CH ACCOUNTING AND THE BUSINESS
ENVIRONMENT EXAM QUESTIONS
WITH VERIFIED ANSWERS
The Cost Principle - Answer--states that acquired assets and services should be
recorded at their actual cost (also called historical cost ).
-means we record a transaction at the amount shown on the receipt—the actual
amount paid.
-Even though the purchaser may believe the price is a bargain, the item is recorded
at the price actually paid and not at the "expected" cost.
-also holds that the accounting records should continue reporting the historical cost
of an asset over its useful life. Why? Because cost is a reliable measure.
-According to the cost principle, the accounting value of the land would remain at the
actual cost of $20,000
The Going Concern Assumption - Answer--Another reason for measuring assets at
historical cost
-This assumes that the entity will remain in operation for the foreseeable future.
-Under the going concern assumption, accountants assume that the business will
remain in operation long enough to use existing resources for their intended
purpose.
The Monetary Unit Assumption - Answer--The value of a dollar changes over time,
and a rise in the price level is called inflation.
-During periods of inflation, a dollar will purchase less. But accountants assume that
the dollar's purchasing power is stable.
-This is the basis of the monetary unit assumption, which requires that the items on
the financial statements be measured in terms of a monetary unit.
International Financial Reporting Standards (IFRS) - Answer-A set of global
accounting guidelines, formulated by the International Accounting Standards Board
(IASB)
-less specific and based on more principle than U.S. GAAP
-unlike U.S. GAAP, IFRS allows periodic revaluation of certain assets and liabilities
to restate them to market value, rather than keeping them at historical cost.
, -Companies who are incorporated in or do significant business in another country
might be required to publish financial statements using International Financial
Reporting Standards (IFRS), which are published by the International Accounting
Standards Board (IASB)
International Accounting Standards Board (IASB) - Answer-The private organization
that oversees the creation and governance of International Financial Reporting
Standards (IFRS)
Ethics in Accounting and Business - Answer--To handle these conflicts of interest
and to provide reliable information, the SEC requires publicly held companies to
have their financial statements audited by independent accountants.
-Audit: an examination of a company's financial statements and records. The
independent accountants then issue an opinion that states whether the financial
statements give a fair picture of the company's financial situation.
Sarbanes-Oxley Act (SOX) - Answer-Requires management to review internal
control and take responsibility for the accuracy and completeness of their financial
reports
-intended to curb financial scandals
-The Sarbanes-Oxley Act also created a new watchdog agency, the Public Company
Accounting Oversight Board (PCAOB), to monitor the work of independent
accountants who audit public companies.
What is the Accounting Equation? - Answer--It measures the resources of a
business (what the business owns or has control of) and the claims to those
resources (what the business owes to creditors and to the owners).
3 parts of the Accounting Equation - Answer-1. Assets
2. Liabilities
3. Equity
-Shows how these parts are related
Accounting Equation - Answer-Assets=Liabilities+Equity
Expanded Accounting equation - Answer-Assets=Liabilities+common stock-
dividends+Revenues-Expenses
The Accounting Equation
Assets - Answer--an economic resource that is expected to benefit the business in
the future.
-Assets are something of value that the business owns or has control of eg cash,
merchandise inventory, furniture, land
ENVIRONMENT EXAM QUESTIONS
WITH VERIFIED ANSWERS
The Cost Principle - Answer--states that acquired assets and services should be
recorded at their actual cost (also called historical cost ).
-means we record a transaction at the amount shown on the receipt—the actual
amount paid.
-Even though the purchaser may believe the price is a bargain, the item is recorded
at the price actually paid and not at the "expected" cost.
-also holds that the accounting records should continue reporting the historical cost
of an asset over its useful life. Why? Because cost is a reliable measure.
-According to the cost principle, the accounting value of the land would remain at the
actual cost of $20,000
The Going Concern Assumption - Answer--Another reason for measuring assets at
historical cost
-This assumes that the entity will remain in operation for the foreseeable future.
-Under the going concern assumption, accountants assume that the business will
remain in operation long enough to use existing resources for their intended
purpose.
The Monetary Unit Assumption - Answer--The value of a dollar changes over time,
and a rise in the price level is called inflation.
-During periods of inflation, a dollar will purchase less. But accountants assume that
the dollar's purchasing power is stable.
-This is the basis of the monetary unit assumption, which requires that the items on
the financial statements be measured in terms of a monetary unit.
International Financial Reporting Standards (IFRS) - Answer-A set of global
accounting guidelines, formulated by the International Accounting Standards Board
(IASB)
-less specific and based on more principle than U.S. GAAP
-unlike U.S. GAAP, IFRS allows periodic revaluation of certain assets and liabilities
to restate them to market value, rather than keeping them at historical cost.
, -Companies who are incorporated in or do significant business in another country
might be required to publish financial statements using International Financial
Reporting Standards (IFRS), which are published by the International Accounting
Standards Board (IASB)
International Accounting Standards Board (IASB) - Answer-The private organization
that oversees the creation and governance of International Financial Reporting
Standards (IFRS)
Ethics in Accounting and Business - Answer--To handle these conflicts of interest
and to provide reliable information, the SEC requires publicly held companies to
have their financial statements audited by independent accountants.
-Audit: an examination of a company's financial statements and records. The
independent accountants then issue an opinion that states whether the financial
statements give a fair picture of the company's financial situation.
Sarbanes-Oxley Act (SOX) - Answer-Requires management to review internal
control and take responsibility for the accuracy and completeness of their financial
reports
-intended to curb financial scandals
-The Sarbanes-Oxley Act also created a new watchdog agency, the Public Company
Accounting Oversight Board (PCAOB), to monitor the work of independent
accountants who audit public companies.
What is the Accounting Equation? - Answer--It measures the resources of a
business (what the business owns or has control of) and the claims to those
resources (what the business owes to creditors and to the owners).
3 parts of the Accounting Equation - Answer-1. Assets
2. Liabilities
3. Equity
-Shows how these parts are related
Accounting Equation - Answer-Assets=Liabilities+Equity
Expanded Accounting equation - Answer-Assets=Liabilities+common stock-
dividends+Revenues-Expenses
The Accounting Equation
Assets - Answer--an economic resource that is expected to benefit the business in
the future.
-Assets are something of value that the business owns or has control of eg cash,
merchandise inventory, furniture, land
