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Accounting 211 - Midterm 1 Notes

by: Maddie Evans

Accounting 211 - Midterm 1 Notes ACTG 211

Marketplace > University of Oregon > Business > ACTG 211 > Accounting 211 Midterm 1 Notes
Maddie Evans
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Hey everyone! These are my notes for the midterm on Tuesday, which include definitions, equations, and general information from the lecture and textbook. This does NOT include graphics, however. I ...
Introduction to Accounting
Study Guide
Accounting, ACCTG211
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This 4 page Study Guide was uploaded by Maddie Evans on Wednesday January 13, 2016. The Study Guide belongs to ACTG 211 at University of Oregon taught by Darling in Winter 2016. Since its upload, it has received 57 views. For similar materials see Introduction to Accounting in Business at University of Oregon.

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Date Created: 01/13/16
Accounting 211 – Introduction to Accounting I Midterm #1 Notes : Chapters 1-3 * Notes include information from lectures, homework, and text but DO NOT include graphs, graphics and tables due to pay-per-page pricing in attempt to minimize charges Chapter 1  Accounting is a system that identifies, records, and communicates information that is relevant, reliable, and comparable about an organization’s business activities – often called the ‘language of business’  Three accounting activities: o Identifying business activities  Find what business ventures and transactions are to be counted before devising any journals o Recording business activities  Record any transactions that occurred within the household/business and journal them in general journal, income statement, ledgers, etc. o Communicating business activities  Interpreting journal information, typically in the forms of graphs and tables that can visually show what transactions occurred within the household/company  Recordkeeping (bookkeeping) is recording of transactions and events, either manually or electronically  External Users are those who are not within the company directly, but have a direct influence on the overall success or demise related to their involvement. o They include: lenders, shareholders, external auditors, governments, consumers, customers o External users receive financial statements on quarterly basis  Internal Users are individuals, or groups of individuals, that are directly related to the business and work from “the inside” o They include: Managers, officers, sales staff, controllers, budgeters o Accounting information is used to determine needs and make decisions  Accounting Career Opportunities o Financial  Preparation, analysis, auditing, regulatory, consulting, planning, criminal investigation o Managerial  Treasurer, strategy, internal auditing, budgeting, general accounting o Taxation  Enforcement, legal services, estate plans, preparation o Accounting-Related  Consultants, directors, forensic accountant, FBI investigators, entrepreneurs  Ethics is the belief system that determines what is right or wrong and is very important when looking at legal and accounting documents o In order to be ethical and make good and ethical decisions, one must:  Identify ethical concerns  Using one’s own ethical beliefs to find a concern  Analyze all options  Finding good and bad consequences  Make ethical decision  After weighing benefits and consequences, make final decision  CPA – Certified Public Accountant  CMA – Certified Management Accounting  CIA – Certified Internal Auditor  CB – Certified Bookkeeper  CPP – Certified Payroll Professional  CrFA – Certified Forensic Accountant  GAAP (Generally Accepted Accounting Principles) o Relevant information: Affecting decisions of the users o Reliable information: Trusted by users o Comparable information: Able to compare across many cycles or years between various companies  SEC – Securities and Exchange Commission which is a government agency that has the legal authority to set as manage the GAAP  Principles and Assumptions of Accounting o Measurement Principle (cost principle) – accounting information is based on actual cost o Revenue Recognition Principle – providing guidance on when a company must recognize revenue o Matching Principle – company needs to provide a report showing expenses and revenues o Full Disclosure Principle – company needs to report details between financial statements that may change users’ mind about investing time or money in the company o Going-Concern Assumption – forms and information is under the impression that business will continue operating o Monetary Unit Assumption – able to express transactions in similar money (i.e. American Dollar) o Time Period Assumption – company able to divide up transactions between different periods, such as quarters or years o Business Entity Assumption – Owner not directly responsible for business success or failure  Business entity forms include sole proprietorship, corporation, and partnership  Sarbanes-Oxley Act came about after many scandals (Enron, WorldCom, Tyco) that is an attempt to promote truthfulness, transparency, and honesty when reporting accounting transactions by both internal and external sources  Accounting Equation: Assets = Liabilities + Equity o Assets are resources owned by a company: Cash, Accounts Receivable, Land, Buildings, Equipment, etc. o Liabilities are creditors’ claims on assets: Accounts Payable, Taxes Payable, Wages Payable o Equity is the owner’s claim on assets: Contributed Capital, Retained Earnings, Dividends  Very important to always have both sides of balance sheet equal – always add to one side and subtract from other side, except for rare instances when double-adding to one side, such as receiving a payment in both cash and credit  Financial Statements: o Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash Flows  Income Statement: Describing revenues and expenses, resulting in a net income or loss  Balance Sheet: Describing financial position at a certain point of time Chapter 2  External transactions are those that occur between a company/business and outside and unrelated party  Internal transactions involve occurrences within the business/company  Source documents can include: Checks, Bills from suppliers, Bank statements, Sales tickets  Liquidity is the ability to meet short-term obligations and generate revenues  Solvency is the ability to generate future revenues and meet long-term obligations  Profitability is the ability to provide financial rewards that will retain financing  Market Prospects is the ability to generate market expectations  A general ledger is a record of each account and the occurrences that involve each account  A chart of accounts is a list of all of the accounts with corresponding numbers used to find accounts when preparing general journal for ease of use  Debit all asset accounts when assets are increasing and credit accounts when decreasing  Credit all liability and equity accounts when increasing and debit accounts when decreasing  Debt Ratio = Total Liabilities/Total Assets o This helps to assess the risks associated with the economy and will determine payments if debts Chapter 3  Accrual Basis is when revenues are recognized only when they are earned, but expenses are recognized when they are incurred  Fiscal year consists of 12 consecutive months, or 52 weeks  Prepaid Expenses are those that are paid before receiving the benefits of what was purchased, such as insurance or prepaid telephones  Depreciation is the process of assets losing value over time but within their useful lives o Depreciation Expense = Asset Cost – Salvage Value / Useful Life  Accrued Expenses are costs that are unpaid and unrecorded within a certain time period  When recording closing entries, they must be closed in a particular order: Revenue accounts, Expense accounts, Income Summary accounts, and Dividends accounts  When closing accounts, Move all remaining debits to credits and vise versa to prepare for new business cycle  Trial balance assures that all accounts have been properly closed  Plant Assets are tangible assets that are long-lived and used to produce services or products – equipment, buildings, land, etc.  Intangible Assets are long-term resources that benefit business operations – trademarks, copyrights, franchising, etc.  Current liabilities are those that are needed to be paid within one year or operating cycle  Long-Term Liabilities are those that are not due within a year or operating cycle  Profit Margin = Net Income/Net Sales  Current Ratio = Current Assets/Current Liabilities


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