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Accounting Exam 1 Study Guide

by: Mashel Jones

Accounting Exam 1 Study Guide Acct 200

Marketplace > University of Tennessee - Knoxville > Accounting > Acct 200 > Accounting Exam 1 Study Guide
Mashel Jones
GPA 3.29

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About this Document

Covers chapters 1, 2, 3, and 5
Alycia Winegardner
Study Guide
Accounting, financial statements, GAAP, transactions, Accrual, Deferred, cash, bank
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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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