Study Guide for first BMGT220 Midterm
Study Guide for first BMGT220 Midterm BMGT220
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This 7 page Study Guide was uploaded by bmgt220notetaker on Monday February 15, 2016. The Study Guide belongs to BMGT220 at University of Maryland - College Park taught by Dr. Basu in Winter 2016. Since its upload, it has received 377 views.
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Date Created: 02/15/16
Accounting Exam 1 Study Guide Chapter 1: I. Nature of Business & Accounting 1. business organization in which basic resources, such as materials and labor provide output 2. profit difference between amounts received from customers and amount paid for inputs A. 3 types of business 1. Service business provide services rather than products to customers 2. Merchandising business sell products they purchase from other business to customers 3. Manufacturing business change basic inputs into products sold B. Accounting information system that provides reports to users about economic activities 1. Accounting as an information system a) Identify users b) Assess users information needs c) Design accounting information system to meet users’ needs d) Record economic data about business activities and events e) Prepare accounting reports for users 2. Types of accounting a) Managerial accounting internal users of accounting info b) Private accounting managerial accounts employed by a business c) Prepare accounting reports for users C. General purpose financial statements 1. financial accounting report that is distributed to external users D. Ethics moral code of conduct 1. SarbanesGrey Act of 2002 created Public Company Accounting Oversight Board 2. public accounting accounting provides service on fee basis 3. GAAP generally accepted accounting principles follow FASB (Financial Accounting Standards Board) II. Business Entity Concept limits data in an accounting system to data related to business activities E. Types of Entities 1. Proprietorship owned by 1 individual (70% of all businesses) a) easy, cheap, all profit goes to owner; limited resources, full liability 2. Partnership is owned by 2 or more partners (10% of all businesses) a) combines skill, share liability, partner can buy out; split revenues 3. Corporation a company authorized to act like its own legal entity (20% of all businesses and 90% of all business revenues) a) legal entity which shields owners from liability, pays taxes, sell shares of stock 4. Limited Liability Company partnership that functions like a corporation F. Accounting Equation 1. Assets resources a business owns (e.g. cash, land, buildings, equipment) 2. Liabilities rights of creditors to claim assets 3. Stockholders/Owner’s Equity rights of owners to claim assets 1. Assets = Liabilities + Stockholders’ Equity Chapter 2: I Using Accounts to Record Transactions G. Account separate record that shows increases & decreases in accounting equation a) Title name of accounting equation element recorded in account b) space for recording increases in the amount of the element c) space for recording decreases in the amount of the element 1. Taccount left side = debit, right side = credit 2. Dead Colr mnemonic device to remember whether to debit or credit increases in an account a) Debit Expenses, Assets, Dividends b) Credit Owner’s Equity, Liabilities, Revenues 2. balance of the account excess debits or credits a) debit balance = excess debits, credit balance = excess credits H. Chart of Accounts 1. ledger group of accounts for a business entity 2. chart of accounts list of accounts in that ledger, in order that they appear 3. Balance sheet Assets > Liabilities > Owner’s Equity 4. Income Statement Revenues, Expenses 5. Assets resources owned by business (e.g. Cash, Supplies, Accounts Receivable, Prepaid Expenses, Land) 6. Liabilities debts owed to creditors (e.g. Accounts, Notes & Wages Payable, Unearned Revenue) 7. Owner’s Equity stockholders’ rights to assets balance of capital stock and retained earnings 8. Revenues increases in equity as a result of selling products to customers (e.g. Rent Revenue, Fees Earned) 9. Expenses using up assets or services (e.g. Wages expense, Rent Expense, Utilities Expense, Supplies Expense, Miscellaneous Expenses) I. Balance Sheet Account Order 1. Assets Cash, Accounts Receivable, Supplies, Prepaid Insurance, Land, Office Equipment 2. Liabilities Accounts Payable, Unearned Rent 3. Stockholders’ Equity Capital Stock, Retained Earnings, Dividends J. Income Statement Order 1. Revenue Fees Earned, Rent Revenue 2. Expenses Wages Expenses, Rent Expense, Utilities Expense, Supplies Expense, Misc. III. DoubleEntry Accounting System 1. doubleentry system based on accounting equation 2. every business transaction recorded in at least two accounts 3. total debits recorded for each transaction = total credits recorded K. Balance Sheet Accounts 1. Assets debit for increase, credit for decrease 2. Liabilities debit for decrease, credit for increase 3. Equity debit for increase, credit for decrease L. Income Statement Accounts 1. Revenue debit for decrease, credit for increase 2. Expense debit for increase, credit for decrease M. Dividends 1. Dividends debit for increase, credit for decrease N. Journalizing 1. journal where transactions are originally entered and recorded 2. e.g. Nov. 5 Land (debit>) 20000 Cash (credit>) 20000 3. Term Debit Credit a) Received cash for services provided Cash Fees Earned b) Services provided on account Accounts Rec. Fees Earned c) Received cash