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Exam 2 Review

by: Katelyn Notetaker

Exam 2 Review ACC 212

Katelyn Notetaker
Principles of Financial Accounting

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About this Document

Exam 2 Review: Chapters 4, 5, 6
Principles of Financial Accounting
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This 11 page Bundle was uploaded by Katelyn Notetaker on Tuesday October 20, 2015. The Bundle belongs to ACC 212 at Grand Valley State University taught by Dunn in Fall 2015. Since its upload, it has received 35 views. For similar materials see Principles of Financial Accounting in Accounting at Grand Valley State University.


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Date Created: 10/20/15
What to Expect on Exam 2 Acc 212 Dunn Fall 2015 Exam 2 will include 32 multiple choice questions each worth 25 points for a total of 80 points and two 10 point problems Whichever chapter does not have a 10point problem will have a series of 4 multiple choice questions that make up the equivalent of a 10point problem The three potential 10point problems will be Chapter 4 Given an unadjusted trial balance make adjusting entries or answer questions about the adjustments that need to be made Chapter 5 Inventory costing problem requiring calculation of ending inventory and cost of goods sold using FIFO LIFO and weighted average inventory costing Chapter 6 Prepare a bank reconciliation or answer questions about how to handle potential reconciling items The multiple choice questions are spread evenly across the three chapters except that whichever chapter doesn t have a 10 point problem will have more multiple choice questions ie the extra series of 4 multiple choice questions Chapter 4 Know the concepts information characteristics and accounting principles and how they relate to accrual accounting eg historical cost versus current value reliability relevance costbenefit comparability consistency understandability verifiability time period monetary unit economic entity 0 the amount paid for an asset and used as a basis for recognizing it on the balance sheet and carrying it on later balance sheets Used to measure many of the assets recognized on the balance sheet the amount of cash or its equivalent that could be received by selling an asset currently capacity of information to make a difference in a decision allows a user to analvze two or more companies and look for similarities and differences allows a user to compare two or more accounting periods for a single companv quality of information that makes it comprehensible to those willing to spend the necessary time assume it s possible to prepare an income statement that fairly reflects the earnings of a business for a specific period of time yardstick used to measure amounts in financial statements money the US dollar assumption that a single identifiable unit must be accounted for in all situations Understand the differences between cash basis and accrual basis accounting be able to apply either to various scenarios 0 revenues are recognized when cash is received 0 revenues are recognized when it is earned Cash Basis Accrual asis Revenueis H a V W recognized When Received When Earned Expenseis 7 q ewgnized When Paid When Incurred Understand and be able to apply the revenue recognition principle and the matching principle 0 revenues are recognized in the income statement when they are realized and earned o the association of revenue of a period with all of the costs necessary to generate that revenue Identify the effect of various transactions and of adjusting entries on the accounting equation when using accrual accounting 0 Cash paid before expense is incurred Sept 1 Prepaid insurance 2400 Cash 2400 To prepay insurance policy for 12 rnonths Sept 30 insurance Expense 200 Prepaid Insurance 200 To recognize 200 of insurance expense for the month Prepaid insurance Insurance Expense 9i 2400 930 200 200 930 Bal 2200 O Cash received before revenue is earned Sept 1 Cash 2400 insurance Collected in Advance 2400 To record receipt of cash on insurance policy for t2 months Sept 30 insurance Collected in Advance 200 insurance Revenue 200 To recognize insurance revenue earned for the month insurance Collected in Advance insurance Revenue 2400 91 200 930 930 200 2200 Bal Expense incurred before cash is paid Ii quot 1i quot gt i 2 days expense 1 2 daysquot expense in J Lrnre emerge in duiiy 240000 I 7 ii Friday June 28 39 Sunday une 30 Friday Juiy i2 Lest payday End of accounting Next payday period Revenue earned before cash is received i z gL 7 1 Ii irr39ii rm rni ii ijrii39ii ii39ii 51M Deferred expense Ca sh paid before expense is incurred Insurance policy Asset Expense Supplies Cash Asset Rent Buildings equipment Deferred revenue Ca sh received before revenue is earned Deposits rent Cash Liability Subscriptions Liability Revenue G ift