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Accounting Study Guide

by: Janey Wensel

Accounting Study Guide ACT222

Marketplace > Chatham University > Accounting (ACCT) > ACT222 > Accounting Study Guide
Janey Wensel

GPA 3.7

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About this Document

This study guide covers all definitions, basic concepts, and examples chapter 1 through 3.
Financial Accounting Principles I
James Pierson
Study Guide
financial accounting, basic accounting equation, liabilities, Expenses, Revenue, assets, trial balances, balance sheet, Net Income, Cashflow Statement
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This 5 page Study Guide was uploaded by Janey Wensel on Saturday September 17, 2016. The Study Guide belongs to ACT222 at Chatham University taught by James Pierson in Fall 2016. Since its upload, it has received 31 views. For similar materials see Financial Accounting Principles I in Accounting (ACCT) at Chatham University.


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Date Created: 09/17/16
Chapter 1-3 STUDY GUIDE Generally Accepted Accounting Principles (GAAP) – concepts and rules aiming to make information relevant, reliable, and comparable. ACCOUNTING PRINCIPLES ACCOUNTING ASSUMPTIONS Measurement Principles (cost Going-Concern Assumptions- principle), accounting informationthe business will continue to based on actual Revenue operate Recognition Principle, revenue Monetary Unity Assumption- when it’s earned, measure by express transactions and events amount to be received in money, units. Expense Recognition Principle Time Period Assumptions- the (matching principle), must record life of a company can be divided expenses incurred to generate into periods. revenue Business Entity Assumption- a Full Disclosure Principle, report business is accounted for the details behind financial separately from other business ASSETS = LIABILITES + EQUITY EQUITY Assets = Liabilities + Contributed Capital + Retained Earnings = Liabilities + Common Stock – Dividends + Revenue – Expenses Assets- resources a company owns, having value and future benefits EXAMPLE: Company Liabilities- an obligation a company purchased supplies for has to provide products or services $3,000 cash (1) Cash (2)Supplies Equity- owners claim, increases with investments and revenue/decreases with dividends and expense FINANCIAL STATEMENTS 1. Income Statements- describes the revenues and expenses along with net income or loss over a period of time 2. Statement of retained earnings- explains changes in equity 3. Balance Sheet- describes financial position at a point of time 4. Statement of cash flows- identifies cash inflow and outflow Return on Assets- measures the net income produced by total assets (Return on assets = Net income/ Average total assets) ––A ratio, which expresses a mathematical relation between two quantities, can help uncover a condition or trend––  Liquidity—ability to meet short-term obligations and generate revenues. Current ratio = current assets/ current liabilities  Solvency—ability to generate future revenues and meet long-term obligations. Debt ration = total liabilities/total assets  Profitability—ability to provide financial rewards sufficient to attract and retain financing. Profit margin = net income/ net sales  Market prospects—ability to generate positive market expectations. Price-to-earnings = price per share/earnings per share Account, a record of increases and decreases in a specific asset, liability, equity, revenue or expense General Ledger, a record containing all accounts used by the company Assets –– cash, land, buildings, equipment, supplies, prepaid accounts, notes receivable, accounts receivable Liability –– notes payable, accounts payable, unearned revenue, accrued liabilities Equity –– common stock, dividends, revenues, expenses PREPAID- always an asset PAYABLE- always a liability RECEIVABLE- always an asset UNEARNED- always a liability T- Account - represents a ledger account and is used to understand the effects of one/more transactions ACCOUNT TITLE (Left Side) (Right Side) DEBIT CREDIT Assets LiabilitiesCommon Stock Dividends Revenues Expenses + - - + - + + - - + + - Preparing a trial balance 1. List each account title and its amount, if its zero list it with a zero 2. Compute the total debit & credit balances 3. Verify that total debit equals total credit Debit Ratio – evaluates the level of debt risk *a higher ratio shows that a company will not be able to pay debts (debt ratio = total/total assets) ADJUSTMENTS 1. Determine what the account balance equals 2. Determine what the account balance should equal 3. Record an adjusting entry to get from step 1 to 2 Adjusting entries, made at the end of a period to reflect transactions that haven’t been recorded Prepaid expenses – Begin as an asset, as they are consumed they end up expenses Unearned revenues – receiving money for a job not completed, decrease the unearned and increase the earned Accrued Expenses – cost incurred that are both unpaid and unrecorded, increase the expense and increase the liability Accrued revenue – revenues earned in a period that are unrecorded and unreceived, increase revenue and increase an asset Temporary Accounts, relates to one period –– Revenues, expenses, dividends, income summary Permanent Accounts, activities on one or more periods –– assets, liabilities, common stock, retained earnings CLOSING PROCESS 1. Close credit balances in revenues to income summary 2. Close debits in expenses to income summary 3. Close income summary to retained earnings 4. Close dividends to retained earnings *accounts with credit balances zero out by debiting them *accounts with debit balances zero out by crediting them *debit the income summary and credit retained earnings *retained earnings are debited and dividends are credited


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