ACCT 102 EXAM WITH 100% CORRECT
ANSWERS
What is an accounting entity? - Answer-A business is treated as separate from its
owner(s) for recording and reporting transactions.
Why is the accounting entity concept important? - Answer-It ensures financial records
only reflect business activities, not personal transactions.
What is a legal entity? - Answer-A business structure that is legally separate from its
owners, like a company.
Which business structure is considered a separate legal entity? - Answer-A company,
because it has its own legal rights and responsibilities.
How do legal and accounting entities differ? - Answer-Accounting treats all businesses
as separate, but legally only companies are separate from their owners.
Why does accounting need to change as businesses evolve? - Answer-To ensure
financial information remains useful and relevant for decision-making.
How do management and financial accounting adapt to change? - Answer-Management
accounting adapts quickly for internal needs, while financial accounting changes more
slowly due to regulations and comparability requirements.
What does planning mean - Answer-providing direction for future activity
What does control mean - Answer-compelling events to conform to the plan.
As an owner of a small business, what are three key financial attributes of the business
you would wish to assess when you review financial reports - Answer-Liquidity,
Solvency and Profitability
What is the risk-return relationship? - Answer-It is the principle that higher potential
returns usually come with higher risks.
What must investors and businesses consider in the risk-return relationship? - Answer-
They must balance the level of risk they are willing to take with the potential rewards
they expect.
Two advantages for a Sole Trader - Answer-Full control, Keeps all profit
ANSWERS
What is an accounting entity? - Answer-A business is treated as separate from its
owner(s) for recording and reporting transactions.
Why is the accounting entity concept important? - Answer-It ensures financial records
only reflect business activities, not personal transactions.
What is a legal entity? - Answer-A business structure that is legally separate from its
owners, like a company.
Which business structure is considered a separate legal entity? - Answer-A company,
because it has its own legal rights and responsibilities.
How do legal and accounting entities differ? - Answer-Accounting treats all businesses
as separate, but legally only companies are separate from their owners.
Why does accounting need to change as businesses evolve? - Answer-To ensure
financial information remains useful and relevant for decision-making.
How do management and financial accounting adapt to change? - Answer-Management
accounting adapts quickly for internal needs, while financial accounting changes more
slowly due to regulations and comparability requirements.
What does planning mean - Answer-providing direction for future activity
What does control mean - Answer-compelling events to conform to the plan.
As an owner of a small business, what are three key financial attributes of the business
you would wish to assess when you review financial reports - Answer-Liquidity,
Solvency and Profitability
What is the risk-return relationship? - Answer-It is the principle that higher potential
returns usually come with higher risks.
What must investors and businesses consider in the risk-return relationship? - Answer-
They must balance the level of risk they are willing to take with the potential rewards
they expect.
Two advantages for a Sole Trader - Answer-Full control, Keeps all profit
