ACC 131 EXAM ONE QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026
The four financial statements required by GAAP? - Answers Income Statement, Balance Sheet,
Statement of Retained Earnings, Statement of Cash Flows
What is the expanded accounting equation? - Answers Assets=Liabilities+ Capital Stock+ Beg Ret
Earn+ Rev- Exp- Div
Identify the seven steps of the accounting cycle and what is done at each step. - Answers Step 1
Analyze Transactions
Step 2 Journalize Transactions
Step 3 Post to Ledger- (by account)- general ledger is all accounts on the financial statement.
Step 4 Prepare Trial Balance- trying to balance the balance sheet.
Step 5 Adjust the Accounts- important things that happen at the end of a period- adjusting entries.
Step 6 Prepare Financial Statements
Step 7 Close Accounts- only done once a year.
Describe the closing process. - Answers Close revenues (and gains) to Retained Earnings
Close expenses (and losses) to Retained Earnings
Close Dividends to Retained Earnings
Relevance - Answers is the information making different business decisions by helping users predict
future events and providing feedback about prior expectations-
Materiality - Answers misstatement could change a decision (material)- if it is not material, it does
not matter and it can be accepted. Material has different measures for different companies.
Faithful Representation - Answers the real-world economic event that is intending to portray should
be complete containing all information necessary to understand the economic status should be
neutral and unbiased.
Comparability - Answers data that allows external users to identify similarities and differences
between two or more items with consistent method overtime
Verifiability - Answers information is verifiable when independent parties can come to a consensus
about the activity.
Timeliness - Answers information must be available before it loses the ability to influence decisions
Understandability - Answers If users with reasonable knowledge and study effect of accounting
comprehend the information meaning it is understandable
Economic entity assumption - Answers each company is accounted for separately than its owners
Going-concern assumption - Answers assumes company will operate long enough carry out financial
commitments
Time-period assumption - Answers allows life of company to be divided into artificial periods so that
net income can be measured for a specific period (monthly quarterly/annually
Monetary unit assumption - Answers requires company to report its financial results in monetary
terms such as US dollars etc.
Historical cost principle - Answers the activities of a company are initially measured at their cost (but
has been criticized because it does not reflect changes in the market value)
Revenue recognition principle - Answers Revenue is recorded when it is earned, not when cash is
received (when obligation is completed)
Expense recognition principle (also known as the matching principle) - Answers Expenses are
recognized in the same period as the revenues they help generate.
Conservatism principle - Answers recognizing losses early and delaying gains until they are certain.
What does the income statement show - Answers shows a company's profitability over a period.
What does the balance sheet show - Answers what a company owns and owns at a specific point in
time.
What does the statement of cash flows show - Answers shows how cash moves in and out of a
business.
What does stockholders equity show - Answers shows changes in ownership equity over time
Asset - Answers something we own
Liability - Answers something we owe
Retained earnings - Answers earnings after dividends have payed.
current assets - Answers assets converted into cash, sold, or used up within one year (or one
operating cycle)
Current Asset Order on Balance Sheet - Answers Cash
The four financial statements required by GAAP? - Answers Income Statement, Balance Sheet,
Statement of Retained Earnings, Statement of Cash Flows
What is the expanded accounting equation? - Answers Assets=Liabilities+ Capital Stock+ Beg Ret
Earn+ Rev- Exp- Div
Identify the seven steps of the accounting cycle and what is done at each step. - Answers Step 1
Analyze Transactions
Step 2 Journalize Transactions
Step 3 Post to Ledger- (by account)- general ledger is all accounts on the financial statement.
Step 4 Prepare Trial Balance- trying to balance the balance sheet.
Step 5 Adjust the Accounts- important things that happen at the end of a period- adjusting entries.
Step 6 Prepare Financial Statements
Step 7 Close Accounts- only done once a year.
Describe the closing process. - Answers Close revenues (and gains) to Retained Earnings
Close expenses (and losses) to Retained Earnings
Close Dividends to Retained Earnings
Relevance - Answers is the information making different business decisions by helping users predict
future events and providing feedback about prior expectations-
Materiality - Answers misstatement could change a decision (material)- if it is not material, it does
not matter and it can be accepted. Material has different measures for different companies.
Faithful Representation - Answers the real-world economic event that is intending to portray should
be complete containing all information necessary to understand the economic status should be
neutral and unbiased.
Comparability - Answers data that allows external users to identify similarities and differences
between two or more items with consistent method overtime
Verifiability - Answers information is verifiable when independent parties can come to a consensus
about the activity.
Timeliness - Answers information must be available before it loses the ability to influence decisions
Understandability - Answers If users with reasonable knowledge and study effect of accounting
comprehend the information meaning it is understandable
Economic entity assumption - Answers each company is accounted for separately than its owners
Going-concern assumption - Answers assumes company will operate long enough carry out financial
commitments
Time-period assumption - Answers allows life of company to be divided into artificial periods so that
net income can be measured for a specific period (monthly quarterly/annually
Monetary unit assumption - Answers requires company to report its financial results in monetary
terms such as US dollars etc.
Historical cost principle - Answers the activities of a company are initially measured at their cost (but
has been criticized because it does not reflect changes in the market value)
Revenue recognition principle - Answers Revenue is recorded when it is earned, not when cash is
received (when obligation is completed)
Expense recognition principle (also known as the matching principle) - Answers Expenses are
recognized in the same period as the revenues they help generate.
Conservatism principle - Answers recognizing losses early and delaying gains until they are certain.
What does the income statement show - Answers shows a company's profitability over a period.
What does the balance sheet show - Answers what a company owns and owns at a specific point in
time.
What does the statement of cash flows show - Answers shows how cash moves in and out of a
business.
What does stockholders equity show - Answers shows changes in ownership equity over time
Asset - Answers something we own
Liability - Answers something we owe
Retained earnings - Answers earnings after dividends have payed.
current assets - Answers assets converted into cash, sold, or used up within one year (or one
operating cycle)
Current Asset Order on Balance Sheet - Answers Cash
