ACC 131 Exam 1 UPDATED QUESTIONS
AND CORRECT ANSWERS
The four financial statements required by GAAP? - CORRECT ANSWER Income Statement,
Balance Sheet, Statement of Retained Earnings, Statement of Cash Flows
What is the expanded accounting equation? - CORRECT ANSWER 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. - CORRECT ANSWER
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. - CORRECT ANSWER Close revenues (and gains) to Retained
Earnings
Close expenses (and losses) to Retained Earnings
Close Dividends to Retained Earnings
Relevance - CORRECT ANSWER is the information making different business decisions by
helping users predict future events and providing feedback about prior expectations-
Materiality - CORRECT ANSWER 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 - CORRECT ANSWER 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.
AND CORRECT ANSWERS
The four financial statements required by GAAP? - CORRECT ANSWER Income Statement,
Balance Sheet, Statement of Retained Earnings, Statement of Cash Flows
What is the expanded accounting equation? - CORRECT ANSWER 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. - CORRECT ANSWER
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. - CORRECT ANSWER Close revenues (and gains) to Retained
Earnings
Close expenses (and losses) to Retained Earnings
Close Dividends to Retained Earnings
Relevance - CORRECT ANSWER is the information making different business decisions by
helping users predict future events and providing feedback about prior expectations-
Materiality - CORRECT ANSWER 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 - CORRECT ANSWER 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.
