MGT 8803 - FINANCIAL ACCOUNTING STUDY GUIDE
Proprietorship - Answer -A form of business organization with one owner who takes all
the risks and all the profits. Unlimited liability, but the business doesn't pay taxes.
Partnership - Answer -A business owned by two or more people who share its risks and
rewards. Unlimited liability, but the business doesn't pay taxes.
Corporation - Answer -A business owned by stockholders who share in its profits but
are not personally responsible for its debts. Double taxation.
Going Concern Assumption - Answer -The assumption that the company will continue
in operation for the foreseeable future.
Periodicity Assumption - Answer -An assumption that the life of a business can be
divided into artificial time periods and that useful reports covering those periods can be
prepared for the business.
Materiality Assumption - Answer -The only information that needs to be disclosed in
financial statements is that which will be useful for those who use the financial
statements to make decisions.
GAAP - Answer -Generally Accepted Accounting Principles. The standards and rules
that accountants follow while recording and reporting financial activities.
SEC - Answer -Securities and Exchange Commission
FASB - Answer -Financial Accounting Standards Board, is the private sector body
given the primary responsibility to work out the detailed rules that become GAAP.
IFRS - Answer -International Financial Reporting Standards. Opposition from US
companies to convert to this.
GAAP vs. Tax Accounting - Answer -Tax accounting focuses on IRS reporting.
Qualities of Financial Statements - Answer -Understandability, timeliness, full
disclosure, comparability (over time and with other companies), objectivity (accuracy not
applicable because judgement needed), decision relevance.
Three Required Financial Statements - Answer -1. Balance Sheet
2. Income Statement
3. Statement of Cash Flows
