Financial Accounting Study Guide (Exam 1) Questions and Answers Updated .

Financial Accounting
Study Guide (Exam 1)
Questions and Answers
Updated 2026-2027
FormulaBforBtheBIncomeBStatementB-BAnswerBRevenue-Expenses=NetBIncome



FormulaBforBtheBStatementBofBRetainedBEarningsB-
BAnswerBBeginningBRetainedBEarningsB+BNetBincomeBduringBtheBperiodB-
BdividendsBpaidB=BendingBretainedBearnings



FormulaBforBtheBBalanceBSheetB-BAnswerBAssets=LiabilitiesB+BStockholdersBEquity



FormulaBforBtheBStatementBofBCashBFlowsB-BAnswerBOperatingBCashBFlowsB(+/-
)BInvestingBCashBFlowsB(+/-)BFinancingBCashBFlowsB=BIncrease/DecreaseBinBCash



WhatBorderBareBtheBfinancialBstatementsBprepared?B-BAnswerBIncomeBStatementB---
>BStatementBofBRetainedBEarningsB--->BBalanceBSheetB--->BStatementBofBCashBFlows



WhatBisBaBChartBofBAccounts?B-
BAnswerBABchartBofBaccountsB(COA)BisBaBfinancialBorganizationalBtoolBthatBprovidesB
aBcompleteBlistingBofBeveryBaccountBinBanBaccountingBsystem.



WhatBareBretainedBearnings?B-
BAnswerBRetainedBearningsBisBtheBpercentageBofBnetBearningsBnotBpaidBoutBasBdivid
ends,BbutBretainedBbyBtheBcompanyBtoBbeBreinvestedBinBitsBcoreBbusiness,BorBtoBpa
yBdebt.BItBisBrecordedBunderBshareholders'BequityBonBtheBbalanceBsheet.

, DifferenceBbetweenBtheBBSBandBtheBISBaccountsB-
BAnswerBtheBbalanceBsheetBillustratesBaBcompany'sBbookBvalue,BandBtheBincomeBstat
ementBshowsBhowBassetsBandBliabilitiesBareBused.



DifferenceBbetweenBassets,Bliabilities,BandBownersBequityBaccountsB-BAnswerB-
AssetsB(whatBitBowns)

-LiabilitiesB(whatBitBowesBtoBothers)

-Owner'sBEquityB(theBdifferenceBbetweenBassetsBandBliabilities)



WhatBisBtheBproperBdatingBandBformBforBeachBofBtheBfinancialBstatements?B-
BAnswerB-
TheBtopBofBtheBbalanceBsheetBhasBthreeBitems:B(1)BtheBlegalBnameBofBtheBentity;B(2
)BtheBtitleB(i.e.,BbalanceBsheetBorBstatementBofBfinancialBposition);BandB(3)BtheBdateB
ofBtheBstatement.

-
IncomeBStatement:BtheBtopBisBtheBcompaniesBnameBandBtheBsecondBlineBisBtheBter
mB"consolidatedBstatementsBofBincome",BthirdBlineBisBtheBdate



WhatBdoBweBmeanBbyBtheB"costBprinciple"?B-
BAnswerBTheBcostBprincipleBrequiresBthatBassetsBbeBrecordedBatBtheBcashBamountB(o
rBitsBequivalent)BatBtheBtimeBthatBanBassetBisBacquired.



WhatBdoBweBmeanBbyBtheB"entityBprinciple"?B-
BAnswerBTheBeconomicBentityBprincipleBstatesBthatBtheBrecordedBactivitiesBofBaBbusi
nessBentityBwillBbeBkeptBseparateBfromBtheBrecordedBactivitiesBofBitsBowner(s)BandBa
nyBotherBbusinessBentities.BThisBmeansBthatByouBmustBmaintainBseparateBaccountingB
recordsBandBbankBaccountsBforBeachBentity,BandBnotBintermixBwithBthemBtheBassetsB
andBliabilitiesBofBitsBownersBorBbusinessBpartners.BAlso,ByouBmustBassociateBeveryBbu
sinessBtransactionBwithBanBentity.



WhatBdoBweBmeanBbyBtheB"matchingBprinciple"?B-BAnswerB-
TheBprincipleBthatBrequiresBaBcompanyBtoBmatchBexpensesBwithBrelatedBrevenuesBinB
orderBtoBreportBaBcompany'sBprofitabilityBduringBaBspecifiedBtimeBinterval.

-AlsoBknownBasBtheBexpenseBrecognitionBprinciple