ACCN 2010 Exam 1 Study Guide
ACCN 2010 Exam 1 Study Guide ACCN 2010
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This 4 page Study Guide was uploaded by Tara Watkins on Saturday February 13, 2016. The Study Guide belongs to ACCN 2010 at Tulane University taught by Christine Smith in Spring 2016. Since its upload, it has received 188 views. For similar materials see Financial Accounting in Accounting at Tulane University.
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Date Created: 02/13/16
Accounting 2010 Exam 1 Study Guide Accounting is a way of keeping track of any resources that an entity has Accounting data is provided to many different groups within the organization such as: o Owner(s) o Executives (including CEO, CFO, President, Vice President, etc.) o Investors o Employees Accounting data is also provided to many groups outside of the organization such as: o Consumers o Creditors (including vendors and financial institutions (for loans)) o Competition o Government agencies (Could include IRS, SEC, OSHA, etc) The financial information is identified, measured, and then communicated to users by: o Creating financial statements that meet GAAP standards GAAP stands for Generally Accepted Accounting Principles GAAP statements include several parts: Balance sheet Income statement Statement of owner’s (or stockholders’) equity Statement of cash flows Note disclosures o Reporting additional information that is not required by GAAP standards such as: President’s letter Prospectuses News Releases Environmental reports Forecasts SEC reporting The financial reports are reported to help with: o Allocation of resources (ex. for efficiency or cost saving purposes) o Other decision making (ex. expand the business, downsize, change suppliers, etc.) Two sets of financial reporting standards exist o GAAP (Generally Accepted Accounting Principles) Set by the FASB (Financial Accounting Standards Board) FASB faces pressure from user groups about what they want the standards to include o IFRS (International Financial Reporting Standards) Set by the IASB (International Accounting Standards Board) An expectation gap exists between what accountants should do ethically and what accountants think they can do Assumptions made when preparing financial information: o Economic Entity Assumption Keep track of the entity as if it is completely separate from the owner even if it is not (only include assets that belong to the business) o Capitalistic Economy Assumption Have to assume that the organization is operating in a capitalistic economy The basic accounting equation is: Assets = Liabilities + Owner’s Equity (ALOE) o Assets are resources used to generate revenue by producing goods or performing services (Ex. Land, raw materials, cash, equipment, etc.) o Liabilities and owner’s equity are both types of equity o Equities are claims to an organization’s assets 2 types of claims to assets Non-owner’s claims (liabilities) Owner’s claims (owner’s equity) Contributed capital - when an owner puts cash or equipment into the business Earned capital – when revenue > expenses, profit is earned which increases owner’s equity o Assets – liabilities = net assets o Net assets = owner’s equity Double entry bookkeeping is another system of accounting o Created in 1492 o Best system for catching errors o Basic method has not changed since then o Each item is recorded separately and is called an account o The collection of all accounts is called the general ledger o Each entity has one general ledger throughout its life o The left side of any account is called the debit side o The right side of any account is called the credit side o Recording transactions in the general ledger is done using T accounts Ex. Debit Credit (Left) (Right) o When one account is debited, at least one other account must be credited o Debits should always equal credits o If an asset account increases, debit it o If an asset account decreases, credit it o However, debit does NOT always mean positive o Credit does NOT always mean negative o For owner’s equity Debit = decrease Credit = increase o For liabilities Debit = decrease Credit = increase o For assets Debit = increase Credit = decrease o Expenses and Revenue are both temporary owner’s equity accounts o Expenses Debit = increase Credit = decrease o Revenue Debit = decrease Credit = increase o General ledger accounts on the left side of the vertical line: have positive debit balances are always increased by a debit are always decreased by a credit o General ledger accounts on the right side of the vertical line: have positive credit balances are always increased by a credit are always decreased by a debit o General ledger accounts above of the horizontal line: Are permanent accounts (balance sheet accounts) o General ledger accounts below the horizontal line: Are temporary accounts (income statement accounts) o The total of the debits should ALWAYS equal the total of the credits Trial balances are not formal financial statements o Just because the trial balances balanced does NOT mean that the financial statements will be 100% accurate Only means that the debit and credit rule was followed Could’ve debited the wrong asset account, credited the wrong liability account or vice versa Accounting cycle steps: o 1. Determine if the event is a recordable transaction o 2. Record events in a journal Journals – chronological records of every day’s transactions o 3. Post entries into the general ledger These days posting is typically done in real time (instantaneously) o 4. Create financial statements Before financial statements can be created: Get totals for all accounts Create an unadjusted trial balance o 5. Analyze account balances Matching principle Accrual method of accounting Identify revenues and expenses based on when cash is earned or expenses are incurred Create an adjusted trial balance o 6. Create new financial statements o 7. At the end of the cycle, make sure that: Closing entries have been entered into the journal Closing entries have been posted into the general ledger New total account balances have been calculated Temporary account balances are $0 A new post-closing trial balance has been calculated o 8. Begin a new cycle
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