ACCOUNTING 201 EXAM 1 WITH ALL
CORRECT & VERIFIED ANSWERS
Sole Proprietorship Correct answer-business owned by one person
simple to establish
owner controlled
tax advantages
owner personally liable
financially difficult
Partnership Correct answer-2 or more owners
simple to establish
shared control
broader skills and resources
tax advantages
personally liable
Corporation Correct answer-separate legal entity owned by stockholders
easy to transfer ownership
greater capital raising potential
unfavorable tax treatment
lower legal liabilities for owners
Internal Users of Financial Info Correct answer-Managers
-Finance borrow $ or issue stock?
-Marketing advertising costs
-HR hire or lay off ppl?
-Management expand busi? sell off parts?
External Users of Financial Info Correct answer--Investors who should I invest in?
-Creditors should I loan them $?
-Others regulatory agencies, tax authorities, customers, labor
Types of Business Activities - Financing Correct answer-get large sums of $ from 2 sources:
1. Creditors- borrowing creates liabilities(things the company owes)
2. Owners- selling/issuing stock to shareholders(shareholders equity-how much of a company a
stockholder owns)
Types of Business Activities - Investing Correct answer-obtaining resources or assets(things that
have value to the company) to operate a business
e.g. buying and selling land, buildings, equipment, vehicles
Types of Business Activities - Operating Correct answer-primary activities of business - normal
activities the company performs to run their business
e.g. selling goods, providing services, paying employees, advertising, paying utilities
1. Revenues - increase assets resulting from the sale of g&s
2. Expense - cost of assets consumed or services used to generate revenue
Accounting Correct answer-info system that identifies, records, and communicates the economic
events of an organization to interested users.
uses 4 financial statements
, Income Statement Correct answer-reports operating success or failure for a period of time
summarizes revenues and expenses
Statement of Retained Earnings Correct answer-income the company has earned over its life and
kept in the company (not paid to owners in dividends)
over a period of time
Balance Sheet Correct answer-reports asses and claims to assets at one point in time
assets- resources owned by the company
=cash, a/r, inventory, investments, furniture, equipment, and supplies
liabilities- obligations or debts of the company
=a/p(verbal promise to pay), n/p(written promise to pay), interest payable(we owe interest from
borrowing $), salaries payable, unearned revenue
stockholder's equity- owner's claims on assets
=common stock or PIC($ contributed by owners when they buy stock), RE
Basic Accounting Equation Correct answer-Assets = Liabilities + Stockholder's Equity
Statement of Cash Flows Correct answer-Shows where cash came from and where cash went for a
period of time
organized by 3 business activities
Annual Report Correct answer-public companies are required by law to provided audited financial
statements and other material once/yr
Includes: 4 financial stmts, Management discussion and analysis-liquidity(ability to pay debt in 1 yr),
capital resources(ability to find operations and expansion), results of operations; Notes to F/S(clarify
and expand on info presented, describe accounting policies, describe uncertainties; Auditors
report=certified public accountant CPA, to see if fair and follows GAAP and if yes -- Unqualified
opinion
Classified Balance Sheet Correct answer-divides assets and liabilities into current and non-current
helps users see if company has enough assets to pay liabs
Current Assets Correct answer-assets that are expected to be converted to cash or used up w/in 1
year or one cycle
listed in order of liquidity(how fast converted into cash)
Cash, ST investments, A/R, ST N/R, inventory, supplies, prepaid expenses
Long term investments Correct answer-investments in stock and bond of other companies which
will be held onto for many years
investments in LT assets that we dont use to operate our business
Property, Plant, and Equipment Correct answer-assets with relatively long useful lives that we use
to operate our business
land, buildings, machinery, equipment, vehicles, furniture
Depreciation- allocating the asset's purchase price to the years it will be used instead of expensing
the full cost of purchase
Accumulated Depreciation- shows the total amount of depreciation that company has expensed this
far in the asset's life
CORRECT & VERIFIED ANSWERS
Sole Proprietorship Correct answer-business owned by one person
simple to establish
owner controlled
tax advantages
owner personally liable
financially difficult
Partnership Correct answer-2 or more owners
simple to establish
shared control
broader skills and resources
tax advantages
personally liable
Corporation Correct answer-separate legal entity owned by stockholders
easy to transfer ownership
greater capital raising potential
unfavorable tax treatment
lower legal liabilities for owners
Internal Users of Financial Info Correct answer-Managers
-Finance borrow $ or issue stock?
