WSU ACCTG 230 EXAM SCRIPT FULL
QUESTIONS AND CORRECT ANSWERS
REVIEW
●● Why is accounting important?
Answer: Essential to making good business decisions, investors want to
invest in companies that make profit
●● What are the primary functions of financial accounting?
Answer: 1) Measure business transactions
2) Communicate those measurements to people to make decisions
●● What is GAAP?
Answer: The rules of financial accounting in the US set by FASB
●● What is GAAP's international counterpart?
Answer: International Accounting Standards Board
●● What are the different types of business activities? Distinguish them
Answer: 1) Operating: relate to earning revenues and incurring expenses
2) Investing: generally include the purchase or disposal of productive
assets and investments
,3) Financing: include transactions with lenders and owners
●● What are the forms of business? Differentiate them
Answer: 1) Sole proprietorship: owned by single person (personally
responsible and lower taxes)
2) Partnership: owned by two or more people (personally responsible
and lower taxes)
3) Corporation: legally separate from its owners (limited liability/not
personally responsible)
●● Identify the financial statements
Answer: 1) Income Statement
2) Statement of Stockholder's Equity
3) Balance Sheet
4) Statement of Cash Flows
●● What is involved in an income statement?
Answer: Revenues - Expenses = Net Income
●● What is involved in the statement of stockholder's equity?
Answer: Common Stock: beginning + issuances
+
Retained Earnings: beginning + net income - dividends
,=
S. E.
●● What is involved in the balance sheet?
Answer: Assets = Liabilities + Stockholders Equity
●● What is involved in the statement of cash flows?
Answer: Operating + Investing + Financing = Total Cash Flows
●● What are the time periods represented by each financial statement?
Answer: Income statement: current period
Statement of S.E.: for each period
Balance Sheet: particular date
Statement of Cash Flows: for the period
●● How are the financial statements connected?
Answer: Income statement has net income which is apart of R.E. in the
statement of S.E. The S.E. is used in the balance sheet and the cash from
assets in the balance sheet are the results of the statement of cash flows
●● What are the 2 main organizations involved with standard setting?
Answer: FASB and IASB
, ●● 2
Answer: ...
●● What effect do transactions have on the expanded accounting
equation?
Answer: Revenue increases retained earnings while expenses and
dividends decreases retained earnings. R.E. is a component of S.E.
●● How do you implement the steps of analyzing transactions?
Answer: 1) Use source documents to identify accounts affected by an
external transaction
2) Analyze the impact of the transaction on the accounting equation
3) Assess whether the transaction results in a debit or a credit to the
account balance
4) Record the transaction in a journal
5) Post the transaction to the T-account in the general ledger
6) Prepare a trial balance
●● What is the expanded accounting equation?
Answer:
●● What components are debit accounts and which are credit?
Answer: Debit accounts: Dividends, Expenses, Assets
QUESTIONS AND CORRECT ANSWERS
REVIEW
●● Why is accounting important?
Answer: Essential to making good business decisions, investors want to
invest in companies that make profit
●● What are the primary functions of financial accounting?
Answer: 1) Measure business transactions
2) Communicate those measurements to people to make decisions
●● What is GAAP?
Answer: The rules of financial accounting in the US set by FASB
●● What is GAAP's international counterpart?
Answer: International Accounting Standards Board
●● What are the different types of business activities? Distinguish them
Answer: 1) Operating: relate to earning revenues and incurring expenses
2) Investing: generally include the purchase or disposal of productive
assets and investments
,3) Financing: include transactions with lenders and owners
●● What are the forms of business? Differentiate them
Answer: 1) Sole proprietorship: owned by single person (personally
responsible and lower taxes)
2) Partnership: owned by two or more people (personally responsible
and lower taxes)
3) Corporation: legally separate from its owners (limited liability/not
personally responsible)
●● Identify the financial statements
Answer: 1) Income Statement
2) Statement of Stockholder's Equity
3) Balance Sheet
4) Statement of Cash Flows
●● What is involved in an income statement?
Answer: Revenues - Expenses = Net Income
●● What is involved in the statement of stockholder's equity?
Answer: Common Stock: beginning + issuances
+
Retained Earnings: beginning + net income - dividends
,=
S. E.
●● What is involved in the balance sheet?
Answer: Assets = Liabilities + Stockholders Equity
●● What is involved in the statement of cash flows?
Answer: Operating + Investing + Financing = Total Cash Flows
●● What are the time periods represented by each financial statement?
Answer: Income statement: current period
Statement of S.E.: for each period
Balance Sheet: particular date
Statement of Cash Flows: for the period
●● How are the financial statements connected?
Answer: Income statement has net income which is apart of R.E. in the
statement of S.E. The S.E. is used in the balance sheet and the cash from
assets in the balance sheet are the results of the statement of cash flows
●● What are the 2 main organizations involved with standard setting?
Answer: FASB and IASB
, ●● 2
Answer: ...
●● What effect do transactions have on the expanded accounting
equation?
Answer: Revenue increases retained earnings while expenses and
dividends decreases retained earnings. R.E. is a component of S.E.
●● How do you implement the steps of analyzing transactions?
Answer: 1) Use source documents to identify accounts affected by an
external transaction
2) Analyze the impact of the transaction on the accounting equation
3) Assess whether the transaction results in a debit or a credit to the
account balance
4) Record the transaction in a journal
5) Post the transaction to the T-account in the general ledger
6) Prepare a trial balance
●● What is the expanded accounting equation?
Answer:
●● What components are debit accounts and which are credit?
Answer: Debit accounts: Dividends, Expenses, Assets
