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ACCT Test One Study Guide

by: Nazifa Islam

ACCT Test One Study Guide ACCT 2010

Marketplace > Clemson University > Accounting > ACCT 2010 > ACCT Test One Study Guide
Nazifa Islam

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This includes LearnSmart notes, presentation notes, worked out solutions for problem sets, and just about any learn activity we've done so far. This will be a quick refresher for vocabulary words a...
Fundamentals of Financial Accounting
Dr. J McMillan
Study Guide
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This 22 page Study Guide was uploaded by Nazifa Islam on Monday September 5, 2016. The Study Guide belongs to ACCT 2010 at Clemson University taught by Dr. J McMillan in Fall 2016. Since its upload, it has received 121 views. For similar materials see Fundamentals of Financial Accounting in Accounting at Clemson University.


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Date Created: 09/05/16
Chapter One Presentation 3 primary forms of business organization All have the same goal: generate profit 1. Sole proprietorship (72% of businesses in the U.S.) 2. Partnership 3. Corporation Characteristic  Sole Prop. Partnership Corporation # of owners Only 1 2+ 1+ Ownership acquired  No  No Yes via stock Liable for debts Yes Yes No Pay tax on business  No No  Yes income also ***Notice how sole proprietorship and partnership don’t have to pay a double tax (benefit)  Financial Accounting Reports/ Financial Statements (Outside company) (Inside company)  External use   Internal users Creditors (Bank) Owners & managers  Investors Directors Gov. t Assets (resources owned by the company) = liabilities(resources owed to creditors) +  stockholder’s equity (resources owed to stockholders)  Separate Entity Assumption: assumes financial reports of a business only include the results of that business’s activities  Assets include: cash, accounts receivable, supplies, software, and equipment Liabilities include: accounts payable, rent payable, wages payable, and notes payable *Anytime you see the term “payable” with an account, you should associate it with a liability  account Stockholder’s equity: Refers to the owner’s claims on the business  Common stock: Equity paid in by stockholders    Net income/profit will increase retained earnings A net loss will decrease it Retained earning: Equity earned by the company  Revenue accounts: Represent the amounts the company has earned by selling goods/services to  customers. Also known as “sales revenue” and “service revenue”  Expenses: cost of doing business/generate revenue Examples: rent expense, salary and wage expense, advertising expense  Dividends: distributions to stockholders ( usually cash ) NOT CONSIDERED AN EXPENSE  At the end of every period there are FOUR financial statements.  1. Income statement: includes all revenue accounts, expense accounts  a. The difference between the two will result in net income/loss b. Revenue – expense = net income/ loss  2. Statement of retained earnings: ending balance of retained earnings  a. Beginning RE + net income – dividends = Ending RE 3. Balance sheet: report assets, liabilities, and stockholder’s equity for a specific point in  time  a. A = L + SE (common stock and retained earning) b. The ending balance here will become the next periods new balance 4. Statement of cash flows: cash exchanges a. THIS REPORTS ACTIVITITIES ONLY INVOLVING CASH  b. Divided into 3 types  i. Operating activities (paycheck, running the business) ii. Investing activities (buying/selling assets) iii. Financing activities (transactions with company’s own stock (loan) ) Sum of cash flows indicates change in cash Ending cash balance = cash on balance sheet  FASB: Financial Accounting Standards Board  Determines the rules for reporting accounting information and producing financial statements.  The rules are referred to as GAAP. GAAP: Generally Accepted Accounting Principles  When it comes to most accounting rules, the USA has similar ones to those of the rest of the  world. They’re trying to create more similarities and they’re working with IASB IASB: International Accounting Standards IFRS: International Financial Reporting Standards Rules used internationally  Financial information’s main goal is to be useful. Faithful representation & relevance ** Chapter One LearnSmart ORGANIZATIONAL FORMS  Sole proprietorship: Owned/ operated by one person o Get a business license and you’re good o Profit/loss apart of owner’s tax income   Partnership: Two or more owners o Slightly more expensive  o Need lawyer to draw up agreement  o More resources available, more room for growth *  Corporation: Corporation, not owners, is responsible for taxes/ debts  o Owners can’t lose more than their investment o High legal fees o Income tax must be paid by individual and