on account Cash Accounts Rec. d) Purchased on account Asset Account Accounts Pay. e) Paid on account Accounts Payable Cash f) Paid cash Asset/Expense Cash g) Issued capital stock Cash Capital Stock h) Paid dividends Dividends Cash IV. Posting Journal entries to Accounts 1. posting transferring debits and credits from journal entries to accounts O. Trial Balance method to check that debits = credits P. Errors 1. transposition & sliding 2. unposted Chapter 3: I Nature of the Adjusting Process 2. Accounting period concept revenues/expenses reported in correct period 3. Accrual basis of accounting revenues reported only after they are earned 4. Revenue recognition concept revenue reported after service/product provided 5. matching concept report revenues and related expenses in same period Q. The Adjusting Process 1. Some expenses are not recorded daily because they don't need to be 2. Some revenues and expenses are incurred as time passes rather than separate transactions 3. some revenues and expenses may be unrecorded, such as unpaid wages R. Types of Accounts Requiring Adjustment 1. Prepaid Expenses a) advance payment of future expenses are recorded as assets when cash is paid b) become expenses over time or during normal operations c) Transaction: Cash is paid for prepaid expense (cash credited, prepaid expense debited) d) Adjustment: Expense is increased by amount prepaid is decreased; expense debited, prepaid credited 2. Unearned Revenues a) advance receipt of future revenues and are recorded as liabilities when cash is received b) Unearned revenues become earned revenues over time or during normal operations c) Transaction: Advance receipt for future services, liability of unearned revenue; cash > unearned revenue d) Adjustment: Unearned revenue debited for amount revenue earned; Unearned> earned 3. Accrued Revenues a) unrecorded revenues that have been earned and for which cash is yet to be received b) fees for services that an attorney or doctor has provided and has not yet billed c) Transaction: Revenues been earned but not yet recorded/received No entry d) Adjustment: asset receivable debited for amount earned, Revenue acct. credited 4. Accrued Expenses a) unrecorded expenses that have been incurred and for which cash has yet to be paid b) Wages owed to employees at the end of the of a period but not yet paid is an accrued expense c) Transaction: an expense incurred, but not yet recorded/paid No entry d) Adjustment: Debit the expense and credit the liability (payable) 5. Depreciation Expense a) Fixed assets long term asset but depreciates over time b) Depreciation expense periodic expense comes from cost of asset depreciation c) Accumulated depreciation credited in contra accounts d) Debit Depreciation Expense, Credit Accumulated Depreciation Chapter 5: I Nature of Merchandising Business 6. service business: fees earned operating expenses = net income 7. Merchandising business: cost of merchandise sold = gross profit (expenses = net income) 8. Fees earned = revenues from services 9. Net income = fees earned operating expenses 10. Sales revenue from merchandise sold 11. Cost of merchandise sold cost of selling merchandise recorded as an expense 12. Gross profit the amount of profit made before subtracting operating expenses 13. Merchandise inventory merchandise on hand (not sold) at end of accounting period V. Merchandising Transactions 1. Subsidiary ledger large number of individual accounts with common characteristics 2. General ledger primary ledger which contains all balance sheet & income state accts. S. Purchases Transactions 1. perpetual inventory system each purchase and sale of merchandise is recorded in the inventory and related subsidiary ledger 2. periodic inventory system does not show amount of merchandise available for sale and sold, instead a physical inventory used to determine cost of merchandise T. Purchases Discounts 1. to encourage the buyer to pay before the end of the credit period offer discount 2. Ex. Buyer purchases 3000 worth of merchandise on account on terms (2/10, n/30) 3. This means it is a 2 % discount payable within 10 days, and no discount w/in 30 days 4. Dr. Merchandise Inventory 3000, Cr. Accounts Payable (buyer name) 3000 5. Dr. Accounts Payable (buyer), Cr. Cash 2940 and Merch Inv. 60 6. This is to keep track of both inventory and payment U. Purchases Returns & Allowances 1. purchases returns & allowances buyer requests allowance for merchandise return (defective, parts missing, etc.) VI. Freight V. FOB Shipping Point 1. buyer pays for the freight costs from the shipping point to final destination 2. Buyer would record the delivery transaction, seller would not 3. (e.g.) Dr. Delivery Expense, Cr. Cash W. FOB Destination 1. seller pays for the freight costs from the shipping point to the buyer’s final destination 2. Seller would record the delivery transaction, buyer would not VII.Miscellaneous X. Sales taxes 1. Seller collects sales taxes temporarily and then pays to the government 2. If a state has a 6% sales tax and buyer pays on account, for example: 3. Dr. Accounts Receivable 106, Cr. Sales 100, Sales Tax Payable 6 4. When it comes time to pay to the government 5. Dr. Sales Tax Payable, Cr. Cash Y. Adjusting for Shrinkage 1. inventory shrinkage when amount of inventory on hand is less than the balance of merchandise inventory 2. usually due to shoplifting, employee theft or error in account 3. Dr. Cost of Merchandise Sold, Cr. Merchandise Inventory
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