MGT 8803 Business Fundamentals –
Accounting UPDATED ACTUAL Exam
Questions and CORRECT Answers
Balance Sheet - CORRECT ANSWER - A balance sheet describes the sources and uses of
funds of a firm at a point in time. Useful for: evaluating capital structure and assessing risk and
future cash flows
Assets - CORRECT ANSWER - Economic resources that are owned or controlled by a
company that have future economic benefit
What do assets include? - CORRECT ANSWER - Cash, Accounts Receivables (A/R),
Inventory, Land, Buildings, Equipment, Copyrights, and Investments.
To be reported on a balance sheet an asset must - CORRECT ANSWER - Be owned (or
controlled) by the company and must possess expected future economic benefits
Are assets reported at market or historical cost? - CORRECT ANSWER - Historical
What "assets" cannot make it on the balance sheet? - CORRECT ANSWER - Strong
management team, a well-designed supply chain, or superior technology.
Liabilities - CORRECT ANSWER - Future obligations to pay cash, transfer assets or provide
services to another party
Examples of liabilities? - CORRECT ANSWER - Examples of liabilities include: Accounts
Payable (A/P), Notes Payable (N/P), and Wages Payable.
Owners' Equity (Shareholders' Equity) - CORRECT ANSWER - The ownership interest in the
net assets of an entity
,Examples of owners' equity? - CORRECT ANSWER - Capital Stock, Preferred Stock, and
Retained Earnings (RE)
Accounting Equation - CORRECT ANSWER - Assets = Liabilities + Owners' Equity
Balance Sheet Format -Assets - CORRECT ANSWER - Assets are listed in order of liquidity,
current assets comprise assets that can be converted to cash within a year. Long-term assets
cannot be easily converted to cash within a year.
Balance Sheet Format -Liabilities - CORRECT ANSWER - Liabilities are listed in order of
maturity. Current liabilities have maturities less than one year. Long-term liabilities have
maturities longer than one year.
Balance Sheet Format-Shareholders' Equity - CORRECT ANSWER - Shareholders' Equity
has no required order.
Income Statement - CORRECT ANSWER - Shows how much a company earned (not cash)
over a period of time. Helps us evaluate past performance. Useful in predicting a firm's future
performance. Helps us assess the risk or uncertainty of achieving future cash flows.
Revenues - CORRECT ANSWER - Increase in a company's resources from the sale of goods
or services
Examples of revenues? - CORRECT ANSWER - Sales Revenue and Rent Revenue.
How is revenue different than an asset? - CORRECT ANSWER - Revenue is an increase in
an asset or destroy liability, either way it's an increase in the resources we have. An asset isn't a
change - the revenue is the change.
, Expenses - CORRECT ANSWER - Costs incurred in the normal course of business to
generate revenues
Examples of expenses? - CORRECT ANSWER - Cost of Goods Sold (COGS), Utilities
Expense, Wages Expense, and Depreciation Expense
How are expenses different than a liability? - CORRECT ANSWER - Expense is a change,
creation of liability or destruction of an asset. Liability itself does not change.
Gains/Losses - CORRECT ANSWER - Money made or lost outside of normal firm operations
Examples of gains/losses? - CORRECT ANSWER - Gain on sale of operating equipment and
Losses on sale of land
Net Income or Loss - CORRECT ANSWER - An overall measure of the performance of a
company. Net Income does not necessarily correspond to a net cash flow. A firm could have
"good income" but "poor cash flow" or vice versa (i.e., there are two dimensions to consider).
Statement of Shareholders' Equity - CORRECT ANSWER - The statement of equity is a
reconciliation of the beginning and ending balances of shareholders' equity accounts.
What are the main equity categories? - CORRECT ANSWER - Capital Stock,Retained
Earnings,Treasury Stock,Other Comprehensive Income
Statement of Cash Flows - CORRECT ANSWER - The financial statement that describes an
entity's cash inflows and cash outflows during a period.
What is the statement of cash flows designed to do? - CORRECT ANSWER - Designed to
show information about the change in the cash balance from first balance sheet to second balance
sheet.
