Principles of Accounting Chapters 1 – 4
exam questions and answers
Accounting Equation - answer Assets = Liabilities + Stockholders' Equity
Assets - answer Resources owned by the company
Auditors - answer Trained individuals hired by a company as an independent party to express a
professional opinion of the accuracy of that company's financial statements.
Balance Sheet - answer A financial statement that presents the financial position of the
company on a particular date
Comparability - answer The ability of users to see similarities and differences between company
on a particular date.
Consistency - answer The use of similar accounting procedures either over time for the same
company, or across companies at the same point in time.
Corporation - answer An entity that is legally separate from its owners
Pros: Easy to transfer, easier to raise $, None/Limited liability
Cons: Higher tax rate.
Cost Effectiveness - answer Financial accounting information is provided only when the benefits
of doing so exceeds the costs.
Decision Usefulness - answer The ability of the information to be useful in decision making
, Dividends - answer Cash payments to stockholders
Economic Entity Assumption - answer All economic events with a particular economic entity can
be identified.
Expenses - answer Costs of providing products and services
Faithful Representation - answer Accounting information that is verifiable, neutral, and
complete.
Financial Accounting - answer Measurements of business activities of a company and
communication of those measurements to external parties for decision-making purposes.
Financial Statements - answer Periodic reports published by the company for the purpose of
providing information to external users.
Financing Activities - answer Transactions involving external sources of funding. "It takes $ to
make $.:
Generally Accepted Accounting Principles (GAAP) - answer The rules of financial accounting
Going Concern Assumption - answer In the absence of information to the contrary, a business
entity will continue to operate indefinitely.
Income Statement - answer A financial statement that reports the company's revenues and
expenses over an interval of time.
Investing Activities - answer Transactions involving the purchase and sale of (1) long-term
resources such as land, buildings, equipment, and machinery, and (2) any resources not directly
exam questions and answers
Accounting Equation - answer Assets = Liabilities + Stockholders' Equity
Assets - answer Resources owned by the company
Auditors - answer Trained individuals hired by a company as an independent party to express a
professional opinion of the accuracy of that company's financial statements.
Balance Sheet - answer A financial statement that presents the financial position of the
company on a particular date
Comparability - answer The ability of users to see similarities and differences between company
on a particular date.
Consistency - answer The use of similar accounting procedures either over time for the same
company, or across companies at the same point in time.
Corporation - answer An entity that is legally separate from its owners
Pros: Easy to transfer, easier to raise $, None/Limited liability
Cons: Higher tax rate.
Cost Effectiveness - answer Financial accounting information is provided only when the benefits
of doing so exceeds the costs.
Decision Usefulness - answer The ability of the information to be useful in decision making
, Dividends - answer Cash payments to stockholders
Economic Entity Assumption - answer All economic events with a particular economic entity can
be identified.
Expenses - answer Costs of providing products and services
Faithful Representation - answer Accounting information that is verifiable, neutral, and
complete.
Financial Accounting - answer Measurements of business activities of a company and
communication of those measurements to external parties for decision-making purposes.
Financial Statements - answer Periodic reports published by the company for the purpose of
providing information to external users.
Financing Activities - answer Transactions involving external sources of funding. "It takes $ to
make $.:
Generally Accepted Accounting Principles (GAAP) - answer The rules of financial accounting
Going Concern Assumption - answer In the absence of information to the contrary, a business
entity will continue to operate indefinitely.
Income Statement - answer A financial statement that reports the company's revenues and
expenses over an interval of time.
Investing Activities - answer Transactions involving the purchase and sale of (1) long-term
resources such as land, buildings, equipment, and machinery, and (2) any resources not directly
