ACCOUNT 244 1st Edition Exam 1 Study Guide Lectures 1 7 Lecture 1 January 20 Accounting in Action What is accounting Who uses accounting Why are ethics in Financial Reporting important and what are the steps What are the Generally Accepted Accounting Principles GAAP Explain the Monetary Unit Assumption and the Economic Entity Assumption What is the Basic Economic Equation and what are its components Define transactions and related components What are the four different types of financial statements and how they are prepared What are some of the career opportunities in accounting Accounting The purpose is to identify record and communicate o Identification is select economic events or transactions o Recording is to record classify and summarize o Communication is to prepare accounting reposts analyze and then interpret the information for users Users Internal and External Users o Internal users work in the company i e Human Resources Management Finance Marketing etc o External users are outside of the company i e IRS Investors Creditors Labor Unions SEC Customers etc Ethics Importanceo They are important because you need to be able to trust in order to want to invest o P T Barnum They made sure that the CEO and CFO sign off that their numbers are honest It requires the auditor to be independent from the company Must audit internal controls along with financial statements Stepso First Recognize an ethical situation and the ethical issues involved o Second Identify and analyze the principle elements of the situation o Third Identify the alternatives and weigh their impact on stakeholders GAAP The GAAP are rules that everyone has to follow In the U S the primary accounting standard setting body is the Financial Accounting Standards Board FASB The Worldwide primary standard setting body is the International Accounting Standards Board FASB Monetary Unit Assumption It is an assumption stating that companies include in the accounting records only transactions data that can be expressed in terms of money Economic Entity Assumption It is an assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities Basic Economic Equation and components Assets Liabilities Stockholder s Equity o Assets provide future value o Liabilities are anything that we owe others they are claimed by creditors and get paid first o Stockholder s Equity is the ownership claim on a corporation s total assets it is claimed by the owners Transactions Transactions are a business s economic events recorded by accountants o Not all activities represent transactions o Transactions may be internal or external o Each transaction has a dual effect on the accounting equation Financial Statements Income Statements are over a period of time Retained Earnings Statement looks at a moment in a period and it gets the end balance Balance Sheet looks at Assets Liabilities Stockholder s Equity Statement of Cash flow shows the cash flow and why that occurs Career Opportunities Public Accounting Careers in auditing taxation and management consulting serving the general public Private Accounting Careers in industry working in cost accounting budgeting accounting information systems and taxation Government Careers with the IRS FBI SEC and in public colleges and universities Forensic Accounting Uses accounting auditing and investigative skills to conduct investigations into theft and fraud Lecture 2 February 3 The Recording Process What is an account and how does it help in the recording process What are debits and credits Identify the basic steps in the recording process What is a journal and how does it help in the recording process What is a ledger and how does it help in the recording process What is posting and how does it help in the recording process Explain what a trail balance is and its purpose Account It is a record of increases and decreases in specific assets liability or stockholder s equity items Accounts and account numbers are arranged in sequence in which they are presented in the financial statements A vital element in communicating economic events in the accountant s ability to analyze and interpret the reported information Debits and Credits The debit is the left side of an account If debits are greater than credits the account will have a debit balance The credit is the right side of an account if debits are less than credits the account will have a credit balance Double entry System is a system that records in appropriate accounts the dual effect of each transaction A normal balance on an account is an account balance on the side where an increase in the account is recorded Basic Steps in the recording process First you analyze journalize and then post Business documents provide evidence of the transaction o i e Sales slip check bill cash register tape etc Journal Book of original entry Transactions recorded in chronological order Contributions to the recording process Discloses the complete effect of a transaction provides a chronological record of transactions and helps to prevent of locate errors because the debit and credit amounts can be easily compared Ledger A general ledger contains the entire group of accounts maintained by a company Posting It is the process of transferring amounts from the journal to the ledger accounts Trial Balance It is a list of accounts and their balances at a given time Its primary purpose it to prove the equality of debits and credits after posting A trial balance also uncovers errors in journaling and posting and it is useful in preparing financial statements A limitation is that it cannot catch all errors Lecture 3 February 10 Adjusting the Accounts What is the time period assumption Explain accrual basis of accounting What is the reason for adjusting entries What are the major types of adjusting entries and explain each of them What is Depreciation Time period assumption It is an assumption that can divide the economic life into artificial time periods Accrual Basis of Accounting Transactions recorded when economic events occurs Revenues are recognized when earned Expenses are recognized when incurred The U S GAAP required accrual basis accounting because cash can be manipulated There is a better comparability across the company Adjusting Entries Adjusting entries happen at the end of our accounting time period They get us in accordance to accrual accounting Reasons to adjust is we don t