ACC 501Practice Questions with Complete
Solutions
What is accounting?
An information system that reports on the economic activities and financial condition of a
business or organization.
What role does accounting play in society?
It serves as a historical record and compiles results into reports and financial statements for
stakeholders.
Who are common stakeholders in accounting?
Investors, creditors, management, and key decision makers.
What do investors expect from a business?
A share of ownership and a portion of earned income.
What is the primary objective of financial reporting?
To provide useful information for making investment and lending decisions.
What must financial information do to be considered useful?
Evaluate past performance and predict future performance while faithfully representing
economic reality.
What is the difference between financial accounting and managerial accounting?
Financial accounting provides information to external stakeholders, while managerial accounting
provides information to internal stakeholders.
, What are Generally Accepted Accounting Principles (GAAP)?
A set of rules established by the Financial Accounting Standards Board (FASB) to govern
accounting practices in the U.S.
What does the International Accounting Standards Board (IASB) do?
Establishes International Financial Reporting Standards (IFRS) to create a universal language of
business.
What is the basic accounting equation?
Assets = Liabilities + Equity.
What are the three categories of accounting information?
Assets, Liabilities, and Stockholders' Equity.
What does double-entry bookkeeping entail?
All transactions affect the accounting equation in at least two places.
How can equity be expanded in the accounting equation?
Equity = Common Stock + Retained Earnings.
What is retained earnings?
The net increase or decrease in the business's commitments to stockholders.
What happens when a company issues common stock?
It increases the company's equity.
What is the impact on the accounting equation when a company borrows money?
Solutions
What is accounting?
An information system that reports on the economic activities and financial condition of a
business or organization.
What role does accounting play in society?
It serves as a historical record and compiles results into reports and financial statements for
stakeholders.
Who are common stakeholders in accounting?
Investors, creditors, management, and key decision makers.
What do investors expect from a business?
A share of ownership and a portion of earned income.
What is the primary objective of financial reporting?
To provide useful information for making investment and lending decisions.
What must financial information do to be considered useful?
Evaluate past performance and predict future performance while faithfully representing
economic reality.
What is the difference between financial accounting and managerial accounting?
Financial accounting provides information to external stakeholders, while managerial accounting
provides information to internal stakeholders.
, What are Generally Accepted Accounting Principles (GAAP)?
A set of rules established by the Financial Accounting Standards Board (FASB) to govern
accounting practices in the U.S.
What does the International Accounting Standards Board (IASB) do?
Establishes International Financial Reporting Standards (IFRS) to create a universal language of
business.
What is the basic accounting equation?
Assets = Liabilities + Equity.
What are the three categories of accounting information?
Assets, Liabilities, and Stockholders' Equity.
What does double-entry bookkeeping entail?
All transactions affect the accounting equation in at least two places.
How can equity be expanded in the accounting equation?
Equity = Common Stock + Retained Earnings.
What is retained earnings?
The net increase or decrease in the business's commitments to stockholders.
What happens when a company issues common stock?
It increases the company's equity.
What is the impact on the accounting equation when a company borrows money?
