New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Acct 2101, Test 1 study guide.

Star Star Star Star Star
1 review
by: Jennifer Veliz

Acct 2101, Test 1 study guide. ACCT 2101

Marketplace > University of Georgia > Accounting > ACCT 2101 > Acct 2101 Test 1 study guide
Jennifer Veliz

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

These notes cover chapters 1-4 for the first Accounting 2101 test.
Principles of Accounting 1
Swati Bhandakar
Study Guide
ACCT 2101, test 1
50 ?




Star Star Star Star Star
1 review
Star Star Star Star Star
"Why didn't I know about this earlier? This notetaker is awesome, notes were really good and really detailed. Next time I really need help, I know where to turn!"
Andrew Vandervort

Popular in Principles of Accounting 1

Popular in Accounting

This 8 page Study Guide was uploaded by Jennifer Veliz on Sunday February 7, 2016. The Study Guide belongs to ACCT 2101 at University of Georgia taught by Swati Bhandakar in Summer 2015. Since its upload, it has received 146 views. For similar materials see Principles of Accounting 1 in Accounting at University of Georgia.


Reviews for Acct 2101, Test 1 study guide.

Star Star Star Star Star

Why didn't I know about this earlier? This notetaker is awesome, notes were really good and really detailed. Next time I really need help, I know where to turn!

