MGT 8803 - Financial Accounting Actual
study set with Questions and
correct/verified Answers
Proprietorship - ANSW-A form of business organization with one owner who takes all the risks and all the
profits. Unlimited liability, but the business doesn't pay taxes.
Partnership - ANSW-A business owned by two or more people who share its risks and rewards. Unlimited
liability, but the business doesn't pay taxes.
Corporation - ANSW-A business owned by stockholders who share in its profits but are not personally
responsible for its debts. Double taxation.
Going Concern Assumption - ANSW-The assumption that the company will continue in operation for the
foreseeable future.
Periodicity Assumption - ANSW-An assumption that the life of a business can be divided into artificial
time periods and that useful reports covering those periods can be prepared for the business.
Materiality Assumption - ANSW-The only information that needs to be disclosed in financial statements
is that which will be useful for those who use the financial statements to make decisions.
GAAP - ANSW-Generally Accepted Accounting Principles. The standards and rules that accountants
follow while recording and reporting financial activities.
SEC - ANSW-Securities and Exchange Commission
FASB - ANSW-Financial Accounting Standards Board, is the private sector body given the primary
responsibility to work out the detailed rules that become GAAP.
IFRS - ANSW-International Financial Reporting Standards. Opposition from US companies to convert to
this.
GAAP vs. Tax Accounting - ANSW-Tax accounting focuses on IRS reporting.
Qualities of Financial Statements - ANSW-Understandability, timeliness, full disclosure, comparability
(over time and with other companies), objectivity (accuracy not applicable because judgement needed),
decision relevance.
Three Required Financial Statements - ANSW-1. Balance Sheet
2. Income Statement
3. Statement of Cash Flows
Balance Sheet - ANSW-Measures financial position at a point in time. Includes assets, liabilities, and
owner's equity - what company has and what it owes.
Liabilities - ANSW-The creditor's claims to the assets of the business
Assets - ANSW-Resources or rights to receive resources.
study set with Questions and
correct/verified Answers
Proprietorship - ANSW-A form of business organization with one owner who takes all the risks and all the
profits. Unlimited liability, but the business doesn't pay taxes.
Partnership - ANSW-A business owned by two or more people who share its risks and rewards. Unlimited
liability, but the business doesn't pay taxes.
Corporation - ANSW-A business owned by stockholders who share in its profits but are not personally
responsible for its debts. Double taxation.
Going Concern Assumption - ANSW-The assumption that the company will continue in operation for the
foreseeable future.
Periodicity Assumption - ANSW-An assumption that the life of a business can be divided into artificial
time periods and that useful reports covering those periods can be prepared for the business.
Materiality Assumption - ANSW-The only information that needs to be disclosed in financial statements
is that which will be useful for those who use the financial statements to make decisions.
GAAP - ANSW-Generally Accepted Accounting Principles. The standards and rules that accountants
follow while recording and reporting financial activities.
SEC - ANSW-Securities and Exchange Commission
FASB - ANSW-Financial Accounting Standards Board, is the private sector body given the primary
responsibility to work out the detailed rules that become GAAP.
IFRS - ANSW-International Financial Reporting Standards. Opposition from US companies to convert to
this.
GAAP vs. Tax Accounting - ANSW-Tax accounting focuses on IRS reporting.
Qualities of Financial Statements - ANSW-Understandability, timeliness, full disclosure, comparability
(over time and with other companies), objectivity (accuracy not applicable because judgement needed),
decision relevance.
Three Required Financial Statements - ANSW-1. Balance Sheet
2. Income Statement
3. Statement of Cash Flows
Balance Sheet - ANSW-Measures financial position at a point in time. Includes assets, liabilities, and
owner's equity - what company has and what it owes.
Liabilities - ANSW-The creditor's claims to the assets of the business
Assets - ANSW-Resources or rights to receive resources.
