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ACCT Exam 1 Study Guide

by: Jessica Su

ACCT Exam 1 Study Guide ACCT 2101

Marketplace > University of Georgia > Finance > ACCT 2101 > ACCT Exam 1 Study Guide
Jessica Su
GPA 3.8

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About this Document

Principles and assumptions that we need to memorize for the Exam. Good Luck!!
Swati Bhandarkar
Study Guide
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This 3 page Study Guide was uploaded by Jessica Su on Wednesday February 10, 2016. The Study Guide belongs to ACCT 2101 at University of Georgia taught by Swati Bhandarkar in Spring 2016. Since its upload, it has received 54 views. For similar materials see Accounting in Finance at University of Georgia.


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Date Created: 02/10/16
ACCT 2101 Exam I Study Guide Chapter 1  Accounting is a system that identifies, records, and communicates information that is  relevant, reliable, and comparable to help users make better decisions.  External users: lenders, shareholders, governments, consumer groups, external  auditors, and customers  Internal users: managers, officers/directors, internal auditors, sale staff, budget officers, and controllers  Financial Accounting provides information to external users via financial statements  Managerial Accounting provides information to internal users via internal reports  General Accepted Accounting Principles (GAAP)­ financial accounting practice that  is governed by concepts and rules   Security and Exchange Commission (SEC)­ a government agency that has the legal  authority to establish reporting requirements and set GAAP for companies that issue  stock to the public  o The SEC accepts the pronouncements of the FASB o Financial Accounting Standards Board (FASB)­ the private group that sets  both broad and specific principles o International Accounting Standards Board (IASB)­ issues international  standards that identify preferred accounting practices in other countries. More  than 115 countries now require or permit companies to prepare financial reports  following IFRS  Sarbanes­Oxley Act (SOX)­ act passed by Congress in response to a number of  publicized accounting scandals o aims at curbing financial abuses by companies that issue their stock to the public o requires that public companies apply both accounting oversight and stringent  internal controls to ensure more transparency, accountability, and truthfulness in  reporting transactions Accounting Principles  Measurement Principle (Cost Principle)­accounting information should be based on  actual cost  Revenue Recognition Principle­ provides guidance on when a company must  recognize revenue  Matching Principle (Expense Principle)­ a company must record its expense incurred  to generate the revenue  Full Disclosure Principle­ include all information in financial statements that would  impact users’ decisions Accounting Assumptions  Going­Concern Assumption­ assumption that a business will continue operating  Monetary Unit Assumption­ transactions are expressed using “money” as a common  denominator  Time Period Assumption­ the life of a business can be divided into distinct time  periods, such as months and years  Business Entity Assumption­ a business is accounted for separately from its owner or  other business entity o if the owner bought a personal car, then it cannot be recorded under the  business account  Chapter 2  Account­ a record of increases and decreases in a specific asset, liability, equity,  revenue, or expense item  Chart of Accounts is a list of all account and includes an identifying number for each  account  Ledger­ a complete collection of all accounts for an information system. A company’s  size and diversity of operations affect the number of accounts needed   T­account represents a ledger account and is a tool used to understand the effects of  one or more transactions  The trial balance lists all account balances in the general ledger. If the books are in  balance, the total debits will equal the total credits o Information from the Trial Balance is used to prepare Financial Statements Chapter 3  The Accounting Cycle o Start→ Analyze transactions→ Journalize transactions→ Post→ Prepare  unadjusted trial balance→ Adjust→ Prepare adjusted trial balance→ Prepare  financial statements→ Close→ Prepare post­closing trial balance  Accrual Basis­ revenues are recognized when earned and expenses are recognized  when incurred   Cash Basis­ revenues are recognized when cash is received and expenses are  recognized when cash is paid (NOT CONSISTENT WITH GAAP)  o Ex. A company paid $2,400 for a 24­month insurance policy beginning December 1, 2008. The entries $2,400 would be recognized as insurance expense in 2008,  but none for 2009 or 2010  Noncurrent Assets o Long­Term Investments­ expected to be held for longer than one year  Ex. note receivable, investments in stocks and bonds, land held for future  expansion (bc it is NOT used in operations) o Plant Assets­ tangible assets that are both long­lived and used to produce or  sell products and services   Ex. Equipments, machinery, buildings, and land  order is listed from most liquid to least liquid such as equipment and  machinery and buildings and land o Intangible Assets­ long­term resources that benefit business operations, usually lack physical form and have uncertain benefits  Ex. patents, trademarks, copyrights, franchise, and goodwill  Temporary Accounts accumulate data related one accounting period and will have a  zero balance at the beginning of a new period o Ex. revenues, expenses, dividends, and the Income Summary account  Permanent Accounts report activities related to one or more future accounting periods,  include assets, liabilities, Common Stock, and Retained Earnings  The only account in Post Closing Trial Balance should be assets, liabilities , and equity  accounts Chapter 4 (Reporting and Analyzing Merchandising Operations)  Net sales ­ COGS = Gross Profit ­ Expenses = Net Income o Net Sales = Sales ­ sales returns & allowances ­ sales discounts   BI (Beginning Inventory) + NCP (Net Cost of Purchases) = MAS (Merchandize Available  for Sale) = COGS (Cost of Goods Sold) + EI (Ending Inventory) o NCP = Invoice cost of merchandise purchases ­ purchase returns & allowances + transportation in  Perpetual Inventory System­ continuously updates balance of merchandise inventory  Periodic Inventory System­ updates balances of merchandise inventory at the end of  the accounting period   FOB Shipping Point: shipping is paid by the buyer o Cost is added to MI o Transportation in   FOB Destination: shipping is paid by the seller o Cost is increased to Delivery Expense o Transportation out


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