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Test 1 Notes and Terms - Chapter 1 and 2

by: Savannah Masucci

Test 1 Notes and Terms - Chapter 1 and 2 ACCT 2110

Marketplace > Auburn University > ACCT 2110 > Test 1 Notes and Terms Chapter 1 and 2
Savannah Masucci
GPA 4.0

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About this Document

These are all the notes from the lectures leading up to the test and from the chapters in the book. I have also attached a terms sheet so it's easier for y'all to memorize!!
Principles of financial accounting
Jennifer Cornett
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This 15 page Study Guide was uploaded by Savannah Masucci on Tuesday May 3, 2016. The Study Guide belongs to ACCT 2110 at Auburn University taught by Jennifer Cornett in Fall 2016. Since its upload, it has received 302 views.


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Date Created: 05/03/16
Assets - Resources that will provide a future benefit Ex. Cash, investments, inventory, accounts receivable, land, buildings, equipment, patent, copyright ● Current: made into cash in the next year, used up, converted into cash within the year ○ Cash ○ Accounts receivable - right to collect an amount due from customers, ○ Inventories ○ Short term investments ● Long term investments ● Property, plant, and equipment ● Intangible assets - provide a benefit to the company for many years ○ Patents, copyrights ● Noncurrent: hold for more than a year, most depreciate over time Liabilities - Obligations requiring a future sacrifice of a resource Ex. Accounts payable, salaries payable, unearned sales revenue, interest payable, notes payable, taxes payable, bonds payable ● Current ○ Accounts payable - repay a vendor or supplier for merchandise ○ Salaries payable - employees ○ Unearned revenue - an obligation to deliver goods or perform a service for which a company has already been paid ○ Interest payable - an obligation to pay interest on money that a company has borrowed ○ Income taxes payable - an obligation to pay taxes on a company’s income ● Long Term liabilities ○ Notes payable - obligation to repay cash borrowed at a future date ○ Bonds payable - interest-bearing note payable issued by corporations in an effort to attract a large amount of investors Equity - (Stockholder’s equity) difference between assets and liabilities, represents share of assets claimed by owners ● Ex. Common stock and retained earnings ● Contributed Capital - ​he owners’ contributions to the company (in shareholder’s equity of a balance sheet) ● Retained Earnings - accumulation of net income of a company not distributed to owners in the form of dividends Revenue - increase of assets due to sale ● Ex. Sales revenue, interest income, rent revenue Expense - cost to produce the revenue, money going out, used to generate revenues ● Ex. Cost of goods sold, salaries expense, rent expense, insurance expense, depreciation expense, advertising expense, utilities expense, repairs and maintenance expense, property taxes expense Net income - Revenue > Expenses Net loss - Revenue < Expenses Balance sheet - reports the resources (assets) owned by a company and the claims against those resources (liabilities and stockholders’ equity) ● Accounts Receivable - something a company expects to receive ● Retained Earnings ● Inventory ● Accounts Payable ● Contributed Capital ○ Assets are listed on the balance sheet in order of liquidity or nearness to cash Liquidity - ability to pay obligations as they become due Income statement - reports how well a company has performed its operations (revenues, expenses, and income), success or failure, profitability and growth of a company Retained earnings statement - reports how much of the company’s income was retained in the business and how much was distributed to owners Statement of cash flows - reports the sources and uses of a company’s cash, financing activities, investing activities, operating activities Operating cycle - average time that it takes a company to purchase goods, resell the goods, and collect the cash from customers (one operating cycle - current asset) Nonoperating activities - revenues and expenses from activities other than the company’s principal operations Trial balance - lists all accounts and their balances Creditor - lends funds to a business entity and expects repayment Net profit margin = Net income / sales and service revenue Qualitative Characteristics of Useful Information - ● Relevance - helping users predict future events (predicted value) or providing feedback about prior expectations (confirmatory value) ● Faithful representation - complete, neutral, free from error, ○ Enhancing ■ Comparability - to the past or to other companies ■ Verifiability - neutral, unbiased, ■ Timeliness - current ■ Understandability - anyone with some accounting knowledge can understand


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