-Andrew Vandervort


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 02/07/16
Accounting 2101 (Swati Bhandarkar) Exam 1 Study Guide Chapter Topics Definitions Other important Chapter 1 Introducing Financial Accounting Accounting identifies, records and communicates information about an organization’s business activities and events that is relevant, reliable and comparable to help users make better decisions.   GAAP Financial accounting practice is governed by rules and concepts known as generally accepted accounting principles (GAAP) GAAP Aims: • To provide relevant information which affects the decisions of its users. • To provide reliable information so users can trust it • To provide comparable information so it can be compared across years and companies.   Setting Accounting Principles • A government agency known as Securities and Exchange Commissions (SEC), has the legal authority to establish reporting requirements and set GAAP for companies that issue stock to the public. (SEC sets GAAP and makes sure companies follow its rules) • SEC delegates the tasks of setting U.S GAAP to the Financial Accounting Standards Board (FASB). FASB sets both broad and specific principles. • The International Accounting Standards Board (IASB) issues preferred accounting principles internationally.     Principles : Measurement (or cost principle)- Prescribes that accounting information is based on actual cost. Cost is measured on a cash or equal-to-cash basis Revenue recognition- Provides guidance on when a company must recognize (record) revenue. Three concepts are important to revenue recognition: 1. Revenue is recognized when earned. 2. Proceeds form selling products and services need not be in cash, (credit sales instead) 3. Revenue is measured by the cash received plus the cash value of any other items received Expense recognition (or matching principles)- Prescribes that a company record the expenses it incurred to generate the revenue reported. Full disclosure- Prescribes that a company reports details behind financial statements that would impact user’s decisions. Assumptions: Going-concern- assumption that the business will continue operating Monetary unit- Expressing transactions and events in monetary, or money, units Time period- Presumes that the life of the company can be divided into time periods Business entity- The business is accounted for separately from other business entities, including its owner. Accounts : Assets- resources owned or controlled by a company: Ex: Cash, buildings, supplies, equipment, vehicles, land, Accounts receivable (right to receive payment in the future), notes receivable (obtaining a note for the right to receive payment in the future) Liabilities- Creditor’s claim on assets (what a company owes) Ex: Accounts payable (Agrees to pay for product of service in the future), Notes payable (providing a note that says company will make payment in the future), taxes payable, and wages payable. Equity- Owner’s claim on assets. Composed of common stock + retained earnings – dividends How can you calculate retained earnings? • Record beginning balance (you begin with what you end up with, for ex: if you ended up with $1,000 in 2015, then you begin with $1,000 in 2016) • Add Net income/subtract Net Loss • Subtract dividends • Total: Ending balance of retained earnings Accounting Equation Assets = Liabilities + Equity Financial Statements • Reports used to communicating information to external users in following order: • 1). Income statement- Communicates information about how profitable a business was over a period of time. • 2). Statement of Retained Earnings- explains the changes in retained earnings over a period of time • 3). Balance Sheet- Describes a company’s financial position at a particular date • 4). Statement of Cash Flow- Describes the company’s cash flows during a period of time. Chapter 2. Analyzing and Recording Transactions Account- record of increases and decreases in an area, such as assets, liabilities, equities, revenues and expense items. Prepaid expense is an asset Accrued liabilities and unearned revenues are liabilities Ledger- record of all accounts used by the company and their standing. Chart of accounts- List of all accounts with their identifying number for each. The accounts appear in order of: Assets, Liabilities, and Equity The process: 1. Analyze each transaction and events from source documents (documents that give any type of evidence of a transaction and/or event) 2. Record relevant information in a journal (can be a physical notebook or computerized) 3. Post the information from the journal to ledger accounts 4. Prepare and analyze the trial balance (list of account’s and their balance at a point in time)   Analyzing  and  processing  transactions   T-account-tool used to understand one or more transactions. Informal way of a ledger account. Name of account Left  side  is Right  side   • If debit (left side) increases, credit (right side) always  the   if  always   decreases and vice versa. debit   the  credit   • Debit doesn’t always mean decrease and Credit (DR)  side   (CR)  side   doesn’t always mean increase. • Rules of debit and credit for the accounts: 1. If an asset, expense, and/or dividend increases, the transaction is recorded as a debit. If these accounts decrease, the transaction is recorded as a credit. • These accounts have a “normal balance” of debit. 2. If the liability, common stock (owner’s equity), and/or revenue account increases, the transaction is recorded as credit. If these accounts decrease, the transaction is recorded as debit. • These accounts have a “normal balance” of credit. Journalizing process: The process: 1. Identify transactions 2. Analyze transactions 3. Record journal entry 4. Post journal information to ledger After posting journal entries into ledger, trial balance sheets are prepared (list of all accounts and their balance. Debits should equal credit). Chapter 3 Adjusting Accounts for Financial Statements The Accounting Cycle 1. Analyze transactions 2. Journalize 3. Post 4. Prepare unadjusted trial balance 5. Adjust 6. Prepare adjusted trial balance 7. Prepare statements 8. Close accounts 9. Prepare post-closing trial balance 10. Reverse (optional) Accounting period: period for which a company reports its transactions. Most organizations use a year as their accounting period, which is known as annual financial statements Fiscal Year: A period that starts at any time of the year and ends 12 months later. Accrual basis accounting- uses adjusting process to record revenues when earned and expenses when incurred Cash basis accounting- recording revenues when cash is received and expenses when cash is paid. (NOT CONSISTENT WITH GAAP) Revenue recognition- Record revenue when it’s earned (when products or services are provided). Expense recognition (aka matching principle)- Recording expenses that were incurred to generate revenues, in the same accounting period. Adjusting accounts: • These entries are done at the end of the accounting period to bring an asset or liability account balance to its proper amount. 