D196 Study Guide Questions With Correct Answers

What is the role and purpose of accounting? CORRECT ANSWER Accounting is used to accumulate, measure, and communicate financial information about organizations. This information is used to make informed decisions regarding resource usage and allocation. Who uses accounting information and why? CORRECT ANSWER Managerial Accounting: Internal decision making (managers, CEO's, supervisors, etc.) Financial Accounting: External user benefit (stakeholders, investors, tax authorities, etc.) What are important influences on Accounting? CORRECT ANSWER Development of GAAP by FASB in the U.S. and by the IASB worldwide. International business considerations, ethical considerations. What is the role of ethics in Accounting? CORRECT ANSWER Accountants are seen by the public as ensuring that misrepresentation of financial information does not occur. What is the PCAOB and what does it do? CORRECT ANSWER PCAOB is the Public Company Accounting Oversight Board, and they oversee audits of public companies. Created by the SEC after passage of the Sarbanes Oxley Act of 2002 to restore public confidence. Explain the accounting cycle. CORRECT ANSWER 1. Analyze transactions 2. Record effects of transactions 3. Summarize effects of transactions 3a. Post journal entries 3b. Prepare trial balance 4. Prepare financial reports 4a. Adjust journal entries 4b. Prepare financial statements 4c. Close books What is the basic accounting equation? CORRECT ANSWER Assets (resources, cash, equipment) = Liabilities (method of financing req. repayment) + Owner's Equity (method of financing NOT req. repayment) What is the expanded accounting equation? CORRECT ANSWER Assets = Liabilities + Capital Stock + Revenues - Expenses - Dividends