corporation o Can raise large amounts of money for growth  o *Stock certificate  o Most will start out as private and will apply to be a public company if they need a  lot of financing  o *Issuing new stock certificates to investors*  Other type: Limited Liability Company (LLC) – Combination of partnership and  corporation Accounting: A system of analyzing, recording, and summarizing the result’s of a business’s  activities and then reporting the results to the decision makers. “Language of business” Private accountant: hired as an employee Public accountant: works for many companies  1. Managerial Accounting Reports i. Detailed financial plans ii. Updated reports about the operating performance iii. Only available to internal users iv. Should we rent, built, or buy this building? Discontinue product? 2. Financial Accounting Reports/ Financial Statements  i. Provide information to outsiders ii. Are not given access to detailed internal records 4 TYPES OF EXTERNAL USERS 1. Creditors (CONTRACT): Supplies, banks, anyone to whom money is owed 2. Investors (VALUE): Existing and potential stockholders 3.  Board of  directors (GOVERN): Oversee company’s managers 4. Government (REGULATE) : SEC and International Revenue Service (IRS) What a company owns must equal what a company owes to its creditors and stockholders Assets = Liabilities + Stockholder’s Equity  Basic accounting equation  Separate entity assumption: The BUSINESS, not the stockholders who own the  business, own the assets and OWE the liabilities  o Requires that a business’s financial reports include ONLY the business’s  activities  Assets: An economic resource. Measurable value   Liabilities: Measurable amounts that the company owes to creditors   Stockholder’s Equity: Represents the owner’s claim  Common Stock: Equity paid in by stockholders  Retained Earning: Equity earned by the company   Revenues: Earned by selling goods/services to customers   Expenses: All costs of doing business that are necessary to earn revenues (Advertising,  utilities, rent, salaries, and wages)   Net income: Revenues minus expense. By generating net income, a company increases  its stockholder’s equity   Dividends: An optional distribution of earnings to stockholders  o Dividends are NOT an expense incurred to generate earnings   Financial Statements: Income statement, statement of retained earnings, balance sheet,  statement of cash flows   1 .     Income Statement / Statement of Operations a. Heading identities who, what, and when b. Unit of measure assumption: The United States will use U.S. dollar  c. Body of income statement: Revenues – Expenses = Net Income  2. Statement of Retained Earnings: Reports the way net income and the distribution of  dividends affected the company 3. Balance Sheet/Statement of Financial Position: Reports the amount of a business’s assets a. CASH is the first asset reported  b. Cost principle: Assets are reported based on their ORIGINAL cost  4. Statement of Cash Flows: Activities that result in cash changing hands  1. Operating: Related to running the business to earn profit  a. Employee wages, rent, insurance, advertising, etc. 2. Investing: Buying/selling productive long­term resources  3. Financing: Loans, paying dividends to stockholders  Sarbanes­Oxley Act (SOX) : A set of laws established to strengthen corporate reporting in the  United States Top managers of public companies have to sign certifying their responsibilities  for financial statements  Chapter One Problems Worked Out Solutions  1. Accounting: A system that collects and processes financial information about an  organization and reports that information to decision makers.  2. Unit of Measure: Measurement of information about a business in the monetary unit  (dollars or other national currency) 3. Partnership: An unincorporated business owned by two or more persons 4. Private Company: A company that sells shares of its stock privately and is not required to release its financial statements to the public.  5. Corporation: An incorporated business that issues shares of stock as evidence of  ownership 6. Investing Activities: Buying and selling productive resources with long lives 7. Financing Activities: Transactions with lenders (borrowing and repaying cash) and  stockholders (selling company stock and paying dividends) 8. Operating Activities: Activities directly related to running the business to earn profit  9. SEC: Securities and Exchange Commission  10. FASB: Financial Accounting Standards Board 11. Public Company: A company that has its stock bought and sold by investors on establishd stock exchanges 12. GAAP: Generally accepted accounting principles  1. Separate Entity: The financial reports of a business are assumed to include the results of  only that business’s activities  2. Assets: The resources owned by a business 3. Faithful Representation: Financial