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AC-210 Exam 1 Study Guide

by: Carter Cox

AC-210 Exam 1 Study Guide AC 210

Marketplace > University of Alabama - Tuscaloosa > AC 210 > AC 210 Exam 1 Study Guide
Carter Cox

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About this Document

Covers concepts from the first four chapters
Intro to Accounting
Lisa McKinney
Study Guide
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This 6 page Study Guide was uploaded by Carter Cox on Wednesday September 21, 2016. The Study Guide belongs to AC 210 at University of Alabama - Tuscaloosa taught by Lisa McKinney in Fall 2016. Since its upload, it has received 420 views.


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Date Created: 09/21/16
AC-210 Exam 1 Study Guide Chapter 1 The Accounting System (Activities) - Operating – business of doing (buying, paying employee) - Investing – taking money from our business and invest back into the business - Financing – taking out a loan or sell stock to stockholder Accounting Reports - Financial o Evaluate the company o External Users (creditors, investors) o Most focused on - Managerial o Run the company o Internal users (managers, supervisors) Basic Accounting Equation - Assets = Liabilities + Stockholders Equity (Ownership) - (Resources owned by the company) = (Resources owed to creditors) + (Resources owed to stockholders) - Separate Entity Assumption o Financial reports of a business are assumed to include the results if only that business’s activities Assets - Economic resources presently controlled by the company that have measurable value and are expected to benefit the company by producing cash inflows or reducing cash outflows in the future - Cash, Supplies, Furniture, Liabilities - Measurable amount that the company owes to creditors - I.O.U o Notes payable (long term), accounts payable (short term) Equity - Owners claim to the business resources o Common stock – equity paid in by stockholders  Money we contribute o Retained Earnings- equity earned by the company  Money you keep from your profits  Money earned over time - Asserts = Liabilities + Equity (Common stock, Retained earning) Revenues, Expenses, and Net income - Revenues (how much we made) – Expenses (how much is cost to make) = net income o Revenue  Sales of goods or services to customers, They are measured at the amount the business charges the customer o Expenses  Costs of doing business necessary to earn revenues, including wages to employees, advertising, insurance, utilities and supplies used Financial Statements (typically put into this order) - Incomes statement o Reports the amount of revenues less expenses for a period of time) (entire month) o Revenues  Sales Revenue  Service Revenue  Total Revenues o Expenses  Salaries and wages  Rent  Utilities  Insurance  Advertising  Income Tax  Total o Net Income - Statement of retained earnings o Beginning of month + Net income – Dividends  Gives you end retained earnings - Balance Sheet o A = l + E o Reports at a point in time  What a business owns  What it owes to creditors  What is left over for the owners of company’s stock o Assets  Cash, accounts receivable, supplies, equipment, software o Liabilities  Accounts payable  Notes Payable o Equity  Common stock  Retained earnings - Statement of Cash Flows o Summarizes how a business operating, investing, and financing activities caused its cash balance to change over a particular time o How cash is affected by operating, investing, and financing o Inflow- cash flows into account o Outflow- Cash flows out of the account Chapter 2 Building a Balance Sheet - Asset = Liabilities + Stockholders Equity o L- Debt Financing  Measurable amounts that the company owes to creditors o E- Equity Financing  Owners claims to the business resources Financing and investing Activities - Exchange being taken place o What being documented - Company always receives something and gives something o Name what’s exchanged - Dollar amount associated with exchange o Analyze the financial effects Transactions and other Activities - External Exchanges o Transactions between us and outside parties o Involves liabilities and equity that you can see between a company and another person - Internal Event o Event occur within a company  Using assets to create an inventory product Study the Accounting Methods - Analyze - Record - Summarize - Duality of effects o Every transaction has at least two effects on the basic accounting equation o 1 of 3 options - A=L+SE o Assets must equal liabilities plus stockholders equity for every accounting transaction - Transaction o Business activity that affects the basic accounting equation o Step 1: Analyze the Transaction - Name is given to each item exchanged this is referred to as account titles - Tailor to each companies business - An exchange of only promises is not a transaction o Therefore no impact on the accounting equation Step 2 and 3: Record and Summarize - One way to record would be to put everything into a spread sheet - Most companies use computerized accounting system o This can handle large number of transactions Debit/ Credit Framework - Keep balances correct - Whether or not it is decreasing or increasing - Assets o Normal balance (Cash equipment, software  Debit balance = increase cash o Increase with Debit decrease credit - Liabilities o Normal Balance  Credit - Stockholders Equity o Normal Balance  Credit Current Ratio - Current Assets/ Current Liabilities Chapter 3 Cash Basis Accounting (not used in this class) - Accounting records revenue when cash is received and expenses when cash is paid - Revenue = get cash - Expenses = pay cash Accrual Basis Accounting ****** - Record revenues when they are earned and expenses in the same period as the revenues to which they relate, regardless of the timing of cash receipts or payments - Revenue = Earned - Expenses = Incurred Revenues Recognition Principle - Revenues are recognized when they are earned Expenses Recognition Principle - Record expenses in the same period as the revenues with which they can be reasonably associated - Expenses and Revenues are always recorded in the same month Expenses are always debited Revenues are credited Net Profit Margin - (Net Income)/ (Revenue) Income Statement Limitations - NI doesn’t equal cash - NI doesn’t equal exact Review of Revenues - Cash received before revenue is earned o Cash = Debit o Unearned Revenue = credit - Cash at the same time as revenue o Cash = debit o Revenue = credit - Cash after revenue is earned o Accounts Receivable = debit o Revenue = credit Chapter 4 Why adjustments are Needed - Accounting systems are designed to record most recurring daily transactions, particularly any involving cash o Cash is not always received or paid in the period in which the company earns the related revenue or incurs - Income Statement o Revenues recorded when earned o Expenses are recorded in the same period as revenues to which they relate - Balance Sheet o Assets are reported at amounts representing the economic benefits that remain at the end of the period o Liabilities are reported at amounts owed at the end of the period Adjustments - Deferral o An expense or revenue has been deferred if we have postponed reporting it on the income statement until a late period o Example  Cash paid for rent in advance  Debit rent expense (100)  Credit Prepaid rent (100) o Used to decrease balance sheet accounts and increase corresponding income statement accounts o Each adjustment involves one asset and one expense account or one liability and one revenue account o Depreciation is recorded for use of equipment  Process of allocating the cost of buildings, vehicles, and equipment to the accounting periods in which they are used  Contra account  Account that is an offset to or reduction of another account o Amortization is recorded for use of software - Accrual o When a company has earned revenue or incurred an expense in the current period but has not yet recorded it because the related cash will not be received or paid until a later period o Opposite of deferral


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