AC 310 7th Edition Exam 1 Study Guide Lectures 1 5 Lecture 1 January 8 Environment and Theoretical Structure of Financial Accounting What are the Elements of Financial Statements Assets Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events Liabilities Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events Revenues Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods rendering services or other activities that constitute the entity s ongoing major or central operations Expenses Outflows or other using up of assets or incurrences of liabilities during a period from delivering goods rendering services or other activities that constitute the entity s ongoing major or central operations Gains Increases in equity from peripheral or incidental transactions of an entity Losses Decreases in equity arising from peripheral or incidental transactions of an entity What are the recognition principles Revenue Recognition Realization Two Criteria 1 Earnings process is complete or virtually complete 2 Reasonable certainty as to the collectability of the asset to be received usually cash Expense Recognition Matching The matching principle requires that all expenses incurred in generating revenue for a period also be recognized in the same period Lecture 2 January 13 The Accounting Information System and Adjusting Journal Entries The Accounting Equation Assets Liabilities Stockholders Equity Types of Adjusting Entries Prepaid Expenses Expenses paid in cash and recorded as assets before they are used or consumed Unearned Revenues Revenues received in cash and recorded as liabilities before they are earned Accrued Revenues Revenues earned but not yet received in cash or recorded Accrued Expenses Expenses incurred but not yet paid in cash or recorded Lecture 3 January 15 The Accounting Information System Adjusting Journal Entries and Preparation of Financial Statements The Accounting Cycle 1 Journalization 2 Posting in ledger t account 3 Trial Balance 4 Adjustments 5 Adjusted Trial Balance 6 Financial Statements 7 Closing Entries 8 Post closing Trial Balance 9 Reversing Entries Lecture 4 January 20 Income Statement Intraperiod Tax Allocation and the Reporting of Irregular Items Preparation of the Income Statement 1 Understand the essential components of income a Operating Income revenues and expenses directly related to revenue generating activities b Non operating Income certain gains and losses and revenues expenses related to peripheral incidental activities of the company 2 Earning quality and restructuring charges a Earnings Quality the ability of reported earnings to predict a company s future earnings b Restructuring Costs costs associated with shutdown or relocation of facilities or downsizing of operations are recognized in the period incurred 3 Below the Line items Discontinued Operations and Extraordinary Charges a Discontinued Operations has been disposed of or is classified as held for sale b Extraordinary Charges an event transaction that is both unusual in nature and infrequent in occurrence c Amounts are reported net of tax d Company must consider the environment in which it operates in determining whether it is extraordinary or not Lecture 5 January 22 Income Statement Reporting of Irregular Items and Comprehensive Income Other Comprehensive Income Unrealized Gains and Losses Translation Gains and Losses on Foreign Currency Corrections of Errors Result from Math mistakes Mistakes in application of accounting principles Oversight or misuse of facts Corrections treated as prior period adjustments