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FSU - ACG 2021 - ACG Exam 1 Study Guide - Study Guide

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FSU - ACG 2021 - ACG Exam 1 Study Guide - Study Guide

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background image ACG EXAM 1 STUDY GUIDE CHAPTER 1 Learning objectives:  o Describe the primary forms of business organization.  o Identify the users and uses of accounting information  o Explain the three principal types of business activity.  o Describe the content and purpose of each of the financial statements. 
o Explain the meaning of assets, liabilities, and stockholders’ equity, and state the 
basic accounting equation.  o Describe the components that supplement the financial statements in an annual  report.  Forms of Business Organization o Sole Proprietorship:  Simple to establish Owner controlled Tax advantages o Partnership Simple to establish Shared control  Broader skills and resources Tax advantages o Corporations Easier to transfer ownership Easier to raise funds No personal liability Advantages and Disadvantages of Corporations: o Advantages of a Corporation: Can attract large amounts of capital investment  Allows for an easy transfer of ownership Can attract professional management Provides stockholders with limited liability Survives the death of its 
owner(s) (continuity of life) 
o Disadvantages of a Corporation:  Corporations are subject to more government regulations  Shareholders can have difficulty knowing whether management is making 
decisions in shareholders’ best interests 
Corporations are subject to income taxation (Double taxation) Definition of Accounting  o Accounting is the information system that identifies, records, and communicates  the economic events of an organization to interested users. o Two Groups of users:
background image Internal users:  people inside the company, anyone employed by that  company. External users : people outside the company, a bank would be considered  external. o Users and Uses of Financial Information Internal Users:  ­ Marketing  ­ Management
­ Finance
­ Human Resources External Users: ­ Banks
­ Share/stock holders
­ Creditors  ­ Investors o The Sarbanes­Oxley Act resulted in:  1. Top management must now certify the accuracy of financial information. 
2. Penalties for fraudulent activity was increased. 
3. Independence of auditors was increased. 
4. Increased oversight by the board of directors must occur, including the 
board’s selection and supervision of the independent auditor. 
­ they now have to rotate teams every 7 or so years.
       Business Activities o Three types of cash flow activity: Financing Investing Operating o Financing Activities: Primary sources of outside funds:
­ Borrowing money (debt financing)
1. Amount owed are called  liabilities 2. Party to whom amounts are owned are  creditors 3. Notes payable  and  bonds payable  are different types of  liabilities. ­ Issuing (selling) shares of stock for cash 1. Payments to stockholders are called dividends. o Investing Activities Purchase of resources a company needs to operate. 1. Computers, delivery trucks, furniture, buildings (property,  plant, and equipment. 2. Resources owned by a business are called  assets 3. Investments are another example of an investing activity. o Operating Activities
background image Revenues­Amounts earned from the sale of products (e.g., sales revenue, 
service revenue, and interest revenue).  Opposite of expenses.
Inventory­Goods available for sale to customers.  Receivables­Right to receive money from another party(e.g., Accounts 
receivable are owed by customers; interest receivable is owed by debtors). 
Expenses ­ cost of assets consumed or services used. (e.g., cost of goods 
sold, selling, marketing, administrative, interest, and income taxes 
expense). Privilege of borrowing money
Liabilities arising from expenses and represent amounts owed to another 
party (e.g., accounts payable, interest payable, wages payable, sales taxes 
payable, and income taxes payable).  Net income – the excess of revenues over expenses.  Net loss – the excess of expenses over revenues.  Financial Statement Basic Equations o      Income Statement: Revenues – Expenses = Net Income o      Statement of Stockholders’ Equity: Beginning Equity + Owner Contributions + Net Income
 – Dividends = Ending Equity
o      Balance Sheet: Assets = Liabilities + Equity o      Statement of Cash Flows Cash Inflow – Cash Outflow = Net Cash Flow Four Financial Statements: 1. Income Statement: shows revenues and expenses made in a specific time period,
expressed as net loss or net income.
2. Retained Earnings Statement: shows amounts and causes of changes in 
earnings, its presented with the same time period as the income statement, this is 
also where we subtract/evaluate the dividends. 3. Balance Sheet: reports assets and claims (liabilities and equity) at a specific point
in time. Assets first followed by liabilities and stockholder’s equity.
4. Statement of Cash Flow: answers where the cash came from during the time 
period, how much cash was used during the time period, and what was the change
in balance during the time period.
       Other Elements of an Annual Report: o Management discussion and analysis (MD&A)  covers the company’s ability to  pay near­term obligations, its ability to fund operations and expansion, and its 
results of operations. 
­ Management must highlight favorable or unfavorable trends and  identify significant events and uncertainties that affect these three 
factors 
o Auditor’s Report ­ Four Opinions: 

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School: Florida State University
Department: Accounting
Course: Financial Accounting
Professor: Ronald Pierno
Term: Summer 2015
Tags: Accounting, Math, financial, ACG2021, Debit, Credit, Chapter, and 1
Name: ACG Exam 1 Study Guide
Description: These highlight chapter 1-3 and cover what will be on the exam.
Uploaded: 01/28/2018
10 Pages 51 Views 40 Unlocks
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