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Introduction to Financial Accounting

by: Sienna Barton

Introduction to Financial Accounting Acctg 230

Marketplace > Washington State University > Accounting > Acctg 230 > Introduction to Financial Accounting
Sienna Barton
GPA 3.71

Nori Pearson

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Nori Pearson
Class Notes
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This 5 page Class Notes was uploaded by Sienna Barton on Thursday September 17, 2015. The Class Notes belongs to Acctg 230 at Washington State University taught by Nori Pearson in Fall. Since its upload, it has received 22 views. For similar materials see /class/206022/acctg-230-washington-state-university in Accounting at Washington State University.


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Date Created: 09/17/15
ACCTG 230 Exam Coverage Fall 2010 Obviously I will not be able to test you on everything included in this review sheet and it may not be inclusive of all the material covered in the exam but it is a good tool to get you prepared for Exam 1 Chapters 1 2 3 and4 I t is always good to review the study objectives at the beginning of each chapter and be able to demonstrate you understand the objectives It is also good to review the terms of each chapter to make sure you understood what was covered in the chapter The homework underscores the material covered in the chapters 0th er Items to review Forms ofa Business Sole Proprietorship Partnership Corporation Internal User External User Business Activities Know how to classify activities into each category Operating Financing Investing Review the 4 Basic Financial Statements The Classi ed Balance Sheet The Retained Earnings Statement The Income Statement The Cash Flows Statement Know how statements interrelate Elements of each statement and form of each statement Know which accounts are an asset liability or stockholder s equity accounts Accounting Entities amp Sources of Accounting Rules SEC AICPA Legislature Ethics in Accounting GAAP Characteristics of Useful Information Relevance Reliability Comparability Consistency Assumptions and Principles of Financial Accounting Monetary Unit Assumption Economic Entity Assumption Time Period Assumption Going Concern Assumption Cost Principle Full Disclosure Principle Materiality Conservatism Classifying Liabilities and Assets ie as current and noncurrent Review handout posted on Angel if necessary Noncurrent Asset Classifications Property Plant and Equipment PPampE Longterm Investments Intangible Assets The Accounting Equation Assets Liabilities Stockholders Equity Net Income Revenues 7 Expenses Retained Eamingsmdimg 7 Retained Earningsbeginnimg Revenues 7 Expenses 7 Dividends Stockholders Equity Retained EamingsBeg WE NI 7 Dividends Common Stock Be able to define and demonstrate pro tability liquidity and solvency activities and each type of activity relates to the ratios we covered Ratios you need to know how to calculate Current Ratio Earnings per Share Debt to Equity ratio Free Cash Flow The accounting information system Accounting transactions The Account 3 parts what are they Understand which accounts get bigger with debits and which with credits Know what the normal balance means and be able to identify an accounts normal balance Bea able to record business transactions in journal entry form and know how account balances change with postings in to the ledger Cash Accounting 7 Records revenue only when cash is received and records expenses only when expenses are paid Not GAAP Accrual Accounting Follows GAAP Recording events or transactions in the proper period rather than when the company receives or pays cash The proper period is determined by Revenue Recognition Principal Record revenue in the period when it is earned ie When the goods are shipped and legal title has changed to buyer for goods shipped or when the service was performed Matching Principal 7 Matches expenses with revenue Match the expense that makes a contribution to or generates the revenue earned recorded Matches efforts expenses with accomplishments revenues Adjusting Entries 7 Ensure that the revenue recognition and matching principals are followed Each Adjusting entry affects at least one income statement and a balance sheet account Prepaid 0r Deferred Expenses 7 payment before expense due results in an asset which costs expire expense recorded either with passage of time rent insurance depreciation or through use supplies on hand used up Adjusting entry Debit Expense Credit Prepaid Asset If adjusting entry for expense over time is not made assets overstated 7 expenses understated 7 Net income is overstated If prepayment is not recorded as an asset If the company Debited expense Credited Cash Instead of the correct entry Debited Prepaid asset Credited Cash Such as prepaid insurance then expenses are overstated and assets understated 7 Net income is understated Uneamed 0r Deferred Revenues Receive cash before revenue is earned Because co received cash before it was earned need to record receipt of cash before earned as Debit Cash Credit a Liability Account such as Uneamed or deferred Service Revenue If it was incorrectly recorded as revenue and not a liability then revenue is overstated and liabilities are understated 7 Net income is overstated If unearned revenue is properly recorded the adjusting entry when the revenue is earned is Debit to Liability Unearned Service Revenue Credit to Revenue Service Revenue If adjusting entry is not made then liabilities are overstated and revenue is understated 7 Net income is understated Accrued Expenses 7 Expenses incurred but not yet paid that need to be recorded ie wages earned interest payable accrued Debit to expense wage expense Credit to liability wages payable If not recorded then expenses are understated and liabilities are understated 7 net income is overstated Accrued Revenues 7 Revenue that has been earned but not yet recorded ie interest earnings on a note receivable To accrue revenues Debit to Asset Interest Receivable Credit to Revenue Account Interest Earned Ifnot recorded then assets are understated and revenue is understated 7 Net income is understated If net income is under or overstated then retained earnings is under or overstated and stockholders equity is under or overstated The Three Types of Trial Balances Know the use and limitations of a trial balance Unadjusted Trial Balance 7 Trial Balance before adjusting entries have been made Listing of all accounts by debit or credit and compare to see they balance Adjusted Trial Balance Trial balance after all adjusting entries have been joumalized and posted to accounts NOTE Financial statements are prepared from the adjusted trial balance prior to closing entries Post closing Trial Balance 7 Trial balance prepared after the closing entries have been joumalized and posted to the accounts Only permanent accounts remain All temporary or nominal accounts are closed Closing Entries 7 Closing the temporary account balances to the permanent stockholders equity account 7 Retained Earnings Temporary accounts are revenue expense and dividend accts Why Remember revenue expense and dividends accounts are all subdivisions of retained earnings Because these accounts relate to a given period month year they are considered temporary or nominal accounts and are closed out at the end of a period normally a year so the company can see results of operations by month year Remember balance sheet accounts are permanent accounts and are not closed out at the end of the period Assets Liabilities and Stock holders Equity The Accounting Cycle 7 l Analyze business transactions 2 J oumalize the transactions 3 Post to ledger accounts 4 Prepare a trial balance 5 J oumalize and post adjusting entries 6 Prepare an adjusted trial balance 7 Prepare nancial statements Income Statement Retained Earnings Statement Balance Sheet and Statement of Cash Flows 8 Joumalize and post closing entries 9 Prepare a postclosing trial balance Be able to construct an Income Statement Retained Earnings Statement and a Balance sheet given an adjusted trial balance for a company


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