MBA ACC 600 Chapter 2 Exam Questions And
Accurate Answers
Classified Balance Sheet - ANSWER A balance sheet that groups together similar
assets and similar liabilities, using a number of standard classifications and sections.
Comparability - ANSWER Ability to compare the accounting information of different
companies because they use the same accounting principles.
Consistency - ANSWER Use of the same accounting principles and methods from
year to year within a company.
Cost Contraint - ANSWER Constraint that weighs the cost that companies will incur
to provide the information against the benefit that financial statement users will
gain from having the information available.
Current Assets - ANSWER Assets that companies expect to convert to cash or use
up within one year or the operating cycle, whichever is longer.
Current Liabilities - ANSWER Obligations that a company expects to pay within the
next year or operating cycle, whichever is longer.
Current Ratio - ANSWER a measure of liquidity computed as current assets divided
by current liabilities
Debt to assets ratio - ANSWER A measurement of solvency calculated as total
liabilities divided by total assets. Measures the percentage of total financing
provided by creditors.
, Earnings per share - ANSWER A measure of the net income earned on each share of
common stock; computed as net income minus preferred dividends divided by the
average number of common shares outstanding during the year.
Economic Entity Assumption - ANSWER An assumption that every economic entity
can be separately identified and accounted for.
Fair value principle - ANSWER Assets and liabilities should be reported at fair value
(the price received to sell an asset or settle a liability)
Faithful representation - ANSWER information that is complete, neutral, and free
from error
Financial Accounting Standards Board (FASB) - ANSWER The primary accounting
standard-setting body in the United States.
Free Cash Flow - ANSWER net cash provided by operating activities after adjusting
for capital expenditures and cash dividends paid
Full Disclosure principle - ANSWER Accounting principle that dictates that companies
disclose circumstances and events that make a difference to financial statement
users.
Generally Accepted Accounting Principles (GAAP) - ANSWER A set of accounting
standards that have substantial authoritative support, that guide accounting
professionals.
Going Concern Assumption - ANSWER The assumption that the company will
continue in operation for the foreseeable future.
Historical Cost Principle - ANSWER An accounting principle that states that
Accurate Answers
Classified Balance Sheet - ANSWER A balance sheet that groups together similar
assets and similar liabilities, using a number of standard classifications and sections.
Comparability - ANSWER Ability to compare the accounting information of different
companies because they use the same accounting principles.
Consistency - ANSWER Use of the same accounting principles and methods from
year to year within a company.
Cost Contraint - ANSWER Constraint that weighs the cost that companies will incur
to provide the information against the benefit that financial statement users will
gain from having the information available.
Current Assets - ANSWER Assets that companies expect to convert to cash or use
up within one year or the operating cycle, whichever is longer.
Current Liabilities - ANSWER Obligations that a company expects to pay within the
next year or operating cycle, whichever is longer.
Current Ratio - ANSWER a measure of liquidity computed as current assets divided
by current liabilities
Debt to assets ratio - ANSWER A measurement of solvency calculated as total
liabilities divided by total assets. Measures the percentage of total financing
provided by creditors.
, Earnings per share - ANSWER A measure of the net income earned on each share of
common stock; computed as net income minus preferred dividends divided by the
average number of common shares outstanding during the year.
Economic Entity Assumption - ANSWER An assumption that every economic entity
can be separately identified and accounted for.
Fair value principle - ANSWER Assets and liabilities should be reported at fair value
(the price received to sell an asset or settle a liability)
Faithful representation - ANSWER information that is complete, neutral, and free
from error
Financial Accounting Standards Board (FASB) - ANSWER The primary accounting
standard-setting body in the United States.
Free Cash Flow - ANSWER net cash provided by operating activities after adjusting
for capital expenditures and cash dividends paid
Full Disclosure principle - ANSWER Accounting principle that dictates that companies
disclose circumstances and events that make a difference to financial statement
users.
Generally Accepted Accounting Principles (GAAP) - ANSWER A set of accounting
standards that have substantial authoritative support, that guide accounting
professionals.
Going Concern Assumption - ANSWER The assumption that the company will
continue in operation for the foreseeable future.
Historical Cost Principle - ANSWER An accounting principle that states that