Accounting UPDATED ACTUAL Exam
Questions and CORRECT Answers
Balance Sheet - CORRECT ANSWER - A balance sheet describes the sources and uses of
funds of a firm at a point in time. Useful for: evaluating capital structure and assessing risk and
future cash flows
Assets - CORRECT ANSWER - Economic resources that are owned or controlled by a
company that have future economic benefit
What do assets include? - CORRECT ANSWER - Cash, Accounts Receivables (A/R),
Inventory, Land, Buildings, Equipment, Copyrights, and Investments.
To be reported on a balance sheet an asset must - CORRECT ANSWER - Be owned (or
controlled) by the company and must possess expected future economic benefits
Are assets reported at market or historical cost? - CORRECT ANSWER - Historical
What "assets" cannot make it on the balance sheet? - CORRECT ANSWER - Strong
management team, a well-designed supply chain, or superior technology.
Liabilities - CORRECT ANSWER - Future obligations to pay cash, transfer assets or provide
services to another party
Examples of liabilities? - CORRECT ANSWER - Examples of liabilities include: Accounts
Payable (A/P), Notes Payable (N/P), and Wages Payable.
Owners' Equity (Shareholders' Equity) - CORRECT ANSWER - The ownership interest in the
net assets of an entity
,Examples of owners' equity? - CORRECT ANSWER - Capital Stock, Preferred Stock, and
Retained Earnings (RE)
Accounting Equation - CORRECT ANSWER - Assets = Liabilities + Owners' Equity
Balance Sheet Format -Assets - CORRECT ANSWER - Assets are listed in order of liquidity,
current assets comprise assets that can be converted to cash within a year. Long-term assets
cannot be easily converted to cash within a year.
Balance Sheet Format -Liabilities - CORRECT ANSWER - Liabilities are listed in order of
maturity. Current liabilities have maturities less than one year. Long-term liabilities have
maturities longer than one year.
Balance Sheet Format-Shareholders' Equity - CORRECT ANSWER - Shareholders' Equity
has no required order.
Income Statement - CORRECT ANSWER - Shows how much a company earned (not cash)
over a period of time. Helps us evaluate past performance. Useful in predicting a firm's future
performance. Helps us assess the risk or uncertainty of achieving future cash flows.
Revenues - CORRECT ANSWER - Increase in a company's resources from the sale of goods
or services
Examples of revenues? - CORRECT ANSWER - Sales Revenue and Rent Revenue.
How is revenue different than an asset? - CORRECT ANSWER - Revenue is an increase in
an asset or destroy liability, either way it's an increase in the resources we have. An asset isn't a
change - the revenue is the change.
, Expenses - CORRECT ANSWER - Costs incurred in the normal course of business to
generate revenues
Examples of expenses? - CORRECT ANSWER - Cost of Goods Sold (COGS), Utilities
Expense, Wages Expense, and Depreciation Expense
How are expenses different than a liability? - CORRECT ANSWER - Expense is a change,
creation of liability or destruction of an asset. Liability itself does not change.
Gains/Losses - CORRECT ANSWER - Money made or lost outside of normal firm operations
Examples of gains/losses? - CORRECT ANSWER - Gain on sale of operating equipment and
Losses on sale of land
Net Income or Loss - CORRECT ANSWER - An overall measure of the performance of a
company. Net Income does not necessarily correspond to a net cash flow. A firm could have
"good income" but "poor cash flow" or vice versa (i.e., there are two dimensions to consider).
Statement of Shareholders' Equity - CORRECT ANSWER - The statement of equity is a
reconciliation of the beginning and ending balances of shareholders' equity accounts.
What are the main equity categories? - CORRECT ANSWER - Capital Stock,Retained
Earnings,Treasury Stock,Other Comprehensive Income
Statement of Cash Flows - CORRECT ANSWER - The financial statement that describes an
entity's cash inflows and cash outflows during a period.
What is the statement of cash flows designed to do? - CORRECT ANSWER - Designed to
show information about the change in the cash balance from first balance sheet to second balance
sheet.