information that depicts the economic substance by  business activities 4. Stockholder’s Equity: The total amounts invested and reinvested in the business by its  owners  5. Expenses: The costs of business necessary to earn revenues 6. Relevance: A feature of financial information that allows it to influence a decision 7. Revenues: Earned by selling goods or services to customers 8. Liabilities: The amounts owed by a business 1. Cash – balance sheet – asset  2. Accounts payable – balance sheet – liability  3. Accounts receivable – balance sheet – asset  4. Income tax expense – income statement – expense account  5. Sales revenue – income statement – revenue account 6. Notes payable – balance sheet – liability  7. Retained earnings – balance sheet – stockholder’s equity  1. Cash flows from financing activities­ statement of cash flows  2. Expenses­ Income statement 3. Cash flows from investing activities­ statement of cash flows 4. Assets­ Balance sheet  5. Dividends­ Statement of retained earnings  6. Revenues­ Income statement 7. Cash flows from operating activities­ statement of cash flows 8. Liabilities­ balance sheet  1. Cash paid for dividends­ Financing activity (outflow) 2. Cash collected from customers­ Operating activity  3. Cash received when signing a note – Financing activity  4. Cash paid to employees – Operating activity (outflow) 5. Cash paid to purchase equipment­ Investing activity (outflow) 6. Cash received from issuing stock – financing activity  Ken Young and Kim Sherwood organized Reader Direct as a corporation; each contributed $52,000 cash to start the business and received 4,000 shares of stock. The store completed its first year of operations on December 31, 2014. On that date, the following financial items for the year were determined: cash on hand and in the bank, $47,500; amounts due from customers from sales of books, $28,200; equipment, $51,000; amounts owed to publishers for books purchased, $8,700; one-year note payable to a local bank for $4,800. No dividends were declared or paid to the stockholders during the year. Reader Direct Balance Sheet At December 31, 2014 Assets Liabilities Cash $47,500 Accounts payable   $8,700 Accounts recievable $28,200 Note Payable $4,800 Equipment    $51,000 Total liabilities $13,500 Stockholder’s Equity  Common stock $104,000 Retained Earnings $9,200 Total Stockholder’s Equity $113,200 Total Assets $126,700 Total Liabilities and Stockholder’s Equity $126,700 Assuming that Reader Direct generates net income of $9,500 and pays dividends of $3,300 in 2015, what would be the ending Retained Earnings balance at  December 31, 2015? Ending RE = Beginning RE + Net Income – Dividends  $15,400 = $9,200 + $9,500  Using the following table and the equations underlying each of the four basic  financial statements, show (a) that the balance sheet is in balance, (b) that net  income is properly calculated, (c) what caused changes in the retained earnings  account, and (d) what caused changes in the cash account. 81,2 Assets $   00   Liabilities   19,3   50 61,8   Stockholders' Equity     50   Revenue   33,8   00 19,8   Expenses   00     Net Income   14,0   00 4,90   Dividends   0   22,2   Beginning Retained Earnings     00 31,3   Ending Retained Earnings   00     Cash Flows from Operating  17,4     Activities 00   Cash Flows from Investing Activities   (8,9 ) 00   Cash Flows from Financing  (6,1 Activities   50 )   Beginning Cash   4,90   0   Ending Cash   7,25   0 A. Assets = Liabilities + Stockholder’s Equtiy  $81,200 = $19,350 + $61,850 B. Net Income = Revenue – Expenses  $14,000 = $33800 ­ $19,800 C. Ending RE = Beginning RE + Net Income – Dividends  $31,300 ­ $22,200 + $14,000 – 4,900 D. Ending Cash = Beginning Cash + CF from Operating Activities + CF from Investing  Activities  $7,250 = $4,900 + $17,400 + ($8,900) + ($6,150) a. Coins and currency Cash b. Amounts K∙Swiss owes to suppliers of watches Accounts Payable c. Amounts K∙Swiss can collect from customers Accounts Receivable d. Amounts owed to bank for loan to buy building Notes Payable e. Property on which buildings will be built Land f. Amounts distributed from profits to stockholders Dividends g. Amounts earned by K∙Swiss by selling watches Sales Revenue h. Unused paper in K∙Swiss head office Supplies i. Cost of paper used up during month Supplies Expense j. Amounts contributed by stockholders for K∙Swiss stock Common Stock A= Asset L= Liability R= Revenue E= Expense Cheese Factory Incorporated reported the following information for the fiscal year ended August 31, 2015. Accounts Payable $ 165,00 0 Accounts Receivable 35,000 Cash (balance on September 1, 95,000 2014) 124,00 Cash (balance on August 31, 2015) 0 100,00 Common Stock 0 Dividends 12,000 775,00 Equipment 0 Notes Payable 50,000 195,00 Office Expenses 0 Prepaid Rent 83,000 430,00 Retained Earnings (beginning) 0 1,055, Salaries