MGT 8803 Financial Accounting UPDATED ACTUAL
Questions and CORRECT Answers
Proprietorship Single Owner; unlimited liability & no taxation
Partnership More than one owner; unlimited liability & no taxation
Corporation A business owned by stockholders (shareholders -> board of
directors --> top managers); limited liability & taxation
Publicly traded or privately held
, Assumptions of Financial Accounting Separate entity, unit of measurement, going concern,
periodicity, materiality
Going Concern Presume that the company will continue to operate & that it
will be ongoing
Periodicity Presume that we can arbitrarily pick any time period that we
want to and report the financial results for that time period
Materiality only information that would influence the decisions of a
reasonable person need be disclosed
Users of Financial Reports Investors (Stockholders), Creditors (Banks), Government
agencies (SEC), Company management, financial analysts
GAAP Generally Accepted Accounting Principles. The standards and
rules that accountants follow while recording and reporting
financial activities.
SEC Securities and Exchange Commission; rule making resides
under their authority
IFRS International Financial Reporting Standards
GAAP vs Tax accounting tax accounting is done for the IRS
Qualities of Financial Statements Understandability, timeliness, full disclosure, comparability,
objectivity, decision relevance
Balance sheet measures financial position at a point in time; Assets =
Liabilities + Owners Equity
Accounting equation Assets = Liabilities + Owner's Equity
Assets Resources of the company; resources owned or rights to
receive resources
Liabilities Sources of funding provided by the creditors; creditors claims
Owners' Equity sources provided by the owners; owner's claims
Liquidity the closer they are to being cash, the more liquid they are
Cost Principle Assets are valued at their historical cost
Current vs Long Term Assets conversion to cash within 1 year
Current vs Long Term Liabilities due date within 1 year
Questions and CORRECT Answers
Proprietorship Single Owner; unlimited liability & no taxation
Partnership More than one owner; unlimited liability & no taxation
Corporation A business owned by stockholders (shareholders -> board of
directors --> top managers); limited liability & taxation
Publicly traded or privately held
, Assumptions of Financial Accounting Separate entity, unit of measurement, going concern,
periodicity, materiality
Going Concern Presume that the company will continue to operate & that it
will be ongoing
Periodicity Presume that we can arbitrarily pick any time period that we
want to and report the financial results for that time period
Materiality only information that would influence the decisions of a
reasonable person need be disclosed
Users of Financial Reports Investors (Stockholders), Creditors (Banks), Government
agencies (SEC), Company management, financial analysts
GAAP Generally Accepted Accounting Principles. The standards and
rules that accountants follow while recording and reporting
financial activities.
SEC Securities and Exchange Commission; rule making resides
under their authority
IFRS International Financial Reporting Standards
GAAP vs Tax accounting tax accounting is done for the IRS
Qualities of Financial Statements Understandability, timeliness, full disclosure, comparability,
objectivity, decision relevance
Balance sheet measures financial position at a point in time; Assets =
Liabilities + Owners Equity
Accounting equation Assets = Liabilities + Owner's Equity
Assets Resources of the company; resources owned or rights to
receive resources
Liabilities Sources of funding provided by the creditors; creditors claims
Owners' Equity sources provided by the owners; owner's claims
Liquidity the closer they are to being cash, the more liquid they are
Cost Principle Assets are valued at their historical cost
Current vs Long Term Assets conversion to cash within 1 year
Current vs Long Term Liabilities due date within 1 year
