RETL 261 1st Edition Exam 1 Study Guide Lectures 1 3 Lecture 1 Accounting in Business What is accounting Accounting is an information and measurement system that identifies records and communicates relevant reliable and comparable information about an organization s business activities What are the four primary financial statements 1 Income statement 2 Statement of owner s equity 3 Balance Sheet 4 Cash flow statement Who are external users External users are not directly involved in running the organization They include shareholders investors lenders directors customers suppliers regulators lawyers brokers and the press Who are internal users Internal users are those directly involved in managing and operating an organization They include officers managers internal auditors sales staff budget officers and controllers True or false 1 Managerial accounting is the area of accounting that provides internal reports to assist the decision making needs of internal users True 2 The primary objective of financial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization s activities True 3 In the partnership form of business the owners are called stockholders False What does GAAP stand for Generally accepted accounting principles GAAP aims to make information relevant reliable and comparable It is the rulebook for accounting Why was the Sarbanes Oxley SOX Act passed Congress passed the act to help curb financial abuses at companies that issue their stock to the public The desired results include more transparency accountability and truthfulness in reporting transactions What is the Dodd Frank Wall Street Reform and Consumer Protection Act The act was designed to promote accountability and transparency in the financial system put an end to the notion of too big to fail protect the taxpayer by ending bailouts and protect consumers from abusive financial services What are general principles They are the basic assumptions concepts and guidelines for preparing financial statements General principles stem from long used accounting practices What are specific principles They are detailed rules used in reporting business transactions and events Specific principles arise more often from the rulings of authoritative groups What are the four general accounting principles 1 Measurement Cost Principle 2 Revenue Recognition Principle 3 Matching Principle 4 Full Disclosure Principle What are the four accounting assumptions 1 Going Concern Assumption 2 Monetary Unit Assumption 3 Business Entity Assumption 4 Time Period Assumption What is the accounting equation Assets Liabilities Owner s Equity Lecture 2 Analyzing and Recording Transactions What are source documents Source documents are where you get everything for journal entries They include receipts purchase orders checks loan documents bank statements sales tickets and employee earning records What are examples of assets Assets include cash accounts receivables notes receivables prepaid accounts supplies equipment buildings and land What are examples of liability accounts Accounts payable notes payable accrued liabilities What are examples of Equity Accounts Owner s Capital Owner s withdrawals revenues and expenses What increases and decreases equity Revenue and owner s contributions increase equity Expenses and owner s withdrawals decrease equity What is a ledger The ledger is a collection of all accounts for an information system It is where you categorize things Accounting is based on dual entry Debits are on the left recorded 1st Credits are on the right recorded 2nd Use T Charts to turn journals into ledgers Lectures 3 Adjusting Accounts and Preparing Financial Statements Quarterly filing by SEC is called what 10 Q filing Annual filing by SEC is called what 10K filing What is accrual basis accounting Revenues are recognized when earned and expenses are recognized when incurred What is cash basis accounting Revenues are recognized when cash is received and expenses are recorded when cash is paid Cash basis is Non GAAP What is depreciation Depreciation is the process of allocating the cost of a plant asset over its useful life in a systematic and rational manner What is the equation for straight line depreciation Straight line depreciation expense Asset Cost Salvage Value Useful Life What does PP E stand for Property Plant and Equipment