ACCT 2101 Exam 1 (CH 1-4) Study
Guide Questions and Actual Answers
2025-2026 Update.
Sole Proprietorship - Answer a business owned by one person. The business is a separate
entity for accounting purposes. However, a proprietorship is not a separate legal entity from its
owner.
Partnership - Answer a business owned by two or more people, called partners, who are
jointly liable for tax and other obligations. Like a proprietorship, no special legal requirements
must be met in starting a partnership. The only requirement is an agreement between partners
to run a business together. The agreement can be either oral or written and usually indicates
how income and losses are to be shared. A partnership, like a proprietorship, is not legally
separate from its owners.
Corporation - Answer a business legally separate from its owner or owners, meaning it is
responsible for its own acts and its own debts. Separate legal status means that a corporation
can conduct business with the rights, duties, and responsibilities of a person. A corporation acts
through its managers, who are its legal agents. Separate legal status also means that its owners,
who are called shareholders/stockholders are not personally liable for corporate acts and debts.
Accounting - Answer a system that identifies, records, and communicates reliable, relevant,
and comparable information to help users make better decisions
Financial Accounting - Answer provides information primarily to External users via Financial
Statements
aimed at serving external users by providing them with general-purpose financial statements
governed by concepts and rules known as Generally Accepted Accounting Principles
Generally Accepted Accounting Principles (GAAP) - Answer aims to make information relevant,
comparable, and reliable
relevant - information affects decisions of users
, Securities and Exchange Commission (SEC) - Answer a government agency that has the legal
authority to establish reporting requirements and set GAAP for companies that issue stock to
the public
oversees proper use of GAAP by companies that raise money from the public through issuance
of stock and debt
Financial Accounting Standards Board (FASB) - Answer private group that sets both broad and
specific accounting principles
Measurement Principle / Cost Principle - Answer accounting information should be based on
actual cost
cost is measured on a cash or equal-to cash basis
Revenue Recognition Principle - Answer provides guidance on when a company must
recognize revenue
revenue is recognized when goods or services are provided to customers
to recognize means to record it. If revenue is recognized too early, a company would look more
profitable than it is. If revenue is recognized too late, a company would look less profitable than
it is.
Matching Principle / Expense Recognition - Answer prescribes that a company record the
expenses it incurred to generate the revenue reported
Full Disclosure Principle - Answer requires a company to include all information in financial
statements that would impact users' decisions
Accounting Principles - Answer Measurement Principle / Cost Principle
Revenue Recognition Principle
Matching Principle / Expense Recognition
Full Disclosure Principle
Guide Questions and Actual Answers
2025-2026 Update.
Sole Proprietorship - Answer a business owned by one person. The business is a separate
entity for accounting purposes. However, a proprietorship is not a separate legal entity from its
owner.
Partnership - Answer a business owned by two or more people, called partners, who are
jointly liable for tax and other obligations. Like a proprietorship, no special legal requirements
must be met in starting a partnership. The only requirement is an agreement between partners
to run a business together. The agreement can be either oral or written and usually indicates
how income and losses are to be shared. A partnership, like a proprietorship, is not legally
separate from its owners.
Corporation - Answer a business legally separate from its owner or owners, meaning it is
responsible for its own acts and its own debts. Separate legal status means that a corporation
can conduct business with the rights, duties, and responsibilities of a person. A corporation acts
through its managers, who are its legal agents. Separate legal status also means that its owners,
who are called shareholders/stockholders are not personally liable for corporate acts and debts.
Accounting - Answer a system that identifies, records, and communicates reliable, relevant,
and comparable information to help users make better decisions
Financial Accounting - Answer provides information primarily to External users via Financial
Statements
aimed at serving external users by providing them with general-purpose financial statements
governed by concepts and rules known as Generally Accepted Accounting Principles
Generally Accepted Accounting Principles (GAAP) - Answer aims to make information relevant,
comparable, and reliable
relevant - information affects decisions of users
, Securities and Exchange Commission (SEC) - Answer a government agency that has the legal
authority to establish reporting requirements and set GAAP for companies that issue stock to
the public
oversees proper use of GAAP by companies that raise money from the public through issuance
of stock and debt
Financial Accounting Standards Board (FASB) - Answer private group that sets both broad and
specific accounting principles
Measurement Principle / Cost Principle - Answer accounting information should be based on
actual cost
cost is measured on a cash or equal-to cash basis
Revenue Recognition Principle - Answer provides guidance on when a company must
recognize revenue
revenue is recognized when goods or services are provided to customers
to recognize means to record it. If revenue is recognized too early, a company would look more
profitable than it is. If revenue is recognized too late, a company would look less profitable than
it is.
Matching Principle / Expense Recognition - Answer prescribes that a company record the
expenses it incurred to generate the revenue reported
Full Disclosure Principle - Answer requires a company to include all information in financial
statements that would impact users' decisions
Accounting Principles - Answer Measurement Principle / Cost Principle
Revenue Recognition Principle
Matching Principle / Expense Recognition
Full Disclosure Principle