1. Determine current balance 2. Determine what the current balance should equal 3. Recording an adjusted entry to get form step 1 to step 2. v There are 4 types of adjustments: 1. Prepaid (deferred) expenses Paid  (or  received)  cash  BEFORE   (Includes depreciation- allocating the expense  (or  revenue)  recorded   cost of plant and equipment over their expected useful lives) 2. Unearned (deferred) revenues 3. Accrued expenses Paid  (or  received)  cash  AFTER   4. Accrued revenues expense  (or  revenue)  rec  d Book value: Cost of asset minus accumulated depreciation (what has been used of the depreciation through out the period). Accumulated depreciation account- is a contra asset account. It’s linked to another account, has an opposite balance, and it’s subtracted from the other account’s balance. What happens if entry isn’t adjusted Type Adjusting Entry Balance Sheet Income Statement Prepaid (deferred) Debit Expense Asset overstated Expense understated expenses Credit Asset Equity overstated Net income overstated Unearned (deferred) Debit Liability Liability overstated Revenue understated revenues Credit Revenue Equity understated Net income understated Accrued expense Debit expense Liability understated Expense understated Credit Liability Equity overstated Net income overstated Accrued Revenues Debit Assets Asset understated Revenue understated Credit Revenue Equity understated Net income understated v After adjusting these accounts, you prepare an adjusted trial balance. Classified Balance Sheet- Reports the accounts and their balance in the order of: Current assets Long-term investments Plant assets Intangible assets Current liabilities Long-term liabilities Equity v After preparing financial statements, accounts need to be closed Temporary (nominal accounts) are accounts that are closed at the end of every period. These accounts are income statement accounts, dividends account, and the income summary account. Permanent  (real)  accounts-­‐  reports  activities  of  one  or  more  future  accounting   periods.  The  ending  balance  of  one  period  becomes  the  beginning  balance  of  the   next.  These  include  the  following  accounts:  asset,  liability,  common  stock,  and   retained  earnings   Recording closing entries STEPS: 1. Close credit balances in revenue accounts to Income summary 2. Close debit balances in expense accounts to income summary 3. Close income summary to retained earnings 4. Close dividends account to retained earnings. v After closing accounts, post-closing trial balance are prepared. The only accounts on this balance sheet are assets, liabilities, and equity accounts.     Chapter 4   Reporting and analyzing Merchandising Operations   Reporting  income  for  a  merchandiser     Net  sales  (revenue)  –  cost  of  goods  sold  (expense)  =  gross  profit  –  expenses=  Net   Income       Inventory  systems   5box  system:   Beginning  inventory  +  Net  purchases           Merchandise  available     Ending  inventory  +  cost  of  goods  sold       Inventory  systems:   Perpetual  Inventory  system-­‐  Inventory  account  is  continuously  updated.       Periodic  Inventory  system-­‐  Inventory  records  are  updated  at  the  end  of  the   period.     Merchandising  transactions   Purchase  discounts:  induce  early  payment  from  the  buyer.     Credit  terms-­‐  amounts  and  timing  of  payments  from  a  buyer  to  a  seller   “n/#”  (Net  #  days)  –  seller  requires  payment  within  #  days  after  invoice  date..   EOM  –End  of  Month   Credit  Period-­‐  Amount  of  time  allowed  before  full  payment  is  due.   Discount  period-­‐  buyer  can  receive  a  discount  if  payment  is  done  within  this  period     Ex:  2/10,  n/30  means  the  amount  is  due  within  30  days,  but  the  costumer  can   receive  a  2  %  discount  if  paid  within  10  days     Purchase  returns  and  Allowances   Purchase/sales  returns-­‐  buyer  returns  merchandise  to  seller.   Purchase/sales  allowance-­‐  reduction  in  the  cost  of  defective  or  unacceptable   merchandise  that  a  buyer  gets.     Transportation  Costs  and  ownership  transfer   Free  on  board  (FOB)  point  at  which  it’s  determined  who  pays  transportation  costs.     Points  of  transfer-­‐   1. FOB  shipping  point–  buyer  is  responsible  for  paying  transit  costs  and   accepts  ownership  when  the  goods  leave  the  seller’s  place.     -­‐  This  transaction  can  be  written  as  transportation-­‐in  or  fright-­‐in   2. FOB  destination-­‐  Seller  is  responsible  for  paying  transit  cost,  and  ownership   is  given  to  the  buyer  when  the  goods  arrive  at  the  buyer’s  place  of  business.     -­‐This  transaction  can  be  written  as  transportation-­‐out  of  fright-­‐out       Debit=  Dr.   Credit=  Cr.   Merchandising  transactions   Merchandising  company  as  a  Buyer   Merchandising  company  as  a  Seller   Cash  purchase:   Cash  Sale            Dr.  Merchandise  inventory  (MI)   Dr.  cash                      Cr.  cash            Cr.  Sales   Dr.  Cost  of  Goods  sold  (COGS)            Cr.  MI   Credit  Purchase     Credit  Sale            Dr.  MI   Dr.  Accounts  Receivable                      Cr.  Accounts  payable          Cr.  Sales       Dr.  COGS   Credit  payment            Cr.  MI          Dr.  accounts  payable                        Cr.  cash   Receipt  of  Payment                      Cr.  MI  (discount  if  any)    Dr.  Cash   Dr.  Sales  (discount)          Cr.  Accounts  receivable   Credit  Purchase   Credit  Sale          Dr.  MI   Dr.  cash                Cr.  cash          Cr.  Sales     Dr.  Cost  of  Goods  sold  (COGS)   Purchase  Return            Cr.  MI      Dr.  Accounts  payable              Cr.  MI   Sales  Return     Dr.  Sales  Return  &  Allowances   Payment          Cr.  Accounts  receivable      Dr.  remaining  Accounts  payable   Dr.  MI                Cr.  cash        Cr.  COGS                Cr.  MI  (discount)     Payment   Dr.  Cash   Dr.  Sales  discounts        Cr.  Accounts  receivable   Transportation  cost:  FOB  Shipping  point   Transportation  cost:  FOB  destination  point   Dr.  MI     Dr.  Delivery  Expense                Cr.  Cash            Cr.  Cash   If asked for Net Cost of Purchase (NCP) [Buyer] Invoice amount - Purchase returns - Purchase discounts + Transportation in =NCP total If asked for Gross Profit [Seller] Sales - Sales returns - Sales discounts = Net sales - Cost of Goods Sold = Gross profit Adjusting  entries  for  merchandiser   Shrinkage-­‐  Physical  count  of  inventory  doesn’t  match  with  recorded  amounts  (loss   of  inventory).  Debit  Cost  of  Goods  sold,  credit  Merchandise  Inventory.     Debiting and crediting Merchandise inventory and Cost of Goods Sold (COGS) Merchandise inventory COGS Beginning balance Purchase returns Purchases Purchase discounts Sales Sales return Transportation-in Sales Shrinking Sales returns Shrinking Ending Balance Ending balance Making  statements   Single-­‐step  income  statement-­‐  lists  cost  of  goods  sold  as  another  expense   Multiple-­‐step  income  statement-­‐  shows  detailed  computations  of  net  sales  and   other  costs  and  expenses.   Includes:   • Sales   • Net  Sales   • Operating  expenses  (Selling  expenses  and  General  and  administrative   expenses).     Closing  entries  for  merchandise   Closing  entries  are  similar  to  service  companies,  except  new  temporary  accounts   need  to  be  closed.     1. Close  revenue  accounts   2. Close  Expenses  accounts  (Sales  discounts,  sales  returns,  cost  of  goods  sold   and  delivery  expense  are  also  under  expense  accounts)   3. Close  income  summary   4. Close  dividends.      


Buy Material

Are you sure you want to buy this material for

50 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Jennifer McGill UCSF Med School

"Selling my MCAT study guides and notes has been a great source of side revenue while I'm in school. Some months I'm making over $500! Plus, it makes me happy knowing that I'm helping future med students with their MCAT."

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.