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SC RETL 261 - Exam 1 Study Guide

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RETL 261 1st EditionExam # 1 Study Guide Lectures: 1 - 3Lecture 1: Accounting in BusinessWhat 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 statement2. Statement of owner’s equity3. Balance Sheet4. Cash flow statementWho 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 protectconsumers 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 Principle2. Revenue Recognition Principle3. Matching Principle4. Full Disclosure PrincipleWhat are the four accounting assumptions?1. Going-Concern Assumption2. Monetary Unit Assumption3. Business Entity Assumption4. Time Period AssumptionWhat is the accounting equation?Assets = Liabilities + Owner’s Equity Lecture 2 Analyzing and Recording TransactionsWhat 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 earningrecords. 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 StatementsQuarterly 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


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