Exam 1 Study Guide
Exam 1 Study Guide ACCT 2110 - 002
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This 3 page Study Guide was uploaded by Cheyenne Hunt on Sunday January 31, 2016. The Study Guide belongs to ACCT 2110 - 002 at Auburn University taught by Elizabeth Miller in Winter 2016. Since its upload, it has received 43 views. For similar materials see Principles of Financial Accounting in Accounting at Auburn University.
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Date Created: 01/31/16
Exam 1 Study Guide Sole Proprietorship One controlled owner; easily formed; tax advantages; personal liability; limited life Partnership Multiple shared control owners ; more human capital resources; tax advantages; personal liability; limited life Corporation Easier to raise money; easier to transfer ownership; limited liability; more complex to organize; higher taxes Balance Sheet Reports assets, liabilities, and stockholders’ equity Current assets- cash, account receivables, short-term investments, inventories, supplies, prepaid expenses, etc.; assets expected to be converted into cash within one year Noncurrent assets- long-term investments and other deferred charges that will take longer than one year to convert into cash Current liabilities- accounts payable, salaries payable, etc.; obligations that will be satisfied within one year Long-term liabilities and stockholders’ equity- notes payable, bonds payable, common stock, retained earnings, etc.; obligations that will be satisfied beyond one year Income Statement Reports revenues, expenses, and net income or net loss Revenue- cash earned by the company from sales and other sources within a year Expense- cash paid by the company, mostly due to operations, within a year Single-step or multiple-step Retained Earnings Statement Reports retained earnings and how much was distributed in dividends Beginning RE ± Net Income/Loss – Dividends= Ending RE Statement of Cash Flow Reports the sources and uses of a company’s cash over a period of time GAAP Generally accepted accounting principles SEC Securities and Exchange Commission Has the power to set accounting rules for publicly traded companies FASB Financial Accounting Standards Board The primary accounting standard setter in the United States IASB International Accounting Standards Board IFRS International financial reporting standards Financial Accounting Equation Assets= Liabilities + Stockholders’ Equity Qualitative Characteristics of Accounting Information Relevance- capable of making a difference in a business decision Faithful representation- accurately represents the real world Comparability- allows external users to identify similarities and differences between items Timeliness- available to users before it loses its ability to influence decisions Understandability- users who have a reasonable knowledge of accounting and business can, with reasonable study effort, comprehend the meaning of the information Verifiability- independent parties can agree on the measurement of the activity Assumptions of Accounting Information Economic entity- each company is accounted for separately from its owners Continuity- going concern; a company will continue to operate long enough to carry out its existing commitments Time period- life of a company to be divided into official time periods Monetary unit assumption- account for and report its financial results in monetary-terms Principles of Accounting Information Historical Cost- the activities of a company to be initially measured at their cost Revenue recognition- earned when goods or services are provided to customers Expense recognition- matching; in the same period as the revenue that it helped generate, expenses are recorded Conservatism- accounts should avoid overstating assets or income The Accounting Cycle Step 1: Analyzing transactions o Write down the accounting equation o Identify the financial statement elements that are affected by the transaction o Determine whether the elements increased or decreased Step 2: Journalize transactions o The date of the transaction o The accounts and amounts to be increased or decreased o A brief explanation of the transaction
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