ACCOUNTING 211 EXAM 1 PRACTICE
QUESTIONS AND DETAILED SOLUTIONS
◉ Users of Financial Information.
Answer: 1. Internal
2. External
◉ Internal Users.
Answer: Internal users of accounting information ARE directly
involved in managing and operating an organization.
◉ External Users.
Answer: External users of accounting information are NOT directly
involved in running the organization
◉ 3 Parts of the Fraud Triangle.
Answer: Opportunity
Rationalization
Financial Pressure
◉ Principles of Accounting.
Answer: 1. Measurement Principle
,(or Cost Principle)
Accounting information is based on actual cost. Actual cost is
considered objective.
2. Revenue Recognition Principle
a. Recognize revenue when it is earned.
b. Proceeds need not be in cash.
c. Measure revenue by cash received plus cash value of items
received
3. Expense Recognition Principle
(or Matching Principle): A company must record its expenses
incurred to generate the revenue reported.
4. Full Disclosure Principle: A company is required to report the
details behind financial statements that would impact users'
decisions
◉ Accounting Assumptions.
Answer: 1.Going-Concern Assumption
Reflects assumption that the business will continue operating
instead of being closed or sold.
2.Monetary Unit Assumption
Express transactions and events in monetary, or money, units.
, 3.Business Entity Assumption
A business is accounted for separately from other business entities,
including its owner.
4.Time Period Assumption
Presumes that the life of a company can be divided into time
periods,
such as months and years
◉ Sole Proprietor.
Answer: -one owner allowed
-business not taxed
-business entity
◉ Partnership.
Answer: -business entity
-not taxed
-not limited liability
-not legal entity
-not unlimited life
◉ Corporation.
QUESTIONS AND DETAILED SOLUTIONS
◉ Users of Financial Information.
Answer: 1. Internal
2. External
◉ Internal Users.
Answer: Internal users of accounting information ARE directly
involved in managing and operating an organization.
◉ External Users.
Answer: External users of accounting information are NOT directly
involved in running the organization
◉ 3 Parts of the Fraud Triangle.
Answer: Opportunity
Rationalization
Financial Pressure
◉ Principles of Accounting.
Answer: 1. Measurement Principle
,(or Cost Principle)
Accounting information is based on actual cost. Actual cost is
considered objective.
2. Revenue Recognition Principle
a. Recognize revenue when it is earned.
b. Proceeds need not be in cash.
c. Measure revenue by cash received plus cash value of items
received
3. Expense Recognition Principle
(or Matching Principle): A company must record its expenses
incurred to generate the revenue reported.
4. Full Disclosure Principle: A company is required to report the
details behind financial statements that would impact users'
decisions
◉ Accounting Assumptions.
Answer: 1.Going-Concern Assumption
Reflects assumption that the business will continue operating
instead of being closed or sold.
2.Monetary Unit Assumption
Express transactions and events in monetary, or money, units.
, 3.Business Entity Assumption
A business is accounted for separately from other business entities,
including its owner.
4.Time Period Assumption
Presumes that the life of a company can be divided into time
periods,
such as months and years
◉ Sole Proprietor.
Answer: -one owner allowed
-business not taxed
-business entity
◉ Partnership.
Answer: -business entity
-not taxed
-not limited liability
-not legal entity
-not unlimited life
◉ Corporation.