and Wages Expense 000 Salaries and Wages Payable 190,00 0 2,026, Sales Revenue 000 Supplies 52,000 630,00 Utilities Expense 0 Other cash flow information: Additional investments by stockholders $ 57,000 Cash paid to purchase equipment 64,000 Cash paid to suppliers and employees 1,545,0 00 Repayments of borrowings 175,000 Cash received from customers 1,761,0 00 Cash received from borrowings 7,000 Dividends paid in cash 12,000 st Prepare an income statement for the fiscal year ended August 31 , 2015 CHEESE FACTORY INCORPORATED INCOME STATEMENT FOR THE YEAR ENDED AUGUST 31, 2015 Revenues Sales Revenue $2,026,000 Total Revenues $2,026,000 Expenses Salaries and Wages Expense $1,055,000 Utilities Expense $630,000 Office Expenses $195,000 Total Expenses $1,880,000 Net Income $146,000 Prepare a statement of retained earnings for the fiscal year ended August 31,  2015. CHEESE FACTORY INCORPORATED Statement of Retained Earnings For the Year Ended August 31, 2015  Retained Earnings, Beginning $430,000 Add: Net Income 146,000 Less: Divides (12,000) Retained Earnings, Ending 564,000 Prepare a balance sheet for the fiscal year ended August 31, 2015 CHEESE FACTORY INCORPORATED Statement of  Assets Cash Flows Cash $ For the year  124,000 ended  august 31,  Accounts Receivable 35,000 2015 Supplies 52,000 Prepaid Rent 83,000 Equipment 775,000 $ Total Assets 1,069,000 Liabilities Prepare a  statement of  Accounts Payable $ cash flows  165,000 Notes Payable 50,000 for the fiscal  year ended  Salaries and Wages Payable 190,000 August 31,  2015 Total Liabilities 405,000 Stockholders' Equity CHEESE Common Stock 100,000 FACTORY Retained Earnings 564,000 Total Stockholders' Equity 664,000 $ Total Liabilities and Stockholders' Equity 1,069,000 INCORPORATED Statement of cash flows For the year ended august 31, 2015 Cash Flows from Operating  Activities Cash Received from  $ Customers 1,761,000 Cash Paid to Suppliers and Employees (1,545,000) Cash Provided by Operating Activities $ 216,000 Cash Flows from Investing Activities Cash Paid to Purchase Equipment (64,000) Cash Used in Investing Activities (64,000) Cash Flows from Financing Activities Additional Investments by Stockholders 57,000 Cash Received from Borrowings 7,000 Repayments of Borrowings (175,000) Dividends Paid to Stockholders (12,000) Cash Used in Financing Activities (123,000) $ Increase in Cash 29,000 Cash at September 1, 2014 95,000 Cash at August 31, 2015 $ 124,000 CHAPTER TWO TEXTBOOK NOTES A key activity for a start-up company is to obtain financing (equity and debt) Equity refers to financing a business through owner’s contributions and reinvestments of profit Debt refers to financing the business through loans A business must repay debt financing but not equity financing Terms for repaying a loan are described in detail on a document called a promissory note The company always receives something and gives something Each exchange is analyzed and the dollar amount is configured. The value is called the cost and used to measure the financial effects of the exchange, as required by the cost principle. Business activities that affect the basic accounting equation are called transactions. Transactions include two types of events 1. External exchanges: These involve assets, liabilities, an/ or stockholders eqity between the company and someone else 2. Internal events: Events don’t involve exchanges with others outside the business and happen within the company itself An exchange of only promises is not an accounting transaction The Accounting Cycle STEP ONE: ANALYZE TRANSACTIONS Here we must determine whether a transaction exists and if it does,, we must figure out its impact on the accounting equation 1. Duality of effects: Every transaction has at least two effects on the basic accounting equation 2. A=L+SE Chart of accounts- a list that designates a name and reference number that the company will use when accounting for each item it exchanges CHAPTER TWO WORKED OUT SOLUTIONS amonthsmple) Borrowed 4,840 from a local bank on a note due in six b. Received 5,530 cash from investors and issued common stock to c. Purchased 1900 in equipment, paying 650 cash and promising the rest on a note due in one year e. Bought and received 1150 of supplies on account Assets = Liabilities+ Stockhold er’s Equity a. 4840 Notes payable (ST) $4840 b. 5530 Common stock $5530 c. (650) Notes payable (ST) $1250 1900 d. (750) 750 e. 1150 Accounts payable $1150 1. Transaction: An exchange or event that has a direct and measurable financial effect 2. Separate Entity Assumption: Accounts for a business separate from its owners 3. Balance Sheet: Reports assets, liabilities, and stockholder’s equity 4. Liabilities: Amounts presently owned by a business 5. Assets = Liabilities + Stockholder’s Equity: The basic accounting equation 6. Current Assets: Economic resource to be used or tuned into