ACG 2071 Study Guide Exam Questions With Answers
Graded A+ 2025/2026
What is a corporation? - An incorporated business entity that has filed articles of
incorporation in a state of domicile
What are the advantages of a corporation? - They can attract large amounts of capital
investment
Allows for an easy transfer of ownership
Can attract professional management
Provides stockholders with limited liability
Survives the death of its owner(s)
What are the disadvantages of a corporation? - Corporations are subjected to more
government regulation
Shareholders can have difficulty knowing whether management is making decisions in
shareholder's best interest
Corporations are subjected to income taxation (double taxation)
Accounting - The info system that identifies, record and communicates the economic
events of an organization to interested users
What is the two groups for accounting? - Internal Users and External Users
Internal Users - Work inside of a business that's being examined
Ex) Marketing, Management, Finance and Human Resources
External Users - People who are not employees of the business
Ex) Investors (Shareholders) and Creditors (Bankers)
What is the purpose of accounting? - To provide economic information as inputs for
decision making by used of the info
Sarbanes-Oxly Act of 2002 resulted in - Top management must now certify the
accuracy of financial info
Penalties for fraudulent activity was increased
Independence of auditors was increased
Increased oversight by the board of directors must occur, including the board's selection
and supervision of the independent auditor
All Businesses are involved in - Financing, Investing and Operating
Financing Activities - Borrowing money (debt financing) and Issuing (selling) shares of
stock for cash
Notes payable are due _______ and bonds payable are due ______ - Sooner; Later
, Investing Activities - Purchase of resources a company needs to operate
Items that are commonly affected in Operating Activities - Revenues, Inventory,
Receivables, Expenses, Liabilities, Net income and Net loss
Revenues - Amounts earned from the sales of products
Inventory - Goods available for sale to customers
Receivables - Right to receive money from another party
Expenses - Cost of assets consumed or services used
Liabilities - Arising from expenses and represent amount owed to another party
Net income - The excess of revenues over expenses
Net loss - The excess of expenses over revenues
What are the financial statements? - Income Statement, Statement of Shareholders'
Equity, Balance Sheet and Statement of Cash Flows
Income Statement - Revenues - expenses = net income
Statement of Shareholders' Equity - Beginning equity + owner contributions + net
income - dividends = ending equity
Balance Sheet - Assets = liabilities+ equity
Statement of Cash Flow - Cash inflows - cash outflows = net cash flow
What is needed to determine the ending balance in retained earnings? - Net Income
What is needed in preparing the balance sheet? - Ending balance in retained earnings
Management Discussion and Analysis (MD&A) - This covers the company's ability to
pay near-term obligations, its ability to fund operations and expansion, and its results of
operations
Auditor's Report - Auditors opinion as to the fairness of the presentation of the financial
position and results of operations and their conformance with Generally Accepted
Accounting Principle (GAAP)
Auditors Opinion: Unqualified - Indicates that the financial statements are materially
correct and fairly presented; no significant errors
Graded A+ 2025/2026
What is a corporation? - An incorporated business entity that has filed articles of
incorporation in a state of domicile
What are the advantages of a corporation? - They can attract large amounts of capital
investment
Allows for an easy transfer of ownership
Can attract professional management
Provides stockholders with limited liability
Survives the death of its owner(s)
What are the disadvantages of a corporation? - Corporations are subjected to more
government regulation
Shareholders can have difficulty knowing whether management is making decisions in
shareholder's best interest
Corporations are subjected to income taxation (double taxation)
Accounting - The info system that identifies, record and communicates the economic
events of an organization to interested users
What is the two groups for accounting? - Internal Users and External Users
Internal Users - Work inside of a business that's being examined
Ex) Marketing, Management, Finance and Human Resources
External Users - People who are not employees of the business
Ex) Investors (Shareholders) and Creditors (Bankers)
What is the purpose of accounting? - To provide economic information as inputs for
decision making by used of the info
Sarbanes-Oxly Act of 2002 resulted in - Top management must now certify the
accuracy of financial info
Penalties for fraudulent activity was increased
Independence of auditors was increased
Increased oversight by the board of directors must occur, including the board's selection
and supervision of the independent auditor
All Businesses are involved in - Financing, Investing and Operating
Financing Activities - Borrowing money (debt financing) and Issuing (selling) shares of
stock for cash
Notes payable are due _______ and bonds payable are due ______ - Sooner; Later
, Investing Activities - Purchase of resources a company needs to operate
Items that are commonly affected in Operating Activities - Revenues, Inventory,
Receivables, Expenses, Liabilities, Net income and Net loss
Revenues - Amounts earned from the sales of products
Inventory - Goods available for sale to customers
Receivables - Right to receive money from another party
Expenses - Cost of assets consumed or services used
Liabilities - Arising from expenses and represent amount owed to another party
Net income - The excess of revenues over expenses
Net loss - The excess of expenses over revenues
What are the financial statements? - Income Statement, Statement of Shareholders'
Equity, Balance Sheet and Statement of Cash Flows
Income Statement - Revenues - expenses = net income
Statement of Shareholders' Equity - Beginning equity + owner contributions + net
income - dividends = ending equity
Balance Sheet - Assets = liabilities+ equity
Statement of Cash Flow - Cash inflows - cash outflows = net cash flow
What is needed to determine the ending balance in retained earnings? - Net Income
What is needed in preparing the balance sheet? - Ending balance in retained earnings
Management Discussion and Analysis (MD&A) - This covers the company's ability to
pay near-term obligations, its ability to fund operations and expansion, and its results of
operations
Auditor's Report - Auditors opinion as to the fairness of the presentation of the financial
position and results of operations and their conformance with Generally Accepted
Accounting Principle (GAAP)
Auditors Opinion: Unqualified - Indicates that the financial statements are materially
correct and fairly presented; no significant errors
