Accounting Exam 1 Study Guide
Accounting Exam 1 Study Guide Acct 200
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This 4 page Study Guide was uploaded by Mashel Jones on Friday September 23, 2016. The Study Guide belongs to Acct 200 at University of Tennessee - Knoxville taught by Alycia Winegardner in Fall 2016. Since its upload, it has received 103 views. For similar materials see Accounting in Accounting at University of Tennessee - Knoxville.
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Date Created: 09/23/16
Exam 1 Study Guide Chapter 1: Stakeholder anyone who has an interest in the function of the business o External Capital/ Market Stakeholders lenders/creditors (borrow), owners/stockholders (sell) Product/Service Market Stakeholders suppliers, customers Government Stakeholders o Internal Business Managers and Employees Accounting is the Language of Business o Financial Accounting gives historical information to external stakeholders about changes in financial condition during a period (flow statement) and financial condition at a single point in time (position statement) Flow Income statement, statement of retained earnings, statement of cash flow Position Balance sheet o Managerial Accounting gives forwardfocused information to internal stakeholders so they can make decisions about the future Accounts summarize the effects of the business transaction o Revenue work done, “service rendered”, earned o Expenses “for the period”, incurred, used up asset o Dividends amounts paid to shareholders out of current or retained earnings o Assets used to generate revenue, unused expense o Liabilities borrowed cash o Equity capital stock and retained earnings, money owed to the owner/s of a company Income Statement o Revenue – Expenses = Net Income Statement of Retained Earnings o Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings Balance Sheet (the accounting equation) o Assets = Liabilities + Equity Statement of Cash Flows o Operating Activities day to day operations Cash received from operating transactions (inflow) (cash customers and collection of receivables) Cash paid for operating transactions (outflow) (expenses, prepaids, payment of shortterm debt) o Investing Activities PPE, long term intangible Cash received from sales of long term assets (inflow) Cash paid for purchases of long term assets (outflow) o Financing Activities Cash received from the sale of capital stock or long term debt (inflow) Cash paid for dividends or long term debt payback (outflow) o Sum of all three equals the change in Cash for the period Business Types o Service Business provides service to customers o Merchandising Business buys finished goods from manufacturers and sells them to customers o Manufacturing Business buys basic inputs from suppliers and converts them into finished goods for sale to customers Business Forms o Proprietorship owned by one individual (owner) o Partnership owned by more than one individual or entity (partners) o Corporation owned by more than one individual or entity (stockholders) o Limited Liability Company (LLC) owned by more than one individual or entity (members) Accounting Concepts of Generally Accepted Accounting Principles (GAAP) o Business Entity Concept owners transactions are separate from the business o Cost Concept record assets at their historical cost o Going Concern Concept assume that a business is going to continue indefinitely unless otherwise indicated o Matching Concept record a period’s revenues on the periodic income statement with the expenses that helped generate those revenues o Objectivity Concept base accounting records data on objective evidence o Unit of Measure Concept report all financial statement numbers in dollars o Accounting Period Concept report data on financial statements in separate time units, the changes in financial condition are reported at the end of the month o Adequate Disclosure Concept report all relevant data that users need to understand the financial condition and performance of a business Fraud Triangle o Rationalization, Opportunity, and Pressure Chapter 2: Transaction economic event under GAAP that affects the financial statement Financial Statement Controls o Income Statement net income must equal the net effects of revenue and expenses on the Statement of Retained Earnings o Balance Sheet assets must equal liabilities plus equity o Statement of Cash Flows ending cash must equal Cash on the balance sheet “On account” o Purchased on Account bought something without paying, accounts payable, liability increase o Paid on Account paid what we owed, accounts payable, liability decrease o Billed on Account revenue was earned but not received, account receivable, asset increase o Received/Collected on Account got paid, accounts receivable, asset decrease Chapter 3: Accrual Accounting Concepts Matching revenue is recorded in the same period as the expenses that helped generate the revenue o Accrued Revenue increase the asset Accounts Receivable if cash will be received in the future after revenue is earned o Deferred Revenue decrease the liability Unearned Revenue if cash was received before revenue was earned o Accrued Expense increase the liability Accounts Payable if cash will be paid in the future, after the expense is incurred o Deferred Expense decrease an asset (Prepaid) if cash was paid before the expense was incurred Depreciation a deferred expense endofperiod adjustment related to plants and equipment (PPE except land) Current Assets assets that will be used to help generate revenue within one year LongTerm Assets assets that will be used to help generate revenue over longer than one year Current Liabilities debt that will be satisfied within one year LongTerm Liabilities debt that will be satisfied over longer than one year Stockholders’ Equity owners’ claims on assets Current Ratio = Current Assets divided by Current Liabilities o Measure the short time solvency (debt paying ability) of the company and the company’s ability to borrow short term Quick Ratio = Quick Assets divided by Current Liabilities o Measure the immediate solvency of the company Consists of cash, temporary investments, and receivables Chapter 5: Internal Controls there to reduce risk of opportunity Objectives to Internal Control A.C.E. o Accurate and reliable financial reporting o Compliance with laws and regulations o Effectiveness and efficiency of operations Cash Short and Cash Over Accounts reveals differences between recorded cash sales and actual cash in the drawer o Cash Short miscellaneous expense o Cash Over other income Outstanding Checks check written but not cleared by the bank before the bank statement is released Bank Reconciliation o Bank’s Adjusted Cash Balance: Outstanding checks added Deposits in transit added o Book’s Adjusted Cash Balance: Bank fee added Nonsufficient fund check payment added o Adjusted cash balances must always equal
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