Ch 1-3; Exam 1 Study Guide (BASED ON ORIGINAL)
Ch 1-3; Exam 1 Study Guide (BASED ON ORIGINAL) Acct 2010
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This 4 page Study Guide was uploaded by Jordan Notetaker on Tuesday January 26, 2016. The Study Guide belongs to Acct 2010 at Clemson University taught by Holly Hawk in Fall 2016. Since its upload, it has received 121 views. For similar materials see Financial Accounting Concepts in Accounting at Clemson University.
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Date Created: 01/26/16
Exam 1 Study Guide: Chapter 1-3 Prof Holly Hawk, Section 004 **see “ACCT 2010 EXAM 1 STUDY TOPIC GUIDE” on Blackboard** The three basic forms of business ownership: Sole proprietorship (sole owner), Partnership (two or more owners), Corporation (multiple owners). o In a sole proprietorship, the business is comprised of the owner’s life assets o In a partnership, legal action should be taken to ensure each party is on the same page about profit share and shift in ownership. o In a corporation, owners do not have legal obligation to the taxes and debts however legal fees associate with building a corporation are costly and can also generate a lot more money. The four basic financial statements o Income Statement o Statement of Retained Earnings o Balance Sheet o Statement of Cash Flows Types of accounts per financial statement o Income statement – revenues, expenses, net income o Statement of retained earnings – retained earnings (add: net income, subtract: dividends) o Balance sheet – assets, liabilities, and stockholders’ equity o Statement of cash flows – cash flows (operating activities, investing activities, financing activities, etc.) Accrual accounting means revenues and expenses are reported on the income statement when they are incurred, regardless of cash receipts or payments. The revenue recognition principle states that revenues are recorded when earned. The matching principle (or the expense recognition principle) states that expenses are recorded in the same period as the revenues which they relate to. Record and summarize transactions using the accounting equation: (screenshots from professor’s provided slideshow on Ch. 3) Business activity classification o Financing activities are those related to exchanging money between lenders/owners, and the business itself. Cash inflows - capital is raised; cash outflows - dividends are paid/debt is reduced o Operating activities are those related to functionality of the business (daily events). Whatever the business was made to do are operating activities. Cash inflows - o Investing activities are those relate to the betterment/growth of the business i.e. purchasing new equipment, acquiring other companies, long-term assets. Cash inflows - divested assets; cash outflows - cash changed to investment Debit/Credit Framework and Recording transactions o Debits(dr) – recorded on the left Increase in assets Decrease in liabilities and/or stockholders’ equity o Credits(cr) – recorded on the right Decrease in assets Increase in liabilities and stockholders’ equity T-Accounts and Summarize transactions o A t-account is a simplified version of a ledger in the form of a journal entry used to record financial information. o Each t-account represents the dr and cr columns on of the corresponding ledger. Net income and Dividends and their affects on retained earnings o Net income is ADDED to retained earnings while Dividends are SUBTRACTED from retained earnings “Given any three of the four following items, calculate the missing one: Beginning Retained Earnings Balance, Net Income, Dividends, Ending Retained Earnings Balance” How to calculate net income o Revenues – Expenses = Net Income What is a dividend? How does it affect: financial statements AND accounts? o A dividend is a part of earnings that are returned to investors typically as cash. o Affected statement(s): Statement of Retained Earnings, Statement of Cash Flows, The Balance Sheet o Affected account(s): Stockholders’ equity, Current liabilities, Cash, Retained earnings What types of transactions are NOT recorded in the accounting system? o Exchange of promises/verbal commitments o Intangible assets like creativity, innovation, and vision Current Ratio and Net Profit Margin o current assets current liabilities = current ratio this equation determines if current assets are sufficient enough to pay current liabilities a higher ratio means greater ability to pay o net income revenues = net profit margin this equation tells how much is profited from each dollar of revenue a higher ratio typically means better performance Unadjusted Trial Balance o Presents the unadjusted balance for every account This helps determine which accounts then need to be adjusted Adjustments aren’t made until the END of the accounting period EXAM RULES COPIED FROM PROF STUDY GUIDE (highlighted) The exam covers chapters 1 through 3. You are responsible for all assigned material for these chapters, including reading assignments, homework, class lectures and discussions, and other materials your professor may have provided. This topic list is not all inclusive. This list helps you see all the various topics covered in the following chapters. On the exam day, please make sure to have your laptop charged and ready. BE SURE TO BE IN YOUR CORRECT SECTION. Also, only a basic 4 function calculator is allowed during exams (NO GRAPHING CALCULATORS!). I will provide scratch paper. The exam is set for 50 minutes in Connect and you only have our class time to complete. Please be aware of your time! The exam is worth a total of 100 points. There are 20 multiple choice questions and 3 problems on the exam. Each multiple choice questions is worth 2.5 points and the problems are worth 50 points total. Approximately 25% of the multiple choice questions require computations to obtain the answer.
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