Accounting Test

What is the definition of Accounting?

The standardized process of taking raw financial data and classifying, recording, summarizing, interpreting, and communicating it as meaningful information.

What are the 5 Sequential Functions of Accounting?

1. Record, 2. Classify, 3. Summarize, 4. Interpret, 5. Communicate.

What are Financial Statements?

Periodic, structured reports summarizing a firm's financial position and operating results over a specific time.

What is Public Accounting?

Firms or independent operators providing professional accounting, tax, and consulting services to external clients for a fee.

Define Auditing in the context of Public Accounting.

Independent evaluations of a firm's financial statements to ensure fairness and adherence to rule frameworks.

What is Tax Accounting?

Preparing tax filings and structuring business moves to legally minimize tax liabilities.

What does GAAP stand for?

Generally Accepted Accounting Principles.

What is the Financial Accounting Standards Board (FASB)?

The independent, authoritative private body responsible for creating, refining, and updating GAAP rules in the U.S.

What is the main purpose of the Sarbanes-Oxley Act (SOX)?

To crack down on corporate fraud and enforce stricter internal controls.

What is the role of Internal Users of financial information?

To evaluate operational performance, set pricing, and plan future growth.

What is the key difference between Sole Proprietorship and Corporation regarding liability?

Sole Proprietorship has unlimited liability while Corporation provides limited liability protection for its owners.

Define the Separate Entity Assumption.

The accounting concept stating that a business's financial records must be kept distinct from the personal financial records of its owners.

What is an Auditor's Report?

A formal document issued by an independent CPA providing an opinion on whether a company's financial statements fairly reflect economic reality.

Who requires public corporations to file an Auditor's Report?

The Securities and Exchange Commission (SEC).

What are Management Advisory Services?

Consulting services designed to improve an organization’s operational efficiency and financial controls.

What does governmental accounting entail?

Keeping financial records and preparing reports for public or government entities.