ACCTNG 2400Exam # 1 Study Guide Lectures: 1 - 8Based off of most important material on lecture notes, Practice Exam on MyGateway, and the list of what to know for the exam from Professor Van WertI. For exam, be able to:a. Classify types of accounts: (assets, liabilities, stockholders equity) b. Balance debit and creditc. Key elements of 4 basic financial statementsd. Classify cash flows: operating, investing, financinge. Problems such as: transaction analysis, journal entries, T-accounts, balance sheet, trial balanceII. Test location: JC Penny online testing centera. RESERVE A SPOT ASAP ONLINEb. 200 pointsc. 40 questionsd. 75 minutes to completeMaterial from the practice exam that may be confusing:- When it asks to indicate the “normal balance” for a certain account, it just means a positive balance. o Ex: “choose the option that correctly indicates the account category and normal balance for the account named inventory. Answer: category = asset; normal balance = debit- “Goodwill and intangible assets” and “accumulated depreciation” are considered noncurrent assets on a balance sheet.- If something is purchased “on credit”, accounts payable is being effected- Parenthesis in a financial statement indicate a negative amount- If a company buys land for $15,000 in 1999 and then in 2013 that land is estimated to be worth $18,000, the entry on the balance sheet at the end of 2013 for that land should read only what the company paid: $15,000.- Financing that individuals or institutions have provided to a company are classified asstockholders equity when provide by owners, and as liabilities when provided by creditors.- Corporations are NOT taxed on their business profits. Sole proprietorships and partnerships are.- Expenses are shown on the income statement in the time period in which they are incurred. NOT in the time period in which they are paid.Material from lecture notes (condensed from previously posted lecture notes. Look at individual lecture notes for more detail/charts/other material covered):Lecture 1 (Jan 20)Business Activities (chronological order):1. Get money2. Buy services and things to operate3. Provide services and products to customers4. Collect payment from customers5. Pay for the things that were bought6. Repay those who provided moneyLecture 2 (Jan 22) I. Basic Accounting EquationASSETS (resources owned by the company) – LIABILITIES (resources owed to the creditors) = EQUITY (Resources owes to stockholders)Usually expressed: ASSETS = LIABILITIES + EQUITY Financial statements always balance out this equationII. Different Types of Creditors (Creditor is anyone whom money is owed), investors, and other external users1. Creditorsa. Banks – use financial statements to evaluate whether or not they will be repaid the money they loan to the companyb. Suppliers – check business’s credit standings and financial statements to make sure they will be repaid2. Investorsa. Stockholders – rely on financial statements to make sure the company is secure and profitable3. Other External Usersa. Customers – may use financial statements to judge company ability to provide service on its productsb. Governments – local, state, and federal collect taxes based on info used to prepare the financial statementLecture 3 (Jan 27)I. Assetsa. Cash - Cash, Bank account balancesb. Receivables - Accounts Receivable (amounts owed by customers for services or products sold to them)c. Supplies - Things typically used up in < 1 year in the course of doing business, likeoffice supplies, lubricants, fuels, etc.d. Inventory - Items held for sale to customers, like shoes (in a shoe store), canned goods (in a grocery store), or tanks of gasoline (in a gas station); can also be raw materials or partially-completed items in a manufacturing businesse. Prepaid (expenses) - Operating expenses paid to suppliers in advance (before receiving services or products from them); common for insurance, rent, subscriptionsf. Equipment - Things typically used for > 1 year, like machines, vehicles, furniture, some tools, etc.g. Buildings - Buildings and related attachments … sometimes called “plants” or “factories”h. Land – Also called “property”II. Liabilitiesa. Payables – o Accounts payable (owed to suppliers), o Wages payable (owed to employees), o Notes Payable (debt principal owed to lenders), o Interest Payable (interest owed to lenders), o Taxes Payable (owed to governments); i. NOTE: any of these may be summarized into a single amount called something like “Various Expenses Payable”b. Unearned (revenues) - Operating revenues collected in advance of actually providing the service or product; also sometimes called “deferred revenues” 3 types of obligations in liabilitieso Formal obligation – borrowing (notes and interest payable)o Informal Obligations – Result of operating activities (owed to suppliers, employees, governments)o Obligation to provide goods or services in the future – “unearned revenue”III. Equities – the right of the company’s owner to whatever assets are left if all debts were paida. Contributed Capital - Money or other assets contributed by owners; for a corporation, this is usually done by buying shares of the company’s stockb. Retained Earnings - The accumulated profits earned by the business since it started, less any dividends it has distributed to owners since the business startedLecture 4 (Jan 29)4 Basic Financial StatementsFinancial statements – 4 accounting reports that can be prepared at any time during the year, but usually are monthly or quarterly and annually.1. Balance Sheet – statement of current financial positiona. Includes amounts of assets and their total, liabilities and their total, and stockholders’ equity.b. Using the basic accounting equation, the balance sheet should come out even. The total liabilities plus stockholders’ equity will equal the total assets if correct.2. Statement of Retained Earnings – reports the way that net income and the distribution of dividends affect the financial position of the company during the period.a. (Retained earnings for beginning of the period) + (net income during that period)- (dividends paid out during that period) = (Retained Earnings balance for the endof the period)3. Income Statement – reports the amount of revenue less expenses for a time period.a. (Total Revenues) – (Total expenses) = (Net Income)4. Statement of Cash Flows – reports the