ACG 4101 EXAM 1 STUDY GUIDE
1. Who Sets Accounting Standards in the U.S.? - Answer -The Financial Accounting
Standards Board (FASB) sets accounting standards in the U.S. under Generally
Accepted Accounting Principles (GAAP). FASB operates under the authority of the SEC
and Congress.
2. Activity Ratio (What It Shows) - Answer -Activity ratios measure how efficiently a
company manages its assets. High ratios indicate that fewer assets are needed to
generate revenue, though excessively high ratios can suggest overtrading.
Asset Turnover Ratio: Net Sales / Average Total Assets
Receivables Turnover Ratio: Net Credit Sales / Average Accounts Receivable
Inventory Turnover Ratio: COGS / Average Inventory
3. Transaction: Record Entry "You receive something from someone on account and
you will pay later - Answer -Journal Entry:
Inventory (or other specific asset); Accounts Payable or
Cash; Note Payable
5. Matching Principal Definition - Answer -The matching principle requires that
expenses be recorded in the same period as the revenues they help to generate.
Expenses should be matched with the revenues they generate.
7. Purpose of Closing Entries - Answer -Closing entries are made at the end of an
accounting period to close temporary accounts (e.g., revenues and expenses) and
transfer net income to retained earnings.
Closing entries reset temporary accounts to prepare for the next period.
8. Types of Audit Opinions - Answer -Unqualified, Qualified, Adverse, Disclaimer
Unqualified: Clean opinion, no issues
Qualified: Mostly correct, with some exceptions
Adverse: Financial statements do not reflect the company's actual position
Disclaimer: Auditor cannot give an opinion
Audit opinions indicate the reliability of financial statements.
14. How Land Is Reported on the Balance Sheet - Answer -Land is reported at
historical cost and is not depreciated.
16. Rent Collections in Advance - Answer -Rent collected in advance is classified as
unearned revenue (a liability) because the company owes future services.
1. Who Sets Accounting Standards in the U.S.? - Answer -The Financial Accounting
Standards Board (FASB) sets accounting standards in the U.S. under Generally
Accepted Accounting Principles (GAAP). FASB operates under the authority of the SEC
and Congress.
2. Activity Ratio (What It Shows) - Answer -Activity ratios measure how efficiently a
company manages its assets. High ratios indicate that fewer assets are needed to
generate revenue, though excessively high ratios can suggest overtrading.
Asset Turnover Ratio: Net Sales / Average Total Assets
Receivables Turnover Ratio: Net Credit Sales / Average Accounts Receivable
Inventory Turnover Ratio: COGS / Average Inventory
3. Transaction: Record Entry "You receive something from someone on account and
you will pay later - Answer -Journal Entry:
Inventory (or other specific asset); Accounts Payable or
Cash; Note Payable
5. Matching Principal Definition - Answer -The matching principle requires that
expenses be recorded in the same period as the revenues they help to generate.
Expenses should be matched with the revenues they generate.
7. Purpose of Closing Entries - Answer -Closing entries are made at the end of an
accounting period to close temporary accounts (e.g., revenues and expenses) and
transfer net income to retained earnings.
Closing entries reset temporary accounts to prepare for the next period.
8. Types of Audit Opinions - Answer -Unqualified, Qualified, Adverse, Disclaimer
Unqualified: Clean opinion, no issues
Qualified: Mostly correct, with some exceptions
Adverse: Financial statements do not reflect the company's actual position
Disclaimer: Auditor cannot give an opinion
Audit opinions indicate the reliability of financial statements.
14. How Land Is Reported on the Balance Sheet - Answer -Land is reported at
historical cost and is not depreciated.
16. Rent Collections in Advance - Answer -Rent collected in advance is classified as
unearned revenue (a liability) because the company owes future services.
