ACCT 211-Liberty University EXAM 1
Importance of Accounting - correct answer Identifying, Recording, Communicating
Users of Financial Information - correct answer 1. Internal
2. External
Internal Users - correct answer Internal users of accounting information ARE directly involved in
managing and operating an organization.
External Users - correct answer External users of accounting information are NOT directly involved in
running the organization
3 Parts of the Fraud Triangle - correct answer Opportunity-Envision a way to commit fraud with a low
perceived risk of getting caught
Rationalization-Fails to see the criminal nature of the fraud or justifies the action
Financial Pressure-Must have some pressure to commit fraud, like unpaid bills
Dodd-Frank Wall Street Reform and Consumer Protection Act - correct answer This act was designed to:
1. promote accountability and transparency in the financial system,
2. put an end to the notion of "too big to fail,"
3. protect the taxpayer by ending bailouts, and
4. protect consumers from abusive financial services.
GAAP - correct answer Generally Accepted Accounting Principles
aims to make information relevant, reliable, and comparable
IFRS - correct answer International Financial Reporting Standards
Identify preferred accounting practices
IASB - correct answer International Accounting Standards Board
An independent group (consisting of individuals from many countries), issues International Financial
Reporting Standards (IFRS)
Conceptual Framework - correct answer
Principles of Accounting - correct answer 1. Measurement Principle
(or Cost Principle)
Accounting information is based on actual cost. Actual cost is considered objective.
2. Revenue Recognition Principle
a. Recognize revenue when it is earned.
b. Proceeds need not be in cash.
c. Measure revenue by cash received plus cash value of items received
3. Expense Recognition Principle
(or Matching Principle): A company must record its expenses incurred to generate the revenue reported.
4. Full Disclosure Principle: A company is required to report the details behind financial statements that
would impact users' decisions
Accounting Assumptions - correct answer 1.Going-Concern Assumption
Reflects assumption that the business will continue operating instead of being closed or sold.
2.Monetary Unit Assumption
Express transactions and events in monetary, or money, units.
3.Business Entity Assumption
A business is accounted for separately from other business entities, including its owner.
4.Time Period Assumption
Presumes that the life of a company can be divided into time periods,
such as months and years
Sole Proprietor - correct answer -one owner allowed
-business not taxed
-business entity
Partnership - correct answer -business entity
-not taxed
-not limited liability
-not legal entity
-not unlimited life
Corporation - correct answer -one owner allowed
-business taxed
-limited liability
-business entity
-legal entity
-unlimited life
Accounting Contraints - correct answer 1. Materiality: Only information that would influence the
decisions of a reasonable person needs to be disclosed. Materiality is a function of the nature of the
item and/or dollar amount.
2. Benefits exceed cost: The benefits of the information disclosed must be greater than the costs of
providing the information.
Accounting Equation - correct answer Assets = Liability + Equity
4 Financial Statements - correct answer 1. Income statement — describes a company's revenues and
expenses along with the resulting net income or loss over a period of time due to earnings activities.
2. Statement of retained earnings— explains changes in equity from net income (or loss) and from any
dividends over a period of time.
3. Balance sheet — describes a company's financial position (types and amounts of assets, liabilities, and
equity) at a point in time.
4. Statement of cash flows — identifies cash inflows (receipts) and cash outflows (payments) over a
period of time
Sustainability Accounting Standards Board (SASB) - correct answer -Nonprofit entity engaged in creating
and disseminating sustainability accounting standards for companies.
-Sustainability refers to environmental, social and governance.
-Environmental aspects include programs to reduce pollution and support green activities.
-Standards intended to complement financial accounting standards.
-SASB created their own Conceptual Framework.
ROA - correct answer Return on Assets is stated in ratio form as net income divided by the average total
assets invested
ROA=net income/average total assets
Source Documents - correct answer -checks
-bills from suppliers
-purchase orders
-bank statements
-sales tickets
-employee earnings
Asset Accounts - correct answer -land
-cash
-accounts receivable
-notes receivable
-prepaid accounts
-supplies
-equipment
-buildings
Liability Accounts - correct answer -accounts payable
-notes payable
-accrued liabilities
-unearned revenue
Equity Accounts - correct answer +common stock
-dividends
+revenues
-expenses
Debit - correct answer LEFT SIDE
Credit - correct answer RIGHT SIDE
Accrual Basis - correct answer Revenues are recognized when products or services are delivered, and
expenses are recognized when incurred.
Cash Basis - correct answer Revenues are recognized when cash is received and expenses are recorded
when cash is paid. NON GAAP
Prepaid Expenses - correct answer Prepaid expenses are assets paid for in advance of receiving their
benefits.
Useful Life - correct answer -The period of time that an asset is expected to help produce revenues.
-Useful life expires as a result of wear and tear, or because it no longer satisfies the needs of the
business.
Salvage Value - correct answer -The expected market value or selling price of an asset at the end of its
useful life
Also called:
Scrap Value or
Residual Value
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