certificates Accrued lliefailfitry Expense incurred before cash is paid Salaries wages Mo Entry Expense Interest Liability Taxes Rent Accrued asset Revenue earned before cash is received Interest No Entry Asset Rent Revenue Know the various labels that are given to income statement and balance sheet accounts eg nominal or temporary and real or permanent o the name given to balance sheet accounts because they are permanent and are NOT closed at the end of the period 0 the name given to revenue expense and dividend accounts because they re temporary and are closed at the end of the period Know which accounts are involved in closing entries and how the closing entries work 0 Closing Entries Returns all the balances to zero for the next accounting period Transfers the net income or loss and dividends of the period to the Retained Earnings account 0 Debit Balance closed by crediting the account for the amount of the balance 0 Credit Balance closed by debiting the account for the amount of the balance 0 All revenue accounts are credited to Income Summary single entry 0 All expense accounts are credited to Income Summary single entry 0 Income Summary balance credit transferred to Retained Earnings Credit Dividends to zero out and offset debit to Retained Earnings Seven expense accounts Three revenue accounts preclosing 39700 39700 52900 52900 preclosing balance balance Dividends income Summary prevclosing 5000 5000 39700 52900 balance il3200 13200 If Retained Earnings 0 pre closing balance 5000 13200 8200 postclosing balance Given supplies on hand purchases and supplies at the beginning of a period be able to calculate the balance that should be reported as supplies expense and the amount that should be reported as supplies on hand ADJUSTING ENTRY Balance of Office Supplies at beginning of period 200 Purchases 2700 in Office Supplies 0 Balance of Office Supplies at end of period 600 0 200 2700 600 2300 Date Account Debit Credit July 31 Supplies Expense 2300 Supplies 2300 Given errors or omissions in making adjusting entries be able to identify whether they will understate overstate or have no effect on net income Be able to prepare adjusting entries and identify their effect on the financial statements or accounting equation 0 journal entries made at the end of a period by a company using the accrual basis of accounting Be able to prepare closing entries and understand the purpose and mechanics of the income summary in those closing entries The balaneea in a eernpantrle reuertue eapenee ElltElIlleErnllIllz and retained earninga aeeeurtta were aa fellewa art December 31 Ema 5 adjuated trial balance Prepare elaeingentrieafer Dec 31 2314 i 4w Expatriate 130 39 llama illnsulrenceE 39 nilEI i39lmzidEI39iEllE Retained Eam ma 2350 Date aceeu nta elbit Credit It lfteaen ure 1 r Chapter 5 Understand the accounts and financial statement numbers affected by sale returns sale allowances sale discounts and purchase returns purchase allowances and purchase discounts o Contrarevenue account used to record refunds to customers and reductions of their accounts Contrarevenue account used to record discounts given to customers for earlv Davment of their accounts 0 Contrapurchases account used in a periodic inventorv svstem when a refund is received from a supplier or a reduction is given in the balance owed to a supplier o Contrarevenue account used to record reductions in purchase price for earlv oavment to a supplier Be able to identify whether a sale or purchase discount applies given payment terms such as 210 n3O or 215 n45 etc Know how a return that occurs before payment is made affects the discount calculation Hint apply the return first then calculate the discount 0 210 n30 2 discount if paid within the next 10 days otherwise net price due in 30 days 0 215 n45 2 discount if paid within the next 15 days otherwise net price due in 45 days Know the differences between periodic and perpetual inventory systems what accounts are used in each and how often inventory and cost of goods sold are updated under each type of system c Inventory account is updated only at the end of the period c Inventory account is increased at the time of each purchase and decreased at the time of each sale Be able to calculate cost of goods sold cost of merchandise purchased andor cost of goods available when given purchases purchase returns amp allowances transportation in beginning inventory and ending inventory 0 Cost of Goods Sold Beginning Inventory Cost of Goods Purchased Cost of Goods Available Ending Inventory 0 Cost of Merchandise Purchased Purchases FreightIn Delivery Purchases Returns amp Allowances Purchase Discounts Understand what transportationin is and how it affects the calculation of the cost of goods sold andor the cost of merchandise purchased 0 adjunct account used to record freight costs paid by the buyer Assets Cash 300 Liabilities 0 Stockholder s