ACC 201 Certification Exam Questions With Correct Answers Graded A+.

Accounting - correct answer Information system that identifies, records and communicates the economic events Income Statement - correct answer To show how sucessfully your business performed during a certain time (Revenues and Expenses) Retained Earnings Statement - correct answer How much previous income was distributed to owners and how much was retained for future growth - Add Net Income. Deduct Dividends. Balance Sheet - correct answer At a point in time showing what your business owns (assets) and what it owes (liabilities&s.e) Statement of Cash Flows - correct answer Show where your business obtained cash during a period of time and how that cash was used - Where did cash come from during this period? - How was cash used during this period? Sole Propietorship - correct answer Business owned by one person (Barber shops, law offices, farms) Partnership - correct answer Owned by 2 or more people associated as partners (Lawyers, architects, doctors) Corporation - correct answer Organized as a seperate legal entity owned by stockholders (coca-cola, microsoft) Sarbanes-Oxley Act (SOX) - correct answer Passed by Congress to reduce unethical coporate behavior and decrease the likelihood of future corporate scandals. Relates to public companies. Assets - correct answer Resources owned by a business Example: cash, pp&e, accounts recievable Liabilities - correct answer Amounts owed to creditors Example: note payable, bonds payable Stockholder's Equity - correct answer The owners claim to assets Example: common stock, retained earnings, dividends Common Stock - correct answer Under SE. Results when the company sells new shares of stock Retained Earnings - correct answer Under SE. The net income retained in the corporation Dividends - correct answer Under SE. Cash payments to stockholders Revenues - correct answer Amounts earned on a sale or service Expenses - correct answer What's necessary to produce and sell the product. Asset consumed or service used Example: cost of goods sold, *anything ending in expense* Net Income - correct answer When total revenues exceed total expenses Net Loss - correct answer When total expenses exceed total revenues Standard Accounting Equation - correct answer Assets = Liabilities + Stockholder's Equity Annual Report (4) - correct answer 1. Financial Statements 2. Management Discussion and Analysis 3. Notes to the Financial Statements 4. Auditor's Report Purpose of Independent Auditor's Report - correct answer States the auditors opinion as to the fairness of the presentation/results of the company's financial statement and conformance with GAAP CPA - correct answer An independent outside auditor Purpose of the Notes to the Financial Statement - correct answer Gives a lot of background information of the company Operating Cycle - correct answer When companies use a period longer than one year to classify assets and liabilities as currrent Current Asset - correct answer A resource that will be used up or converted into cash within one year on the operating cycle, whichever is longer Liquidity - correct answer How you list current assets. In the order in which they expect to convert them into cash Trading Securities - correct answer Are brought and help primarily for sale in the near term to generate income on short-term price differences Available-for-sale Securities - correct answer Are held with the intent of selling them sometime in the future Held-to-maturity Securities - correct answer Are debt securities that the investor has the intent and ability to hold to maturity Short-term Investment - correct answer Are securities held by a company that are readily marketable and intended to be converted into cash within the next year or operatin cycle, whichever is longer Readily Marketable - correct answer An investment is readily marketable when it can be sold easily whenever the need for cash arises Management's Intent to Convert - correct answer Management intends to sell the investment within the next year or operating cycle, whichever is longer Long-term Investment - correct answer - investments in stocks and bonds that are held for more than one year - long term assets (land, buildings) that a company isn't currently using in its operating activities - long-term notes recievable Accumulated Depreciation - correct answer Shows the total amount of depreciation that the company has expensed thus far in the asset's life Intangible Assets - correct answer Assets that do not have phsyical substance and often are very valuable Example: goodwill, patents, copyrights, trademarks Current Liabilities - correct answer Obligation that is due within one year or operating cycle, whichever is longer. And is settled by the use of a current asset providing a sales or service or creation of another liability Long-term Liabilities - correct answer Obligations that a company expects to pay after one year Historical Cost Principle - correct answer Assets are recorded and reported at original purchase price Fair Value Principle - correct answer The price recieved to sell an asset or settle a liability Property, Plant and Equipment accounts are reported on the balance sheet as _____________________. - correct answer Historical Cost What do earnings per share measure? - correct answer - Measures the net income earned on each share of common stock. - Only required to be presented by a publicly traded company. - Must be shown on the bottom of the income statement. (Net Income - Preferred Dividends)/ Average Common Shares Outstanding Solvency - correct answer Companies ability to pay interest or debt. The higher it gets, the riskier. Working Capital - correct answer Current Assets - Current Liabilities - Don't compare to other companies. Current Ratio - correct answer Current Assets/Current Liabilities - Widely used. Tells us how many times greater our assets are than liabilities. Debt to Total Assets Ratio - correct answer Total Liabilities/Total Assets - The higher the percentage, the riskier the company GAAP - correct answer Accounting standards that guide accounting proffesionals all over the US Securities and Exchange Commission (SEC) - correct answer Was given authority by Congress to write accounting pronouncements. Oversees publicly traded companies and financial markets in the US. Financial Accounting Standards Board (FASB) - correct answer Writing accounting pronouncements to private accounting. The primary private accounting rule-making body currently responsible for writing pronouncements constituting GAAP in the United States International Accounting Standards Board (IASB) - correct answer Writes IFRS. Over 100 countries use IFRS as their financial reporting standards. Conceptual Accounting Framework - correct answer - The underlined foundation to make sure GAAP is right - Written by the FASB Relevance - correct answer A fundamental quality that Conceptual Acct. Framework should possess Providing accurate expectations about future. Must have predictive value and/or confirmatory value. Faithful Representation - correct answer A fundamental quality that Conceptual Acct. Framework should possess Info that actually depicts what really happened. Must be complete, neutral and free from error. Enhancing Qualities (5) - correct answer 1. Comparability 2. Consistency 3. Verifiability 4. Timeliness 5. Understandability Comparability - correct answer Comparing different companies Consistency - correct answer Company uses same accounting principles from year to year Vertifiability - correct answer Using the same methods, obtain similiar results Timeliness - correct answer Info available as quickly as possible Understandability - correct answer Clear and concise. Users can interpret and comprehend Financial Accounting Assumptions (4) - correct answer 1. Monetary Unit Assumption 2. Economic Entity Assumption 3. Periodicity Assumption 4. Going Concern Assumption Monetary Unit Assumption - correct answer Only things that can be expressed in money are included in the acct. records Economic Entity Assumption - correct answer Every economic entity can be seperately identified and accounted for Periodicity Assumption - correct answer Divide financial info into periods Going Concern Assumption - correct answer The company will continue in operation for the forseeable future Full Disclosure Principle - correct answer Disclose all circumstances and events that would make a difference to financial statement users Cost Constraint - correct answer Cost greater than benefit ... Go foward with it. Basic Accounting Equation - correct answer Assets = Liabilities + Stockholder's Equity Which entity would have an income tax expense account on it's books? - correct answer Corporation Straight-Line Depereciaton Method - correct answer (cost-salvage value)/estimated useful life = depreciation expense for the year Accumulated Depreciation - correct answer ?? True/False. Companies par value is equal to it's fair value at the balance sheet date. - correct answer FALSE. There is no relationship. Current Ratio has increased. Is this always a good thing? - correct answer Only looks bad when short term inventory and accounts recievable have increased. Does GAAP apply to both financial accounts and managerial accounts? - correct answer NO. Only applies to financial ... Internal users only. What does capitalize mean? - correct answer To record as an asset. Why do we not do something a certain way? - correct answer Materiality