New exam 1 accounting

A business organizes as a separate legal entity where the owners are shareholders that own common stock is a

corporation

External users of accounting information include

both (a) and (b) investors and creditors

on the stmt of cash flows, Entity A’s cash purchase of equipment is an

Investing activity

which type of undefended aufirots option is best for the company?

unqualified

in which section of a classifies balance sheet would neared revenue be reported

current liabilities

When a business sells service son credit, they entry will include

a credit to service revenue

Which of the following accounts has normal debit balance

supplies

Under the accrual basis of accounting

revenue is recognizes when performant obligations are satisfies and expenses when incurred.

All of the following accounts would be closes at the end of the accounting period except

• dividends

• expenses

• revenues

(accounts payable) THIS IS THE ANSWER

a list of accounts of the company (without any debit or credit balances) is an

chart of accounts

Expenses and losses

are increase by debits

US GAAP generally uses one of two measurements principle to value assets and liabilities: historical cost and fair value. All of the following stmt are correct, except

• fair value represents the price that would be paid if an asset were to be sold or the price that would be paid to settle a liability today

• most assets are valued at historical cost because it may not be feasible to obtain market values

• where there is an actively traded market, say for investment securities, fair value is the proper measurements basis

(Between fair value and historical cost, fair value provides the most objective and verifiable information for valuing property, plant, and equipment) THIS IS THE ANSWER

Sole proprietorship

One person owns the business; owner takes all profits and risks.

Partnership

Two or more people share ownership, profits, and risks

Corporation

A separate legal entity; owners are shareholders.

Internal users

People inside the company who use info to make decisions, e.g., managers, employees, owners.

External users

People outside the company who need info, e.g., investors, creditors, government, customers.

Operating activities

Day-to-day business actions that earn revenue, e.g., selling products, paying salaries.

Investing activities

Buying or selling long-term assets, e.g., purchasing equipment, selling land.

Financing activities

Getting or repaying money to fund the business, e.g., issuing stock, borrowing from a bank, paying dividends.

Unqualified (clean) opinion: ////////

• Everything is correct; best for a company.

Qualified opinion

Mostly correct, but some issues exist.

Adverse opinion ////////////

Financial statements are incorrect; worst for a company.

Disclaimer of opinion

Auditor cannot give an opinion due to missing info or limits.

All of the following practices represent good accrual accounting, except?

• revenues are recognized when performance obligations are satisfied

• expense are recognized when incurred, regardless of when cash payment is made

• expense are matched with the revues they helped to produce

• (earnings are manages so as to smooth out fluctuations in net income and reflect earnings as smooth, upward trajectory) THIS IS THE ANSWER

Which of the following accounting concepts justifies the following practice: A large company rounds the amounts in its financial stamens to the nearest hundred thousand?

Materiality

Entity D uses the same method of computing depreciation on its equipment from year to year. This is an example of:

consistency

Which if the following stamens about adjusting entries is incorrect?

• Adjusting entries involve one income stmt account and one balance sheet account

• adjusting entries are necessary to ensure that the revenue recognition and expense recognition principles are followed

• adjusting entires never involve the Cash account

• (adjusting entries are only required for annual stmt; they are optional for months financial statements) THIS IS THE ANSWER

Consistency

use the same accounting methods from period to period

comparability

Financial stmt can be compared with other companies

historical cost

record assets at what you paid for them, not current value

fair value

report assets/liabiltites at their current market value

full disclosure

include all important information in the financial stmt

periodicity

breaks business activity into regular time period (month, quarter, year).

going concern

assume the company will keep operating in the foreseeable future

materiality

only report items that are big enough to affect decisions

expense recognition (matching)

match expenses with the revenues they help other

relevance

financial info must help users make decisions

faithful representation

info must be accurate, complete, and unbiased

cost constraint

the benefits of reporting info must outweigh the costs

All of the following are internal users of accounting information except?

• production supervisors

• company officers

• marketing manager

• creditors (THIS IS THE ANSWER).

A psotiive net income will result during a time period when:

revenues exceed expenses

Which of the following financial stmt is prepared as of a specific date?

balance sheet