Test 2 Study Guide
Test 2 Study Guide ACCT 2110 - 002
Popular in Principles of Financial Accounting
ACCT 2110 - 002
verified elite notetaker
Popular in Accounting
This 3 page Study Guide was uploaded by Callisa Ruschmeyer on Saturday February 20, 2016. The Study Guide belongs to ACCT 2110 - 002 at Auburn University taught by Elizabeth G Miller in Fall 2015. Since its upload, it has received 90 views. For similar materials see Principles of Financial Accounting in Accounting at Auburn University.
Reviews for Test 2 Study Guide
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: 02/20/16
Study Guide for Chapters 3 and 4 Chapter 3 Steps of the Accounting Cycle 1. Analyze the transaction 2. Record transactions in the journal 3. Post the transactions in the t-accounts found on the ledger 4. Preform the trial balance 5. Prepare the adjusting journal entries Step 5.5…prepare the adjusted trial balances 6. Prepare the financial statements with the adjusted accounts 7. Close any temporary accounts Accrual vs. Cash Basis Accounting Accrual- follows the GAAP; transactions are recorded when goods and services are provided - AKA when revenue is made Cash- revenue is recorded when cash is received- this breaks the Revenue Recognition principle Adjusting Entries Necessary to apply the revenue recognition and the matching principles o Matching principle- expenses are recorded when they are incurred These entries affect at least one income statement and one balance sheet account Is cash ever adjusted? NO Types of Adjusting Entries Accruals- money change hands at a later date; "build up" Deferrals- money changes hands up front; "put off" a. Accrued Revenues o Cash has not changed hands o Good or service has been provided, but has not been paid for yet o Unrecorded revenues b. Accrued Expenses o Expenses have been incurred, but not paid for yet o Example: I have used electricity, but have not paid the utilities bill yet c. Deferred Revenue o Cash has been received, but revenue has not been earned o Get cash but have not completed any work = liability d. Deferred Expense o Goods and services acquired before they are used o Examples: cash is used to buy supplies, but we have not used all of the supplies yet Depreciation Property, plant, and equipment depreciate- or lose value over time You must adjust to acknowledge that an expense has incurred on the equipment during that specific time period The unused portion of a long-lived asset is put on the balance sheet Written as contra accounts to reduce the amount of long-lived assets o Have a normal credit balance (opposite of what assets have) Closing Accounts Steps 1. Close revenues to Income Summary 2. Close expenses to Income Summary o Now the Income Summary balance is the Net Income for that period 3. Close Income Summary to Retained Earnings 4. Close Dividends to Retained Earnings o Notice that dividends does not get closed through the Income Summary- it goes directly to the Retained Earnings account Never close out balance sheet accounts- assets, liabilities, and stockholders' equity Only revenues, expenses, and dividends are closed or zeroed Make sure to create the income summary t-account o Never transfer dividends into the income summary account- only revenues and expenses Chapter 4 Internal cash control- system of policies and procedures that a company puts in place to provide reasonable assurance that all always and regulations are followed, reporting is reliable, and operations are effective What do internal control reports include 1. A statement of the managements responsibilities 2. Assessment of the effectiveness of the internal controls Elements of Internal Control Control environment o Integrity of ethical values of personnel o Management's philosophy and operating style o Assignment of authority and responsibility o General structure of the organization Risk Management o Establishing responsibility o Maintaining adequate documentation o Segregation of duties o Physical security of assets and records o Independent verification Information and Communication o Information should flow freely o Communicate in a timely manner o Communicate well with management Monitoring o Tracking potential and actual problems o Assess the quality of the company's internal o Approaches of management Ongoing activities and separate evaluation (by a third party audits) Reporting Cash and Cash Equivalents Cash- you deposit into the bank and it is ready to use Equivalents to cash- any investment that can be converted into an amount of cash and has an original maturity of three or less months Cash Controls and Bank Reconciliations 1. Reconcile the bank balance to the actual cash balance 2. Reconcile the company's book balance to the actual cash balance 3. Update the company's book balance to the actual cash balance with journal entries Why are bank balances different than a company's? o Basically timing differences o Recorded by the bank and not by the company (no journal entry has been made) Credit memorandums- interest, receivables Debit memorandum- deductions for fees or service charges NSF checks- deductions because a customer's check bounces o Recorded by the company and not yet by the bank Deposits in transit- deposit made, but the money does not appear yet Outstanding checks- check has been cut, but has not been cleared by the bank
Are you sure you want to buy this material for
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'