ACCT 2010 STUDY GUIDE MIDTERM
ACCT 2010 STUDY GUIDE MIDTERM ACCT 2010 (Accounting, Dr. Kohlmeyer)
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ACCT 2010 (Accounting, Dr. Kohlmeyer)
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This 9 page Study Guide was uploaded by Catherine Feeney on Monday October 5, 2015. The Study Guide belongs to ACCT 2010 (Accounting, Dr. Kohlmeyer) at Clemson University taught by Dr. Kohlmeyer in Fall 2015. Since its upload, it has received 35 views. For similar materials see Financial Concepts in Accounting at Clemson University.
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Date Created: 10/05/15
ACCT 2010 MIDTERM STUDY GUIDE 40 MC Worth 150 Points more material 2 hours Qhapter 4 13 of the exam 13 questions largest part of exam 2 cash is not always received in the period in which the company earns the related revenue likewise cash is not always paid in the period in which the company incurs the related expense In these situations adjustments Revenues are recorded when earned the revenue recognition principle Expenses are recorded in the same period as the revenues to which they relate the expense recognition or matching principle Assets are reported at amounts representing economic benefits that remain at the end of the current period Liabilities are reported at amounts owed at the end of the current period that will require a future sacrifice of resources Companies wait until the end of the accounting period to adjust their accounts because daily adjustments would be costly and timeconsuming Deferral The word defer means to postpone until later In accounting we say an expense or revenue has been deferred if we have postponed reporting it on the income statement until a later period Accrual adiustments are needed 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 Every adjusting entry has a balance sheet account and income statement account Exhibit 8 chapter 4 One account you will never see in an adjusting entry CASH because its not about cash we are only interested in getting the proper expense in the proper period CASH is never an adjusting entry Accounting principal that tells us why we have to do adjusting entries MATCHING PRINCIPAL Matching Principle expenses in the same period that the revenue is generated If you do not do adjusting entry what we be the effect on nancial statements Salaries aren t adjusted not enough expense for the current So understated expenses and overstated net income Look at Exhibit 1 and 8 Financial statements use adjusted trial balance An adjusted trial balance is prepared to check that the accounting records are still in balance after having posted all adjusting entries to the Taccounts Know how to do all types of adjusting entries Prepaid insurance when you pay it up front then as the year transpires we recognize it Debit Insurance Expense Credit Prepaid Insurance Cosing Enteries Exhibit 12 Revenues Expenses Closes out dividends to retained earnings The closing process serves two purposes transfer net income or loss and dividends to retained earnings and 2 establish zero balances in all income statement and dividends accounts With closing entries the amount credited to retained earnings should equal net income on the income statement DIVIDENDS ARE NOT AN EXPENSE Know the proper order to prepare nancial statements gtlltgtlltgtlltgtlltgtlltgtllt 1 Income Statement 2 Statement of Retained Earnings 3 Balance Sheet 4 Cash Flow Chapter 5 Small Chapter 8 questions 1 Purposes of Internal Control conceptual to prevent fraud lnterna Control consists of the actions taken by people at every level of an organization to achieve its objectives relating to operations reporting and compliance Contro Environment the attitudes people in the organizations hold regarding internal control Principal Control Activities 1 Establish Responsibility assign each task to only one employee 2 Segregate Duties assigns responsibilities so one person can t make a mistake with out another catching it ex same person who does the statements doesn t write the checks 3 Restrict Assets locking the safe or register 4 Document Procedures 5 Independently Verify Sarbanes Oxley Act all companies that trade on US stock exchanges must comply with the requirements Was created in response to fraud There is now stiff penalties and nes for any fraud Companies must have an audit committee and they must evaluate there own internal control Large public companies must have an external audit CEO s must sign off on their nancial statements 3 Petty Cash know how to set up the petty cash accounts When a petty cash fund is started your quotCashquot goes down and your quotPetty cash goes up Cash and petty cash are assets Starts Debit Petty Cash Credit Cash then continues on from there with Crediting Petty Cash and debiting whatever expense it is once the fund is replenished No journal entries required for each individual receipt Payments out of petty cash are not recorded in the accounting system until the fund is replenished This is because these receipts are usually for such small amounts 4 Restricted Cash you are gonna have all the cash they have than in the notes it will say if there is cash restricted for the speci c purpose This is a certain amount of cash not available for operations It is in the number of cash in the balance sheet but will tell you in notes that its not available 5 Bank Reconciliation 3 questions Bank Reconciliation involves comparing the company s records to the banks statements of account to determine whether they agree