BUS-A 201 – INTRODUCTION TO FINANCIAL ACCOUNTING | EXAM
QUESTIONS AND CORRECT ANSWERS | VERIFIED ACCOUNTING LATEST
VERSION 2026/2027
BUS-A 201 Introduction to Financial Accounting (3 cr.)
Q1: What is the primary purpose of financial accounting?
A1: To provide financial information about a business to external users
(investors, creditors, regulators) to help them make informed decisions.
Q2: What are the three primary financial statements?
A2: The Income Statement, the Balance Sheet, and the Statement of Cash
Flows.
Q3: What does the Income Statement report?
A3: Revenues, expenses, and net income (or net loss) for a specific period of
time.
Q4: What does the Balance Sheet report?
A4: Assets, liabilities, and equity at a specific point in time.
Q5: What does the Statement of Cash Flows report?
A5: Cash inflows and outflows for a specific period, categorized into operating,
investing, and financing activities.
,Q6: What is the basic accounting equation?
A6: Assets = Liabilities + Equity.
Q7: Define "Asset."
A7: A resource owned or controlled by a business that is expected to provide
future economic benefit.
Q8: Define "Liability."
A8: A present obligation of the business to pay an amount in the future,
resulting from a past transaction.
Q9: Define "Equity" (Stockholders' Equity).
A9: The residual interest in the assets of the entity after deducting liabilities;
the owners' claim on assets.
Q10: What is the Expanded Accounting Equation for a corporation?
A10: Assets = Liabilities + Common Stock + Retained Earnings + Revenues -
Expenses - Dividends.
Q11: Who are the primary users of financial accounting information?
A11: External users (investors, creditors, government agencies, customers).
Q12: Who are the primary users of managerial accounting information?
A12: Internal users (managers, employees).
Q13: What is the Sarbanes-Oxley Act (SOX)?
, A13: A U.S. law passed in 2002 to protect investors from fraudulent financial
reporting by corporations; it established strict internal control and auditor
independence requirements.
Q14: What does GAAP stand for?
A14: Generally Accepted Accounting Principles.
Q15: What is the primary responsibility of the FASB?
A15: The Financial Accounting Standards Board establishes and improves
financial accounting and reporting standards (GAAP) in the U.S.
Q16: What is the IASB?
A16: The International Accounting Standards Board, which issues International
Financial Reporting Standards (IFRS).
Q17: What is the cost principle?
A17: Accounting information is based on actual cost incurred in past
transactions; assets are recorded at their historical cost.
Q18: What is the going-concern assumption?
A18: The assumption that a business will remain in operation for the
foreseeable future.
Q19: What is the business entity assumption?
A19: The assumption that a business is a separate and distinct entity from its
owners.
Q20: What is the monetary unit assumption?
QUESTIONS AND CORRECT ANSWERS | VERIFIED ACCOUNTING LATEST
VERSION 2026/2027
BUS-A 201 Introduction to Financial Accounting (3 cr.)
Q1: What is the primary purpose of financial accounting?
A1: To provide financial information about a business to external users
(investors, creditors, regulators) to help them make informed decisions.
Q2: What are the three primary financial statements?
A2: The Income Statement, the Balance Sheet, and the Statement of Cash
Flows.
Q3: What does the Income Statement report?
A3: Revenues, expenses, and net income (or net loss) for a specific period of
time.
Q4: What does the Balance Sheet report?
A4: Assets, liabilities, and equity at a specific point in time.
Q5: What does the Statement of Cash Flows report?
A5: Cash inflows and outflows for a specific period, categorized into operating,
investing, and financing activities.
,Q6: What is the basic accounting equation?
A6: Assets = Liabilities + Equity.
Q7: Define "Asset."
A7: A resource owned or controlled by a business that is expected to provide
future economic benefit.
Q8: Define "Liability."
A8: A present obligation of the business to pay an amount in the future,
resulting from a past transaction.
Q9: Define "Equity" (Stockholders' Equity).
A9: The residual interest in the assets of the entity after deducting liabilities;
the owners' claim on assets.
Q10: What is the Expanded Accounting Equation for a corporation?
A10: Assets = Liabilities + Common Stock + Retained Earnings + Revenues -
Expenses - Dividends.
Q11: Who are the primary users of financial accounting information?
A11: External users (investors, creditors, government agencies, customers).
Q12: Who are the primary users of managerial accounting information?
A12: Internal users (managers, employees).
Q13: What is the Sarbanes-Oxley Act (SOX)?
, A13: A U.S. law passed in 2002 to protect investors from fraudulent financial
reporting by corporations; it established strict internal control and auditor
independence requirements.
Q14: What does GAAP stand for?
A14: Generally Accepted Accounting Principles.
Q15: What is the primary responsibility of the FASB?
A15: The Financial Accounting Standards Board establishes and improves
financial accounting and reporting standards (GAAP) in the U.S.
Q16: What is the IASB?
A16: The International Accounting Standards Board, which issues International
Financial Reporting Standards (IFRS).
Q17: What is the cost principle?
A17: Accounting information is based on actual cost incurred in past
transactions; assets are recorded at their historical cost.
Q18: What is the going-concern assumption?
A18: The assumption that a business will remain in operation for the
foreseeable future.
Q19: What is the business entity assumption?
A19: The assumption that a business is a separate and distinct entity from its
owners.
Q20: What is the monetary unit assumption?
