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Notes from January 25th and 27th

by: Callisa Ruschmeyer

Notes from January 25th and 27th ACCT 2110 - 002

Marketplace > Auburn University > Accounting > ACCT 2110 - 002 > Notes from January 25th and 27th
Callisa Ruschmeyer
GPA 4.0

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About this Document

Here are the notes for the rest of Chapter 1 and the beginning of Chapter 2. Also, equation and helpful tips for the first assigned homework for chapter 1.
Principles of Financial Accounting
Elizabeth G Miller
Class Notes
financial accounting, Miller, Chapter 1, chapter 2, homework for chapter 1, financial statements
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This 5 page Class Notes was uploaded by Callisa Ruschmeyer on Wednesday January 27, 2016. The Class Notes belongs to ACCT 2110 - 002 at Auburn University taught by Elizabeth G Miller in Fall 2015. Since its upload, it has received 33 views. For similar materials see Principles of Financial Accounting in Accounting at Auburn University.

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Date Created: 01/27/16
th th January 25 and 27 Chapter 1 Homework Help Items in the Annual Report and Professional Ethics  All four financial statements make up annual reports  Notes to the financial statements (footnotes)- clarify information in statements o The info can be numerical or qualitative  Management's discussion and analysis- management's explanation to expand on favorable and unfavorable trends o Also expand on any risks that the company may be facing (or soon to face)  Audit report- here is where the auditor's opinion is given o Best opinion- "unqualified" (basically everything looks good) o Okay opinion- "everything looks good except for _______" o Worst opinion- no opinion is given  Essentially this tells investors that the company has many issues and should steer clear of it Professional Ethics  Validity of financial statements comes from professional ethics  Ethics ensures that managers can trust their employees; investing public must trust accountants and ensure all formal codes are followed Chapter 1 Homework Help  Income from operations = gross margin – operating expenses  Gross margin = net sales – cost of goods sold  Retained Earnings on 12/31/2015 = Retained Earnings on 1/1/2015 = net income – dividends  Net income = Revenue – Expenses  Total Assets are anything the company has in their possession o For example: inventory, cash, anything prepaid, or anything that is followed by receivable o What is not an asset? Liabilities, expenses, revenues, earnings, dividends, or anything followed by the word payable  Current Ratio = Current Assets / Current Liabilities CHAPTER 2 Generally Accepted Accounting Principles (GAAP)  Qualitative Characteristics (subject to Cost Constraint) o Fundamental  Relevance- makes a difference in a decision  Materiality- large enough difference  Faithful representation- complete, neutral, and free from error o Enhancing  Comparability- consistency is key; allows for external and internal comparisons  Verifiability- when independent parties reach the same consensus  Timeliness- available to users before it loses its ability to make a difference on decisions  Understandability- average person with basic business knowledge can understand  Assumptions o Economic Entity- each company is accounted for apart from its owners o Continuity (Going-Concern)- the company will be in existence to carry out commitments o Time Period- companies can divide time into artificial periods to solve problems as they arise o Monetary Unit- record everything in the same monetary unit (no conversions)  Principles o Historical cost- we record what we had to give up to acquire the asset o Revenue recognition- revenue is recorded in the period in which it was earned o Expense recognition (matching)- expenses should be recorded when they are incurred o Conservatism- avoid overstating assets or income Accounting Cycle (Steps 1-4) 1. Analyze Transactions a. Write down the accounting equation b. Which elements are affected in the transaction c. Do the elements increase or decrease 2. Journalize Transactions 3. Post to the Ledger 4. Prepare a Trial Balance Expanded Accounting Equation  Assets = Liabilities + Stockholders' Equity  Assets = Liabilities + (Contributed Capital + Retained Earnings)  Assets = Liabilities + (Beginning Retained Earnings + [Revenues - Expenses] -Dividends Important Vocabulary  Double-entry accounting- two or more transactions are affected Handwritten Notes


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