The company s records can differ from the banks records for two reasons 1 the company has records some items that the bank doesn t know about at the time it prepares its statement of accounts 2 bank has recorded something company doesn t know about Check Clears means that the bank decides they are going to pay the check they take the money out of your account and give it to the person the check was written to Bank pays expense Calculations for bank reconciliation what is the bank balance know not suf cient funds Reconciling Differences Your bank might not know 1 Errors they made 2 Time Lags deposits that you made recently or checks that you wrote recently You May Not Know 3 Interest the bank put into your account 4 Electronic funds Transfers 5 Services charges taken out of your account 6 Customer checks you deposited for which the customer did not have suf cient funds 7 Errors made by you NFS Not Suf cient Funds checks your customers checks that you deposited in the bank but were later rejected bounced because of insuf cient funds in your customers own bank accounts To Prepare Bank Reconciliation 1 identify the deposits in transit 2 identify outstanding checks 3 Record other transactions on the bank statement and correct your errors interest received electronic funds transfers NFS checks service charges your company errors mantra Bank service charge is considered an Of ce Expense Restricted Cash still included in cash balance but can not be used Says why in the notes Qhapter 6 9 Gross Pro t Net Income sales rev Cost of Goods Sold You have a gallon of paint that costs you 8 You sell the paint for 20 dollars selling price then you have selling and administrative expense for 4 a gallon Cost 8 selling admin 4 selling price 20 Gross Pro t on exam says 20 8 4 8 but they say 12 Cost of Goods Available Beginning Inventory purchases BI Purchases COGA COGA Ending Inventory COGS BI Purchases COGA COGA COGS ending inventory Periotic System where you do inventory at the end of the accounting period Smaller companies Perpetual System used with a lot of different items Like walmart or public this is an continually updated inventory system so every time someone checks out the inventory changes you still occasionally have to do a physical count because of inventory shrinkage Stealing things going bad ext Two Formulas one question on each Inventory Turnover Cost of Good Sold Average Inventory Average Number of Days to Sell 365 Inventory turnover ratio When does title transfer FOB Destination title doesn t transfer to it arrives at destination When it is in transit it is owner by the seller and they pay the shipping FOB Shipping Point as soon as the goods are shipped title transfer from the seller to the buyer so when it is in transit from seller to buy it belongs to buyer Buyer pays shipping cost QUESTION SPECIFIC IDENTIFICATION METHOD when do you use the speci c identi cation method It is only used in a company that has very few items to sell Low number of items and custom Example a car dealershiponly a few different types of car on lot at a time and homebuilder only a few homes working on at a time Grocery store would never use this they have so many items The specific identification method individually identifies and records the cost of each item sold as Cost of Goods Sold This method requires accountants to keep track of the purchase cost of each item Know Beginning Inventory Purchases COGA COGA Ending Inventory COGS Chapter 7 I 11 questions Goals of Inventory Management maintain suf cient quantity ensure inventory quality minimize the cost 1 Which of the following is not a goal of inventory management Calculations for cost of good sold FIFO rst in rst out LIFO last in rst out Weighted Average avg price per unit is used You are calculating DOLLARS of ending inventory the units of ending inventory are going to be the same under all three methods Gross Pro t Sales Revenueunits sold times selling price COGS Which of the three methods would give you the most net income With in ation FIFO rst in rst out means the cheapest goods that when in rst go out rst This makes COGS smaller and your net income bigger Which of the three would give you the lest income With in ation LIFO gives you the least Because the most recent things you bought are the most expensive and go out rst Periotic System whenever we make purchases this is every journal entry for periodic Debit Purchases Credit Accounts Payable Perpetual System whenever we make purchases every journal entry this is because we are constantly debiting inventory after every entry Debit Inventory Credit Accounts payable Two Questions on Inventory Errors If your ending inventory is overstated what is the effect on COGS net income and current assets COGS is too small understated Net Income is too big overstated Current assets is inventory so if inventory is overstated so is current assets Consignment Inventory refers to goods a company is holding on behalf of the goods owner Typically this arises when a company is willing to sell the goods for the owner for a fee but does not want to take ownership of the good in the event the goods are dif cult to sell Consignment inventory goes on the balance sheet of the person who owns it not the company holding the inventory q EXAM QUESTION You have rising prices which method would you get a higher net income FIFO because your cost of goods sold is made up of your older cost which are smaller cause of in ation which makes your cost of good sold smaller
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