EXAM 1 (40 QUESTIONS, 2-HOUR TIME LIMIT)
CHAPTER 1
Know about the three main forms of business ownership including the characteristics
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advantages and disadvantages of each.
Know the difference between internal and external users, examples of each, and how they might
use accounting information in decision-making.
Know about the three types of business activities (operating, investing, and financing), including
examples of activities that fit into each category.
You need to know the following definitions and examples of each--assets, liabilities, stockholders’
equity, revenues, expenses, and dividends.
You will need to know how to work with the accounting equation and also the equation used to
calculate net income. Review the homework where you were asked to solve for missing numbers
in the financial statement relationships.
Know about the two components of stockholders’ equity and which four things increase and
decrease these 2 components (i.e., the rules that relate to Common Stock and Retained Earnings).
Know about the financial statements in terms of format and content, including their dating and
order of preparation.
Know what is included in the various components of a company’s annual report.
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CHAPTER 2
Know the classifications, including definitions, of a classified balance sheet and the various
accounts that would reported in each classification. You should also know the proper order of the
accounts in the classifications.
Know and be able to calculate all of the ratios in chapter 2. Make sure you can determine the
correct amounts to be used in the ratio calculations. For example, you would need to know which
assets are current assets and which liabilities are current liabilities if being asked to calculate the
amount of working capital.
Know what net income and a net loss would do to retained earnings.
Know which ratios help assess profitability, solvency, and liquidity and what kinds of users would
use these 3 different categories of assessments.
Know what GAAP stands for and what it is. Who determines GAAP and who enforces it?
Know the two fundamental qualities and five enhancing qualities of useful accounting information.
Know the three characteristics of relevance and three characteristics of faithful representation.
Know what materiality is, including examples.
Know the following: Economic Entity Assumption, Going Concern Assumption, Monetary Unit
Assumption, Periodicity Assumption, Full Disclosure Principle, Fair Value Principle, Historical Cost
Principle, and Cost Constraint.
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