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UA - AC 310 - Test 1 Study Guide - Study Guide

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UA - AC 310 - Test 1 Study Guide - Study Guide

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background image AC 310 Study Guide Test 1 
 
Topics Given 
-Usefulness of financial statements 
-What is included in Comprehensive income statement: Net income 
-Revenue and Expense recognition principle 
-Different values on a balance sheet: fair markets, current cost, accruals, expense, revenue 
-Calculate retained earnings & accumulated comprehensive income  
-restructuring charges how are they reported 
-EPS what is it for/calculation 
-Balance sheet ratios 
-Importance of the line:above/below reported 
-adjusted journal entries: prepaid/unearned rev 
-cash and accrual t accounts for missing info 
-basic accounting equation 
-account for discontinued operations 
-what classification shifting is 
-calculation of income tax expense-where is it reported 
-calculations on income statement 
-tax adjusting - move towards 0 
 
EQUATIONS: 
Assets=Liabilities+Shareholders Equity 
 
Current Ratio:  current assets current liabilities     Quick Ratio/Acid Test Ratio:  quick assets current liabilities     Debt to Equity Ratio:  total liabilities shareholder s equity     Times Interest Earned Ratio:  interest expense net income+interest expense+income tax     Earnings Per Share:  Net incomepreferred stock dividends W eightedaverage number of common shares outstanding     Chapter 1: 
 
Primary function of accounting is to provide useful financial information to users who are 
external to the business, particularly investors and creditors.  
background image  
Financial accounting information is conveyed through financial statements such as 
-Balance sheet 
-Income Statement 
-Statement of cash flows 
-statement of shareholder’s equity 
-statement of comprehensive income 
 
How to determine if something should be included on the financial statements 
-Definition, Measurability, Relevance, and Reliability 
 
Elements of Financial Statements: 
Assets
​: Have probable future economic benefits owned by company or person  Liabilities ​: A company’s financial obligation or financial debts that have arised during operations  Equity ​: Residual interest in the assets of an entity that remains after deducting liabilities  Investments by owners: ​Increases in equity of a particular business enterprise resulting from  transfers 
Distributions to owners:
​Decreases in equity of a particular enterprise resulting in transfers to  owners 
Comprehensive income:
​ The variation in a company’s assets from nonowner sources during a  specific time period. 
Revenues
​: The amount of money a company receives for providing a product or service  Expenses: ​economic costs a business incurs during operations for revenue  Gains:  ​Measured by the proceeds from sale minues book value-a result of a sale of an asset  (other than inventory) 
Losses:
​ decreases in net income that is outside the normal operations of the business   
-
Accrual accounting model​: measurement of the entity's accomplishments and resource  sacrifices during the period, regardless of when cash is received or paid -does not focus only on 
cash flows, but also on other resources provided and consumed during a period. Most 
companies use this because it allows for easy comparisons for investors. 
 
Cash basis accounting: 
​produces a measure called net operating cash flow which is the  difference between cash receipts and cash disbursements during a reporting period from 
transactions related to providing goods and services 
 
 
-main difference between these two is the time of record: Cash basis revenue is recorded when 
cash is received and expenses are recorded when cash is paid 
Accrual basis revenue is recorded when earned and expenses are recorded when consumed 
 
 
Auditing 
background image - ​It is the role of the managers to ensure that GAAP is applied appropriately  Auditors: Help ensure that management has properly followed GAAP in the financial statements 
by examining financial statements and expressing their opinion on if it followed GAAP. In doing 
so, they add credibility to the financial statements and increase confidence in those who rely on 
these statements.  
 
SOX:
​ Applies to public issuing security entities. It provides for the regulation of auditors and the  type of services they furnish to clients, increases accountability of corporate executives, 
addresses these conflicts of interest for securities analysts, and provides stiff criminal penalties 
for violators. 
 
 
Chapter 2 
 
Accounting equation: Assets=Liabilities+Shareholders Equity 
                                        
​       ↓                                ⇓                                     Total economic                 Total claims 
                                   Resources 
*Each event or transaction, has an equal effect on the accounting equation 
 
Shareholders equity: 
​2 main sources: investments by shareholders in the company and  amounts earned by the company because of shareholders-reported as paid-in capital and 
retained earnings 
 
Adjusting journal entries: 
​record the effect of internal events on the accounting equation,  recorded at the end of any period when financial statements are prepared, done to ensure all 
revenues are recognized in the period goods or services are transferred to customers and that 
all expenses are recognized in the period incurred. 
 
Prepayments: 
​ex. When a company pays for supplies in one period but uses them in another   
Prepaid expenses: cost of an asset is acquired in one period but expensed in a future period 
-adjusting journal entry is a debit to an expense and a credit to an asset 
-Financial statements: income statement-decrease in income, Balance sheet: decrease in 
assets 
 
Deferred revenue
​: cash received in advance of providing a good or service  A company’s obligation to provide goods or services in the future.  
-Adjusting entries: debit to liabilities and credit to revenues 
-Financial statement: income increases on the income statement, Balance sheet liabilities 
decrease 
Accruals:
​ Involve cash flows that occur after either expense or revenue recognition 

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School: University of Alabama - Tuscaloosa
Department: Accounting
Course: Intermediate Accounting
Professor: Jill Datema
Term: Spring 2019
Tags:
Name: Test 1 Study Guide
Description: Study guide over chapters 1-4
Uploaded: 02/11/2019
8 Pages 41 Views 32 Unlocks
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