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Management 1A- Midterm 1 Study Guide

by: Daniel Ochs

Management 1A- Midterm 1 Study Guide Management 1A

Daniel Ochs

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About this Document

This study guide covers chapters 1-4 and some important formulas for Danny S Litt's Management 1A Midterm on 4/21/16.
Principles of Accounting
D.S. Litt
Study Guide
Management, Accounting
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This 5 page Study Guide was uploaded by Daniel Ochs on Sunday April 17, 2016. The Study Guide belongs to Management 1A at University of California - Los Angeles taught by D.S. Litt in Spring 2016. Since its upload, it has received 312 views. For similar materials see Principles of Accounting in Business, management at University of California - Los Angeles.

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Date Created: 04/17/16
Spring 2016: Midterm 1 Management 1A- Midterm Study Guide Chapter 1 [Course Reader: Page 1-Page 74] - Accounting: the process of identifying, measuring, and communicating economic events in value terms to provide information for economic decision-making • Accounting is the “language of business” because all organizations set up an accounting information system to communicate data to help people make better decisions - Financial accounting: concerned with providing information for decision-makers primarily outside the firm External Users: people not directly involved in running the organization • - Managerial accounting: concerned with providing information for decision-makers inside the firm • Internal Users: people directly involved in managing and operating an organization - Primary Business Objective: make a profit and remain solvent - The Accounting Equation: Total Assets = Total Liabilities + Owner’s Equity • Assets: economic resources of the firm • Liabilities: promises or commitments by a business to pay some amount at some future date • Owner’s Equity: owner’s claim on the company’s assets - Financial Ratios based on Balance Sheet Accounts [Page 34] • Current ratio = Current Assets / Current Liabilities • Quick Ratio = (Cash + Short-term Investments + Accounts Receivable) / (Current Liabilities) - Quick Assets start with cash and end with the account that precedes inventory • Debt-to-Equity Ratio = Total Liabilities / Stockholders Equity • Debt (Total Liabilities)-to-Total Assets Ratio = Debt / Total Assets • Maker-To-Book Ratio = Market Capitalization / (Total Assets - Total Liabilities) 1 Spring 2016: Midterm 1 - Market Capitalization is the outstanding shares (x) current market price - Net Income Equation: Net Income = Total Revenues - Total Expenses - Financial Ratios based on Income Statements [Page 38] - Cash Flow Equation: Change in Cash & Cash Equivalents = Cash Flow from Operations + Cash From from Investing Activities + Cash Flow from Financing Activities - Financial Ratios based on Cash Flow Statement [Page 40] - Retained Earnings Equation: Ending Retained Earnings = Begging Retained Earnings + Net Income (or - Net Income) - Dividends - GAAP: Generally Accepted Accounting Principles (Guidelines and rules regarding accounting transactions) - Monetary Unit Assumption Requires that only transaction data can be expressed in terms of money be • included in the accounting records of the economic entity - Economic Entity Assumption • States that economic events can be identified with a particular unit of accountability • Requires activities of the entity be kept separate and distinct form - The activities of its owners and all other economic entities - Business Ownership • 1 Person: Sole proprietorship. Money given back to owner is called a draw. • 2 or more People: Partnership. Money given back to owners is called a draw. • Business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock is called a corporation. Money given back to the shareholders is called a dividend. 2 Spring 2016: Midterm 1 Chapter 2 [Course Reader: Page 75 - Page 116] - Basic Accounting Equation: Assets = Liabilities + Owner’s Equity - Accrual Basis of Accounting: realistic picture of profit performance - Cash Basis of Accounting: unrealistic picture of profitability, ignores uncollected revenue - Financial Statements: present revenue and expenses and resulting net income of a company over a specific time frame - Account: an individual accounting record of increases and decreases in a specific asset, liability, or owner’s equity item • Title (of the account) • Debit [DR] (left side / Assets) + - Increase in assets, Decrease in liabilities or equities • Credit [CR] (right side / Liabilities + Owner’s Equity) - - Decrease in assets, Increase in liabilities and equities Debits must equal Credits • - Acronym DEALER [Page 80] - Basic Financial Statements • Income Statement: net income or net loss • Net Income = Revenues - Expenses • Permanent accounts: remain on the books after closing at year-end • Temporary or nominal accounts: are zeroed out at year-end - Assets: economic resources owned by the company that are expected to provide future economic benefit - Liabilities: amount owned by the company - Equity: excess of total assets over total liabilities • Equity = Assets - Liabilities 3 Spring 2016: Midterm 1 Chapter 3 [Page 117- Page 143] - Accounting Assumptions • Monetary Unit: usually the national currency of reporting company • Economic Entity: a business is an economic unit separate and distinct from its owner Time Period: Information is reported in a company’s financial statements at least on • an annual basis • Going Concern (Continuity): companies will operate indefinitely - Matching: to determine the income of a company for an accounting period, the total expenses involved in obtaining the revenue of the period must be computed and matched against the revenues recorded in the period - Full Disclosure: circumstances and events that make a difference to financial statement users should be disclosed - Historical Cost: acquisition of goods or services into accounting records at their exchange price - Accrued Revenues: earned but not yet received in cash or recorded at the statement date - Accrued Expenses: incurred but not yet paid or recorded at the statement date - Accrual Accounting vs Cash Accounting [Page 126] • Cash Method - Recognize revenue when you receive cash - Recognize expense when you actually pay - Used for personal tax returns • Accrual Method - Recognize revenue when earned, measurable, and collectible - Recognize expense when incurred —> matching - Used for corporations (GAAP) 4 Spring 2016: Midterm 1 Chapter 4 [Page 144-154] - Accounting Cycle [Page 144] • Analyze business transactions • Journalize the transactions • Post to ledger accounts • Prepare a trial balance • Journalize and post adjusting entries: Prepayments / Accruals • Prepare and adjusted trial balance • Prepare financial statements: Income Statement, Owner’s Equity Statement, Balance Sheet • Journalize and post-closing entries • Prepare a post-closing trial balance • Reverse (optional step): Reverse certain adjustments in the next period Important Formulas - Assets = Liabilities + Owner’s Equity - Current ratio = Current Assets / Current Liabilities - Quick Ratio = (Cash + Short-term Investments + Accounts Receivable) / (Current Liabilities) - Net Income = Total Revenues - Total Expenses - Change in Cash & Cash Equivalents = Cash Flow from Operations + Cash From from Investing Activities + Cash Flow from Financing Activities - Ending Retained Earnings = Begging Retained Earnings +/- Net Income - Dividends - Begging Accounts + Credit Sales (Debits) - Customer Payments (Credits) = Ending Accounts Receivable Balance - Profit Margin = Net Income / Net Sales 5


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