ACG 5026 FSU Practice Exam Questions
and Correct Answers
Three general uses of accounting ✅1. Financial reporting and external performance
evaluations
2. Managerial decision making
3. Managerial planning, control & internal performance evaluations
Economic role of financial reporting ✅* Investors and creditors need numbers to
monitor compensation contracts with managements
* Need financial information to decide where to invest funds
* Companies hire auditors to attract investors so managers attempt to keep up levels of
compensation
Nature and importance of corporate governance ✅is honest to shareholders and acts
in their best interest
How accounting standards are set ✅International Accounting Standards Board (IASB)
created International Financial Reporting Standards (IFRS)
What does a "clean" audit indicate ✅that the auditors believe the financial statements
present fairly the economic conditions of the firm in accordance with GAAP
Advantages of corporate entity form ✅limits liability, separates tax liabilities, does not
die when owners do
Disadvantages of corporate entity firm ✅Costs of running it, double taxations, more
documentations than other business entities
What are the four financial statements ✅Balance sheet, income statement, statement
of stockholders equity, statement of cash flows
Balance sheet ✅snapshot in time, lists company's investments and sources of
financing using (A=L+SE)
An asset must _______. ✅be expected to bring economic benefit
How do you find ending stockholder's equity? ✅Beginning SE + stock -Dividends =
end SE
Income statement ✅Reports the results of operation (operating, financing, investing)
over a period of time (usually a year)
, Net income = ✅Revenues - Expenses!
Statement of Stockholders Equity ✅Indicates changes in owner financing
Statement of Cash Flows ✅indicates sources and uses of cash
How are financial statements interrelated ✅* Bottom line of income statement is net
income - this links to balance sheet and statement of cash flows
* On balance sheet, net income goes to stockholders equity via retained earnings
* RE is equal to the previous period's retained earnings plus NI less dividends from
period
* on cash flows, net income is the first line and used to calculate cash flows from
operations.
*Any non-cash expense or income from income statement flow into the cash flow
statement and adjust net income to arrive at cash flow from operations
* Any balance sheet items that have cash impact are linked to statement of cash flows
as either source or use of cash
* Net change in cash on the cash flow statement and cash from the previous balance
sheet comprise cash for this period
What are the three basic business activities ✅1. Operating Profit: Balance Sheet
2. Cash Flow: Statement of Cash Flows
3. Owner's Equity: Statement of Cash Flows
4 basic functions of financial accounting ✅1. Economic entity
2. Fiscal period
3. Going concern
4. Stable Dollar
Economic Entity ✅A company is assumed to be a separate economic entity that can
be identified and measured
Fiscal Period ✅The life of an economic entity can be broken down into periods (usually
one year)
Going concern ✅We assume that the life of a corporation/economic entity is indefinite
Stable dollar ✅We assume that the value of the dollar is stable for company evaluation
purpose
4 principles of accounting ✅1. Objectivity
2. Revenue Recognition
3. Consistency
4. Materiality
and Correct Answers
Three general uses of accounting ✅1. Financial reporting and external performance
evaluations
2. Managerial decision making
3. Managerial planning, control & internal performance evaluations
Economic role of financial reporting ✅* Investors and creditors need numbers to
monitor compensation contracts with managements
* Need financial information to decide where to invest funds
* Companies hire auditors to attract investors so managers attempt to keep up levels of
compensation
Nature and importance of corporate governance ✅is honest to shareholders and acts
in their best interest
How accounting standards are set ✅International Accounting Standards Board (IASB)
created International Financial Reporting Standards (IFRS)
What does a "clean" audit indicate ✅that the auditors believe the financial statements
present fairly the economic conditions of the firm in accordance with GAAP
Advantages of corporate entity form ✅limits liability, separates tax liabilities, does not
die when owners do
Disadvantages of corporate entity firm ✅Costs of running it, double taxations, more
documentations than other business entities
What are the four financial statements ✅Balance sheet, income statement, statement
of stockholders equity, statement of cash flows
Balance sheet ✅snapshot in time, lists company's investments and sources of
financing using (A=L+SE)
An asset must _______. ✅be expected to bring economic benefit
How do you find ending stockholder's equity? ✅Beginning SE + stock -Dividends =
end SE
Income statement ✅Reports the results of operation (operating, financing, investing)
over a period of time (usually a year)
, Net income = ✅Revenues - Expenses!
Statement of Stockholders Equity ✅Indicates changes in owner financing
Statement of Cash Flows ✅indicates sources and uses of cash
How are financial statements interrelated ✅* Bottom line of income statement is net
income - this links to balance sheet and statement of cash flows
* On balance sheet, net income goes to stockholders equity via retained earnings
* RE is equal to the previous period's retained earnings plus NI less dividends from
period
* on cash flows, net income is the first line and used to calculate cash flows from
operations.
*Any non-cash expense or income from income statement flow into the cash flow
statement and adjust net income to arrive at cash flow from operations
* Any balance sheet items that have cash impact are linked to statement of cash flows
as either source or use of cash
* Net change in cash on the cash flow statement and cash from the previous balance
sheet comprise cash for this period
What are the three basic business activities ✅1. Operating Profit: Balance Sheet
2. Cash Flow: Statement of Cash Flows
3. Owner's Equity: Statement of Cash Flows
4 basic functions of financial accounting ✅1. Economic entity
2. Fiscal period
3. Going concern
4. Stable Dollar
Economic Entity ✅A company is assumed to be a separate economic entity that can
be identified and measured
Fiscal Period ✅The life of an economic entity can be broken down into periods (usually
one year)
Going concern ✅We assume that the life of a corporation/economic entity is indefinite
Stable dollar ✅We assume that the value of the dollar is stable for company evaluation
purpose
4 principles of accounting ✅1. Objectivity
2. Revenue Recognition
3. Consistency
4. Materiality
