ACG 2021 Test 1 Study Guide (Chapter 1 & 2) with Questions and Answers
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Course
ACG 2021
Institution
ACG 2021
Accounting Equation Assets = Liabilities + Owner's Equity
MUST BE BALANCED
Generally Accepted Accounting Principles (GAAP) Financial accounting is governed by concepts and rules known as generally accepted accounting principles (GAAP). GAAP aims to make information relevant, reliable, and compara...
ACG 2021 Test 1 Study Guide (Chapter 1
& 2) with Questions and Answers
Accounting Equation ✅Assets = Liabilities + Owner's Equity
MUST BE BALANCED
Generally Accepted Accounting Principles (GAAP) ✅Financial accounting is governed
by concepts and rules known as generally accepted accounting principles (GAAP).
GAAP aims to make information relevant, reliable, and comparable.
International Accounting Standards Board (IASB) ✅The International Accounting
Standards Board (IASB), a group (consisting of individuals from many countries that
issues International Financial Reporting Standards (IFRS) that identify preferred
accounting practices.
Issues International Financial Reporting Standards (IFRS)
FASB (Financial Accounting Standards Board) ✅a group in the US that determines the
rules for GAAP
the private board that establishes the generally accepted accounting principles used in
the practice of financial accounting
The ________ framework consists of the following:
Objectives—to provide information useful to investors, creditors, and others.
Qualitative Characteristics—to require information that is relevant, reliable, and
comparable.
Elements—to define items in financial statements.
Recognition and Measurement—to set criteria that an item must meet for it to be
recognized as an element; and how to measure that element.
Securities and Exchange Commission (SEC) ✅The agency of the U.S. government
that oversees U.S. financial markets and accounting standard-setting bodies.
Sole Proprietorship ✅is a business owned by one person. The business is a separate
entity for accounting purposes. However, the business is not a separate legal entity
from its owner.
- Easy to set up
- No additional business income tax
- Unlimited liability
- Not a separate entity
, - Business ends with owner death and choice
Partnership ✅A ___________ a business owned by two or more people, called
partners, which are jointly liable for tax and other obligations. Like a proprietorship, no
special legal requirements must be met in starting a partnership. The only requirement
is an agreement between partners to run a business together. The agreement can be
either oral or written and usually indicates how income and losses are to be shared. A
partnership, like a proprietorship, is not legally separate from its owners.
- 2 or more called partners
- No additional business income tax
- Unlimited liability
- Not a separate entity
- Business ends with partner death and choice
Corporation ✅A __________, also called a C corporation, is a business legally
separate from its owner or owners, meaning it is responsible for its own acts and its own
debts. Separate legal status means that a corporation can conduct business with the
rights, duties, and responsibilities of a person. A corporation acts through its managers,
who are its legal agents. Separate legal status also means that its owners, who are
called shareholders (or stockholders), are not personally liable for corporate acts and
debts.
- Has limited liability, no consequences
- Additional corporate income tax
- Limited liability. Owners called stockholders/shareholders are not liable for corporate
acts and debts
- a separate entity with the same rights and responsibilities as a person
- indefinite
revenue (equity) ✅An increase in owner's equity resulting from the operation of a
business
prepaid expenses (assets) ✅Prepaid accounts, also called prepaid expenses, are
assets that represent prepayments of future expenses (expenses expected to be
incurred in one or more future accounting periods). When the expenses are later
incurred, the amounts in prepaid accounts are transferred to expense accounts.
Examples include prepaid insurance, prepaid rent, and prepaid services.
Unearned Revenue (liability) ✅Unearned revenue is a liability that is settled in the
future when a company delivers its product or services.
Ex) If you subscribe to a magazine, you generally pay a one-year subscription in
advance. For the publishing company, cash is received but nothing has been done to
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