ACG 2021 Practice Test Questions and
Complete Answers
Financial Accounting ✅1. Measure business activity
2. Communicate measurements to people for decision making
Primary external users of financial accounting info ✅Investors and creditors
Financing Activities ✅Involves funding from external sources such as, owners of
company who invest their own funds into business and creditors who lend money to the
company
Investing Activities ✅Involves purchase and sale of long-term resources such as, land,
buildings, equipment, and machinery
Operating Activities ✅Involves transactions in primary operations of business/
Providing products and services to customers and associated costs of doing so Ex.
utilities, wages, rent, maintenance
Accounting Equation ✅Assets=Liabilities+Stockholders' Equity/ Resources=Claims to
resources
Accounting Equation used to ✅measure business transactions
Assets def ✅Resources owned by a company
Liabilities ✅Amounts owed to creditors
Stockholders' Equity ✅Stockholders' or owners' claims to resources
Corporation Pros ✅Limited liability: Only lose how much you invested/ Not obligated to
pay corporation's debts
Corporation Cons ✅Double taxation:
1. @ corporate level (taxed more)
2. @ personal income tax when dividends are distributed (less of a tax)
CPA ✅Certified Public Accountant- serves general public
CMA ✅Certified Management Accountants- specialize in accounting and financial
management for private industries
, Generally Accepted Accounting Principles (GAAP) ✅Rules of financial accounting
Functions of GAAP ✅Allows comparison of financial info among companies
Financial Accounting Standards Board (FASB) ✅Independent private body that has
primary responsibility for the establishment of GAAP in the U.S.
Functions of FASB ✅Creates rules and standards that govern financial accounting/
Responsibility, but not authority, to set standards
SEC ✅Securities and Exchange Commission
Functions of SEC ✅Oversees US financial markets/ Requires companies that publicly
trade stock to prepare financial statements for investors and creditors
Auditors ✅Trained individual hired by a company as an independent party to express
professional opinion of accuracy of that company's financial statements/ Makes sure
financial statements are in accordance with GAAP/ Add credibility
Flow of Accounting ✅GAAP(rules) formulated by FASB -> Accounting Equation:
Assets=Liabilities+Stockholders' Equity -> Income Statement -> Statement of
Stockholders' Equity -> Balance Sheet -> Statement of Cash Flows
Cash ✅Liquid assets
Accounts Receivable ✅Amounts the company expects to collect from customers
Notes Receivable ✅Amounts company expects to collect from a party who has a
signed promissory note with company
Inventory ✅Items for sale by company
Supplies ✅Items that will be consumed by the company during the operation of the
business Ex. copy toner, pens, pencils
Prepaid expenses ✅Costs of assets acquired in one period that will be expensed in a
future period, such as advertisements, rent, insurance, and supplies Ex. prepaying six
months of car insurance
Property, Plant, Equipment ✅Land, buildings, computers, store fixtures, manufacturing
equipment used in the operation of the business
Complete Answers
Financial Accounting ✅1. Measure business activity
2. Communicate measurements to people for decision making
Primary external users of financial accounting info ✅Investors and creditors
Financing Activities ✅Involves funding from external sources such as, owners of
company who invest their own funds into business and creditors who lend money to the
company
Investing Activities ✅Involves purchase and sale of long-term resources such as, land,
buildings, equipment, and machinery
Operating Activities ✅Involves transactions in primary operations of business/
Providing products and services to customers and associated costs of doing so Ex.
utilities, wages, rent, maintenance
Accounting Equation ✅Assets=Liabilities+Stockholders' Equity/ Resources=Claims to
resources
Accounting Equation used to ✅measure business transactions
Assets def ✅Resources owned by a company
Liabilities ✅Amounts owed to creditors
Stockholders' Equity ✅Stockholders' or owners' claims to resources
Corporation Pros ✅Limited liability: Only lose how much you invested/ Not obligated to
pay corporation's debts
Corporation Cons ✅Double taxation:
1. @ corporate level (taxed more)
2. @ personal income tax when dividends are distributed (less of a tax)
CPA ✅Certified Public Accountant- serves general public
CMA ✅Certified Management Accountants- specialize in accounting and financial
management for private industries
, Generally Accepted Accounting Principles (GAAP) ✅Rules of financial accounting
Functions of GAAP ✅Allows comparison of financial info among companies
Financial Accounting Standards Board (FASB) ✅Independent private body that has
primary responsibility for the establishment of GAAP in the U.S.
Functions of FASB ✅Creates rules and standards that govern financial accounting/
Responsibility, but not authority, to set standards
SEC ✅Securities and Exchange Commission
Functions of SEC ✅Oversees US financial markets/ Requires companies that publicly
trade stock to prepare financial statements for investors and creditors
Auditors ✅Trained individual hired by a company as an independent party to express
professional opinion of accuracy of that company's financial statements/ Makes sure
financial statements are in accordance with GAAP/ Add credibility
Flow of Accounting ✅GAAP(rules) formulated by FASB -> Accounting Equation:
Assets=Liabilities+Stockholders' Equity -> Income Statement -> Statement of
Stockholders' Equity -> Balance Sheet -> Statement of Cash Flows
Cash ✅Liquid assets
Accounts Receivable ✅Amounts the company expects to collect from customers
Notes Receivable ✅Amounts company expects to collect from a party who has a
signed promissory note with company
Inventory ✅Items for sale by company
Supplies ✅Items that will be consumed by the company during the operation of the
business Ex. copy toner, pens, pencils
Prepaid expenses ✅Costs of assets acquired in one period that will be expensed in a
future period, such as advertisements, rent, insurance, and supplies Ex. prepaying six
months of car insurance
Property, Plant, Equipment ✅Land, buildings, computers, store fixtures, manufacturing
equipment used in the operation of the business