Equity 300 Revenues 0 Expenses TransportationIn 300 Net Income 300 Be able to identify whose inventory goods in transit are when they are shipped FOB destination versus FOB shipping point 0 terms that require the seller to pay for the cost of shipping the merchandise to the buyer 0 terms that require the buyer to pay for the shipping costs Be able to calculate cost of goods sold and ending inventory from beginning inventory and purchase information using FIFO LIFO and weighted average costing If sales information is also included then also be able to calculate sales and gross profit 0 First In First Out assigns most recent costs to ending inventory 0 Last In First Out assigns most recent costs to costs of goods sold assigns the same unit cost to all units available for sale during the period Weighted Average Cost Cost of Goods Available for Sale Units Available for Sale Ending Inventory Weighted Average Cost x Number of Units in Ending Inventory 0 Sales Sales Returns and Allowances Sales Discount Gross Profit Net Sales Cost of Goods Sold COGS Be able to extend your detailed knowledge of FIFO LIFO and Weighted Average costing to answer higher level questions such as which method results in the highestlowest income cost of goods sold inventory gross profit etc when prices are risingfalling Be able to calculate inventory turnover and days sales in inventory Also be able to interpret what those ratios mean 0 Inventory Turnover measure of the number of times inventory is sold or used in a time penod Inventorv Turnover Cost of Goods Sold Average Inventory 0 Day of Sales Inventory financial measure of the company s performance that gives investors an idea of how long it takes companies to turn inventory Dav of Sales Inventorv Inventory Cost of Sales x 365 Chapter 6 Be able to classify various financial items as cash equivalents or not 0 investment readily convertible to cash Commercial Paper Treasury bills issued by the government Money market funds NOT cash equivalent Sixmonth bank certificate of deposit Know the definitions of and differences between canceled checks certified checks NSF checks and outstanding checks cleared the depositor s account marked as canceled by bank bank verifies sufficient funds not sufficient funds written by a company but not yet cashed at the bank Be able to compare a bank statement to general ledger cash activity and to prepare a bank reconciliation or to identify certain things that would need to be included on a bank reconciliation a detailed list provided by the bank of all the activity for your account over the month o complete record of financial transactions for a company over the life of the company Understand the entries associated with the establishment of petty cash the using up of petty cash and the replenishment of petty cash Specifically know what the Cash Short amp Over account is and how it works 0 money kept on hand for making minor purchases in cash rather than by writing checks 0 missing or extra money in the petty cash fund For items identified in a bank reconciliation be able to identify the journal entry that should be made if any 0 Reconcile or resolve any differences between balance on the bank statement with balance shown in the accounting records Prepare a list of gt Any deposits shown on the books but not yet on the bank statement gt Add to bank balance Prepare a list of the gt Checks shown on the books but not yet on the bank statement gt Subtract from bank balance Prepare a list of gt Interest paid by the bank amounts collected by bank for customer gt Bank credits increases the liability to company on their books Prepare a list of gt NSF checks service charges gt Bank reduces liability for those items debits liability on its own books Identify any gt Bank errors book errors transaction errors ect Be able to identify internal control procedures and to classify them as one of the six major types discussed in chapter 6 Given procedures be able to identify the category or given a category be able to identify the related procedure 0 policies and procedures necessary to ensure Safeguarding of an entity s assets Reliability of accounting records Accomplishment of overall company objectives 0 Independent Review and Appraisal Safeguarding Assets and Records 0 Independent Verification Seoreoation of Duties Prooer Authorizations Desion and Use of Business Documents SOX formed by Congress in 2002 intended to bring reform to corporate accountability amp stewardship in the wake of many corporate scandals PCAOB five member committee created by SOX sets auditing standards in the United States consists of key officers of an corporation and outside members responsible for general oversight of the affairs of the entity a subset of the board of directors provides direct contact between the stockholders and the independent accounting firm


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