cash within one year 7. Notes payable: The account credited when money is borrowed from a bank using a promissory note 8. Duality of effects: Every transaction has at least 2 effects 9. Retained Earnings: Cumulative earnings of a company that are not distributed to the owners 10. Debit: Increase assets, decrease liabilities and stockholder’s equity a. A company orders and receives 10 personal computers for office use for which it signs a note promising to pay $25,000 within three months b. A company purchases for $21,000 cash a new delivery truck that has a list (“sticker) price of $24,000 c. A women’s clothing retailer orders 30 new display stands for $300 each for future delivery d. A new company is formed and issues 100 shares of stock for $12 per share to investors e. A company purchases a piece of land for $50,000 cash. An appraiser for the buyer valued the land at $52,500 f. The owner of a local company uses a personal check to buy a $10,000 car for personal use. Answer from the company’s point of view g. A company borrows $2,000 from a local bank and signs a six- month note for the loan h. A company pays $1,5000 owed on its ten-year note payable (Ignore interest) Given Received a Notes payable (ST) Equipment b Cash Equipment c No exchange No exchange transaction transaction d Common stock Cash E Cash Land f No company No company transaction transaction g Notes payable (st) Cash h Cash Notes payable (LT) At what amount would you record the delivery truck in b? 21,000 At what amount would you record the piece of land in e? 50,000 Home Comfort Furniture Company completed four transactions with the dollar effects indicated in the  following schedule:           Assets = Liabilities + Stockholders’ Equity   Cash Equipment   Notes Payable   Common Stock   Beginni ng $ 0   $ 0   = $ 0     $ 0     (1)   +23,0         =           +23,0   00 00 +43,0 +43,0   (2)   00         =   00             (3)   –     +26,0   =   +23,0           3,000 00 00 +11,5 +11,5   (4)   00         =   00                   Ending $     $     = $       $           Compute the ending balance in each account Cash + Equipme = Notes + Comm nt payabl on e stock Ending 74500 + 26,000 = 77500 + 23,000 Has most of the financing for home comfort’s investments in assets come from liabilities or stockholder’s equity Liabilities a. Placed an order for office supplies costing 2200. Supplier intends to deliver later in the month b. Purchased equipment that cost 27000, paid 12000 cash and signed a promissory note to pay 15000 in one month c. Negotiated and signed a one year bank loan, and then deposited 6000 cash in the company’s checking account d. Hired a new finance manager on the last day of the month e. Received an investment of 15,000 cash from the company’s owners in exchange for issuing common shares f. Suppliers (ordered in a) were received, along with a bill for 2,200 Assets = Liabilities+ Stockhold er’s equity a b Cash Notes (12,000) payable (ST) 15,000 Equipmen t 27,000 c Cash NP-ST 6,000 6,000 d e Cash Common 15,000 stock 15,000 f Supplies Accounts 2,200 payable 2,200 Totals 23,200 15,000 38200 Accounts payable $131 Accounts receivable 15 Cash 110 Common stock 25 Equipment 300 Inventories 146 Notes Payable LT 160 Notes Payable ST 3 Prepaid Rent 27 Retained Earning 329 Salaries and Wages Payable 25 Short term investments 15 Software 60 a. Paid 40 cash for additional inventories b. Issued additional shares of common stock for 30 in cash c. Purchased equipment, paid 65 in cash and signed a note to pay the remaining 75 in two years d. Signed a short term note to borrow 12 cash e. Conducted negotiations to purchase a sawmill, which is expected to cost 32 Analyze transactions (a)–(e) to determine their effects on the accounting  equation Assets = Liabilities+ SE a Inventory 40 Cash (40) b Cash 30 Common stock 30 c Equipmen NP-LT 75 t 140 Cash (65) d Cash 12 NP-ST 12 e Record the transaction effects determined in part 1 using journal entries. Transaction General Journal Debit Credit a Inventory 40 Cash 40 b Cash 30 Common Stock 30 c Equipment 140 Cash 65 Notes Payable (long­term) 75 d Cash 12 Notes Payable (short­term) 12 e No Journal Entry Required Summarize the journal entry effects from part 2 using T­accounts. Use the September 30, 2013,  ending balances as the beginning balances for the October–December 2013 quarter. (Enter your  answers in millions (i.e., 10,000,000 should be entered as 10).)    


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"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Janice Dongeun University of Washington

"I used the money I made selling my notes & study guides to pay for spring break in Olympia, Washington...which was Sweet!"

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

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Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.