AC 310 7th EditionExam # 1 Study Guide Lectures: 1-5Lecture 1 (January 8)Environment and Theoretical Structure of Financial AccountingWhat 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 eventsLiabilities: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 eventsRevenues: 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 constitutethe entity’s ongoing major or central operationsExpenses: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 operationsGains:Increases in equity from peripheral or incidental transactions of an entityLosses: Decreases in equity arising from peripheral or incidental transactions of an entityWhat are the recognition principles?Revenue Recognition: RealizationTwo Criteria:1.Earnings process is complete or virtually complete2.Reasonable certainty as to the collectability of the asset to be received (usually cash)Expense Recognition: MatchingThe matching principle requires that all expenses incurred in generating revenue for a periodalso be recognized in the same periodLecture 2 (January 13)The Accounting Information System and Adjusting Journal Entries The Accounting Equation:Assets = Liabilities + Stockholders EquityTypes of Adjusting Entries:Prepaid Expenses:Expenses paid in cash and recorded as assets before they are used or consumedUnearned Revenues:Revenues received in cash and recorded as liabilities before they are earnedAccrued Revenues:Revenues earned but not yet received in cash or recordedAccrued Expenses: Expenses incurred but not yet paid in cash or recordedLecture 3 (January 15)The Accounting Information System, Adjusting Journal Entries, and Preparation of Financial StatementsThe Accounting Cycle1. Journalization 6. Financial Statements2. Posting in ledger/ t-account 7. Closing Entries3. Trial Balance 8. Post-closing Trial Balance4. Adjustments 9. Reversing Entries5. Adjusted Trial BalanceLecture 4 (January 20)Income Statement, Intraperiod Tax Allocation and the Reporting of Irregular ItemsPreparation of the Income Statement:1.Understand the essential components of incomea. Operating Income: revenues and expenses directly related to revenue generating activitiesb. Non-operating Income: certain gains and losses and revenues/expenses related to peripheral/incidental activities of the company2.Earning quality and restructuring chargesa. Earnings Quality: the ability of reported earnings to predict a company’s future earningsb. Restructuring Costs: costs associated with shutdown or relocation of facilities or downsizing of operations are recognized in the period incurred3. “Below the Line” items: Discontinued Operations and Extraordinary Chargesa. Discontinued Operations: has been disposed of or is classified as held for saleb. Extraordinary Charges: an event/transaction that is both unusual in nature and infrequent in occurrencec. Amounts are reported **net of tax**d. Company must consider the environment in which it operates in determining whether it is extraordinary or notLecture 5 (January 22)Income Statement, Reporting of Irregular Items and Comprehensive IncomeOther Comprehensive Income:- Unrealized Gains and Losses- Translation Gains and Losses on Foreign CurrencyCorrections of ErrorsResult from:- Math mistakes- Mistakes in application of accounting principles- Oversight or misuse of factsCorrections treated as prior period