. At the end of the year, all the revenue will be earned and the liability no
longer exists.
current assets ✔✔cash and other assets expected to be exchanged for cash or consumed within a
year
3