-Marketing advertising costs
-HR hire or lay off ppl?
-Management expand busi? sell off parts?
External Users of Financial Info Correct answer--Investors who should I invest in?
-Creditors should I loan them $?
-Others regulatory agencies, tax authorities, customers, labor
Types of Business Activities - Financing Correct answer-get large sums of $ from 2 sources:
1. Creditors- borrowing creates liabilities(things the company owes)
2. Owners- selling/issuing stock to shareholders(shareholders equity-how much of a company a
stockholder owns)
Types of Business Activities - Investing Correct answer-obtaining resources or assets(things that
have value to the company) to operate a business
e.g. buying and selling land, buildings, equipment, vehicles
Types of Business Activities - Operating Correct answer-primary activities of business - normal
activities the company performs to run their business
e.g. selling goods, providing services, paying employees, advertising, paying utilities
1. Revenues - increase assets resulting from the sale of g&s
2. Expense - cost of assets consumed or services used to generate revenue
Accounting Correct answer-info system that identifies, records, and communicates the economic
events of an organization to interested users.
uses 4 financial statements
, Income Statement Correct answer-reports operating success or failure for a period of time
summarizes revenues and expenses
Statement of Retained Earnings Correct answer-income the company has earned over its life and
kept in the company (not paid to owners in dividends)
over a period of time
Balance Sheet Correct answer-reports asses and claims to assets at one point in time
assets- resources owned by the company
=cash, a/r, inventory, investments, furniture, equipment, and supplies
liabilities- obligations or debts of the company
=a/p(verbal promise to pay), n/p(written promise to pay), interest payable(we owe interest from
borrowing $), salaries payable, unearned revenue
stockholder's equity- owner's claims on assets
=common stock or PIC($ contributed by owners when they buy stock), RE
Basic Accounting Equation Correct answer-Assets = Liabilities + Stockholder's Equity
Statement of Cash Flows Correct answer-Shows where cash came from and where cash went for a
period of time
organized by 3 business activities
Annual Report Correct answer-public companies are required by law to provided audited financial
statements and other material once/yr
Includes: 4 financial stmts, Management discussion and analysis-liquidity(ability to pay debt in 1 yr),
capital resources(ability to find operations and expansion), results of operations; Notes to F/S(clarify
and expand on info presented, describe accounting policies, describe uncertainties; Auditors
report=certified public accountant CPA, to see if fair and follows GAAP and if yes -- Unqualified
opinion
Classified Balance Sheet Correct answer-divides assets and liabilities into current and non-current
helps users see if company has enough assets to pay liabs
Current Assets Correct answer-assets that are expected to be converted to cash or used up w/in 1
year or one cycle
listed in order of liquidity(how fast converted into cash)
Cash, ST investments, A/R, ST N/R, inventory, supplies, prepaid expenses
Long term investments Correct answer-investments in stock and bond of other companies which
will be held onto for many years
investments in LT assets that we dont use to operate our business
Property, Plant, and Equipment Correct answer-assets with relatively long useful lives that we use
to operate our business
land, buildings, machinery, equipment, vehicles, furniture
Depreciation- allocating the asset's purchase price to the years it will be used instead of expensing
the full cost of purchase
Accumulated Depreciation- shows the total amount of depreciation that company has expensed this
far in the asset's life
