©FYNDLAY EXAM SOLUTIONS 2024/2025
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MHA 706 Module 2 Exam Study Guide
Financial Accounting - answer✔involves identifying, recording and communicating the
operational results and status of organization. (i.e. income statement, statement of changes in
equity, balance sheet, and statement of cash flows)
Do not for profit organizations have to prepare financial statements? - answer✔Yes- they also
have stakeholders and managers that have an interest in financial reporting
Should the preparation and presentation of financial accounting data be regulated? -
answer✔Yes, it is important to have financial reporting that is accurate and based on reliable
data.
SEC - answer✔has legal authority to regulate the form and content of financial statements
GAAP- applies only to financial accounting statements - answer✔The conventions that have
evolved from the pronouncements and rulings of the implementing organizations constitute a
set of guidelines for the preparation of financial accounting statements
Does GAAP remain static over time? - answer✔no, because business practices are continuously
evolving, so GAAP also has to adapt accordingly.
Assumptions - answer✔accounting entity, going concern, periodicity, and monetary unit
Accounting entity - answer✔the specific entity for which the statements apply can be defined
Going concern - answer✔it is assumed that the entity will have an indefinite lifetime rather
than be liquidated in the near future
Monetary unit - answer✔in the US, the unit is the US dollar, unadjusted for inflation and
deflation
Historical costs - answer✔Requires most assets to be valued at acquisition (historical) costs
rather than fair market (current) value
Revenue recognition - answer✔Revenues must be recognized in the period in which they are
realizable and earned
Expense matching - answer✔Expenses must be matched (in time) to the related revenues
1|Page
, ©FYNDLAY EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
Full disclosure - answer✔Financial statements must contain a complete picture of the economic
(financial) events of the organization
Which two principles are related? - answer✔Revenue recognition and full disclosure- financial
statements must capture a complete picture of the economic or financial events of the
organization
Materiality - answer✔To keep statements manageable, only entries that are important to the
operational and financial status of the organization need be separately identified
Cost Benefit - answer✔Financial statements cannot report all possible information that every
potential user might find relevant. When deciding what information should be reported and
how it will be done, standard setters must determine whether the benefits outweigh the
associated costs
cash accounting recognizes - answer✔an event when a cash transaction takes place
accrual accounting recognizes - answer✔an even when a cash obligation is created (is required
by GAAP)
Transaction - answer✔is an exchange of goods (including cash) or services from one individual
or business to another
unique activity - answer✔once a transaction is identified, it must be recorded or posted to an
account
chart of accounts - answer✔assign numeric identifiers to individual accounts
Double entry system - answer✔journal entries are always posted twice
T accounts - answer✔to handle the double entries
Journal data - answer✔income statement, statement of changes in equity, balance sheet, and
statement of cash flows
Disseminating financial statements- annual report - answer✔It begins with a verbal discussion
of current operating results and expectations for the future.
Followed by the financial statements, which include notes and supplementary information
what other names can income statement be called - answer✔statement of operations,
statement of activities, and statement of revenues and expense
What does the income statement report? - answer✔the results of operations over some period
of time w. 3 key elements (revenues, expenses, and profit)
Revenues - answer✔under accrual accounting represent both cash received and payer
obligations
2|Page
ALL RIGHTS RESERVED.
MHA 706 Module 2 Exam Study Guide
Financial Accounting - answer✔involves identifying, recording and communicating the
operational results and status of organization. (i.e. income statement, statement of changes in
equity, balance sheet, and statement of cash flows)
Do not for profit organizations have to prepare financial statements? - answer✔Yes- they also
have stakeholders and managers that have an interest in financial reporting
Should the preparation and presentation of financial accounting data be regulated? -
answer✔Yes, it is important to have financial reporting that is accurate and based on reliable
data.
SEC - answer✔has legal authority to regulate the form and content of financial statements
GAAP- applies only to financial accounting statements - answer✔The conventions that have
evolved from the pronouncements and rulings of the implementing organizations constitute a
set of guidelines for the preparation of financial accounting statements
Does GAAP remain static over time? - answer✔no, because business practices are continuously
evolving, so GAAP also has to adapt accordingly.
Assumptions - answer✔accounting entity, going concern, periodicity, and monetary unit
Accounting entity - answer✔the specific entity for which the statements apply can be defined
Going concern - answer✔it is assumed that the entity will have an indefinite lifetime rather
than be liquidated in the near future
Monetary unit - answer✔in the US, the unit is the US dollar, unadjusted for inflation and
deflation
Historical costs - answer✔Requires most assets to be valued at acquisition (historical) costs
rather than fair market (current) value
Revenue recognition - answer✔Revenues must be recognized in the period in which they are
realizable and earned
Expense matching - answer✔Expenses must be matched (in time) to the related revenues
1|Page
, ©FYNDLAY EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
Full disclosure - answer✔Financial statements must contain a complete picture of the economic
(financial) events of the organization
Which two principles are related? - answer✔Revenue recognition and full disclosure- financial
statements must capture a complete picture of the economic or financial events of the
organization
Materiality - answer✔To keep statements manageable, only entries that are important to the
operational and financial status of the organization need be separately identified
Cost Benefit - answer✔Financial statements cannot report all possible information that every
potential user might find relevant. When deciding what information should be reported and
how it will be done, standard setters must determine whether the benefits outweigh the
associated costs
cash accounting recognizes - answer✔an event when a cash transaction takes place
accrual accounting recognizes - answer✔an even when a cash obligation is created (is required
by GAAP)
Transaction - answer✔is an exchange of goods (including cash) or services from one individual
or business to another
unique activity - answer✔once a transaction is identified, it must be recorded or posted to an
account
chart of accounts - answer✔assign numeric identifiers to individual accounts
Double entry system - answer✔journal entries are always posted twice
T accounts - answer✔to handle the double entries
Journal data - answer✔income statement, statement of changes in equity, balance sheet, and
statement of cash flows
Disseminating financial statements- annual report - answer✔It begins with a verbal discussion
of current operating results and expectations for the future.
Followed by the financial statements, which include notes and supplementary information
what other names can income statement be called - answer✔statement of operations,
statement of activities, and statement of revenues and expense
What does the income statement report? - answer✔the results of operations over some period
of time w. 3 key elements (revenues, expenses, and profit)
Revenues - answer✔under accrual accounting represent both cash received and payer
obligations
2|Page
