ACCOUNT 244 1st EditionExam # 1 Study Guide Lectures: 1 – 7Lecture 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)? Explainthe 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 communicateo Identification is select economic events or transactionso Recording is to record, classify, and summarizeo Communication is to prepare accounting reposts, analyze, and then interpret the information for users.Users-- Internal and External Userso 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-- Importance-o They are important because you need to be able to trust in order to want to investo 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.- Steps-o First: Recognize an ethical situation and the ethical issues involvedo Second: Identify and analyze the principle elements of the situationo Third: Identify the alternatives and weigh their impact on stakeholdersGAAP-- 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 moneyEconomic 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 entitiesBasic Economic Equation and components-- Assets= Liabilities + Stockholder’s Equityo Assets provide future valueo Liabilities are anything that we owe others; they are claimed by creditors and get paid firsto Stockholder’s Equity is the ownership claim on a corporation’s total assets; it is claimed by the ownersTransactions- - Transactions are a business’s economic events recorded by accountants.o Not all activities represent transactionso Transactions may be internal or externalo Each transaction has a dual effect on the accounting equationFinancial 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 thegeneral 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 fraudLecture 2 (February 3)The Recording ProcessWhat 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 informationDebits and Credits-- The debit is the left side of an account; If debits are greater than credits, the account willhave 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 transactiono 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 AccountsWhat 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 periodsAccrual 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