MGT 8803 - Financial Accounting UPDATED ACTUAL
Questions and CORRECT Answers
Proprietorship A form of business organization with one owner who takes all
the risks and all the profits. Unlimited liability, but the business
doesn't pay taxes.
Partnership A business owned by two or more people who share its risks
and rewards. Unlimited liability, but the business doesn't pay
taxes.
, Corporation A business owned by stockholders who share in its profits but
are not personally responsible for its debts. Double taxation.
Going Concern Assumption The assumption that the company will continue in operation
for the foreseeable future.
Periodicity Assumption An assumption that the life of a business can be divided into
artificial time periods and that useful reports covering those
periods can be prepared for the business.
Materiality Assumption The only information that needs to be disclosed in financial
statements is that which will be useful for those who use the
financial statements to make decisions.
GAAP Generally Accepted Accounting Principles. The standards and
rules that accountants follow while recording and reporting
financial activities.
SEC Securities and Exchange Commission
FASB Financial Accounting Standards Board, is the private sector
body given the primary responsibility to work out the detailed
rules that become GAAP.
IFRS International Financial Reporting Standards. Opposition from
US companies to convert to this.
GAAP vs. Tax Accounting Tax accounting focuses on IRS reporting.
Qualities of Financial Statements - Understandability
- Timeliness
- Full disclosure
- Comparability (over time and with other companies)
- Objectivity (accuracy not applicable because judgement
needed)
- Decision relevance
Balance Sheet Measures financial position at a point in time. Includes assets,
liabilities, and owner's equity - what company has and what it
owes. Accounts on balance sheet are considered
"permanent".
Liabilities The creditor's claims to the assets of the business
Assets (3 types) Resources or rights to receive resources.
Types are physical, intangible, and legal (right to receive).
Owner's Equity The owner's claims to the assets of the business
Questions and CORRECT Answers
Proprietorship A form of business organization with one owner who takes all
the risks and all the profits. Unlimited liability, but the business
doesn't pay taxes.
Partnership A business owned by two or more people who share its risks
and rewards. Unlimited liability, but the business doesn't pay
taxes.
, Corporation A business owned by stockholders who share in its profits but
are not personally responsible for its debts. Double taxation.
Going Concern Assumption The assumption that the company will continue in operation
for the foreseeable future.
Periodicity Assumption An assumption that the life of a business can be divided into
artificial time periods and that useful reports covering those
periods can be prepared for the business.
Materiality Assumption The only information that needs to be disclosed in financial
statements is that which will be useful for those who use the
financial statements to make decisions.
GAAP Generally Accepted Accounting Principles. The standards and
rules that accountants follow while recording and reporting
financial activities.
SEC Securities and Exchange Commission
FASB Financial Accounting Standards Board, is the private sector
body given the primary responsibility to work out the detailed
rules that become GAAP.
IFRS International Financial Reporting Standards. Opposition from
US companies to convert to this.
GAAP vs. Tax Accounting Tax accounting focuses on IRS reporting.
Qualities of Financial Statements - Understandability
- Timeliness
- Full disclosure
- Comparability (over time and with other companies)
- Objectivity (accuracy not applicable because judgement
needed)
- Decision relevance
Balance Sheet Measures financial position at a point in time. Includes assets,
liabilities, and owner's equity - what company has and what it
owes. Accounts on balance sheet are considered
"permanent".
Liabilities The creditor's claims to the assets of the business
Assets (3 types) Resources or rights to receive resources.
Types are physical, intangible, and legal (right to receive).
Owner's Equity The owner's claims to the assets of the business
