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UH ACCT 2331 - Exam 1 Study Guide

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Acct 2331 1st EditionExam # 1 Study Guide Lectures: 1 - 8Lecture 1 (January 20)Chapter 1Accounting: system of maintaining records of a company’s operations and communicating that information to decision makersManagerial Accounting- information provided for internal usersFinancial Accounting- information provided to external users*primary function: measure business activities and communicate measurements for decision makingBusiness structure: 1) Proprietorship- owned by one person2) Partnership- business owned by two or more persons3) Corporation- business is legally separate from its owners*difference: owner-manager separation typical & LIMITED LIABILTY OF STOCKHOLDERSAccountants: prepare financial statements/reports using GAAPInvestors and Creditors: provide CAPITALTypes of Financial Statements: 1) Income Statement- reports REVENUES & EXPENSES [net income]2) Statement of Stockholder’s Equity- summarizes changes in stockholder’s equity [Common Stock and Retained Earnings]3) Balance Sheet- Assets= Liabilities + S/H/E4) Statement of Cash Flow- activities involving cash receipts and cash payments (operating, investing, financing)Assets= Liabilities + Stockholders EquityAssets= resources (cash, land, equipment, etc.)Liabilities= “what you owe”Stockholders= Common StockEquity= Revenue, Expenses, Dividends*S/H/E: INCREASES with common stock and expenses and DECREASES with revenue and dividendsLecture 2 (January 22) Investors & Creditors make their decisions based on Financial Accounting Information that should be based on the formal standards of:Generally Accepted Accounting PrinciplesUnited States: Financial Accounting Standards Board (FASB) governed by the Security and Exchange Commission (SEC)Global: International Accounting Standards Board (IASB)Auditors: trained individuals hired by a company as an independent party to verify accuracy of that company’s financial statements*role: help ensure that management has appropriately applied GAAP preparing the company’s financial statements & help investors & creditors in their decision by adding credibility to the financial statementsFinancial Accounting, as stated by the SEC, should provide information that is:1) useful to investors & creditors in making decisions2) help predict cash flow3) tells about economic resources, claims to resources, and changes in resources and claimswhile being relevant and faithfully represented. Financial accounting information is provided only when the benefits exceed the cost in doing so.Underlying Assumptions: -Economic Entity Assumption: identify all economic events with a particular economic entity- Periodicity Assumption: provide information of an enterprise at regular time periods- Monetary Unit Assumption: need a unit or scale of measurement- Going Concern Assumption: business entity will continue to operate indefinitely Lecture 3 (January 27)Chapter 2External transaction: transaction conducted with a separate economic entityInternal transaction: events that affect the financial position of the company but do not include an exchange with a separate economic entityAccount: summary of all transactions related to a particular item over a period of timeAsset accounts: supplies, equipment, cashLiability accounts: accounts payable, salaries payable, utilities payable, notes payableStockholders’ Equity accounts: common stock and retained earningsChart of Accounts: a list of all account names used to record transactionsAccounting Cycle: set of procedures to accomplish measurement and communication process ofaccountingMeasuring External transactions:1) identify accounts affected2) analyze the impact of the transaction on the basic accounting equation3) assess whether the transaction results in a debit or credit to the account balance4) record the transaction in a journal5) post the transaction to the T-account in the general ledger6) prepare a trial balanceEach transaction will have a dual effect on the basic accounting equationTransactions of Eagle Golf Academy (example):Assets= Liabilities + S/H/E1) Dec. 1 Sell shares of common stock for $25,000 for funds to start the businessincrease Cash and Common Stock by $25,0002) Dec. 1 Borrow $10,000 from the local bank, signing a note to repay the full amount in three yearsincrease Cash and Notes Payable by $10,0003) Dec. 1 Purchase equipment for $24,000increase Equipment by $24,000 and decrease Cash by $24,0004) Dec. 1 Pay one year of rent in advance, $6,000 ($500 per month)increase Prepaid Rent by $6,000 and decrease Cash by $6,0005) Dec. 6 Purchase supplies on account, $2,300increase Supplies and Accounts Payable by $2,3006) Dec. 12 Provide gold training to customers for cash, $4,300increase Cash and Service Revenue by $4,3007) Dec. 17 Provide golf training to customers on account, $2,000increase Accounts Receivable and Service Revenue by $2,300 8) Dec. 23 Receive cash in advance for 12 golf training sessions, $600increase Cash and Unearned Revenue by $6009) Dec. 28 Pay salaries to employees, $2,800 decrease Cash and Salaries Expense by $2,80010) Dec. 30 Pay cash dividends of $200 to shareholdersdecrease Cash and Dividends by $200Lecture 4 (January 29)Dividends, Expenses, and Assets have a normal balance of debit (debits increase, credits decrease)Liabilities, Revenue, Common Stock, and Retained Earnings have a normal balance of credit (increase with credit, decrease with debit)Posting: process of transferring the debit and credit information from the journal to individual accounts in the general ledgerGeneral Ledger: includes all accounts used to record the company’s transactionsT-account: simplified form of a general ledger accountTrial Balance: an internal tool (not published to external parties) that lists all accounts and their balances at a particular dateTransactions of Eagle Golf Academy (example cont’d)1) Dec. 1 Sell shares of common stock for $25,000 for funds to start the businessDEBIT Cash and CREDIT Common Stock $25,0002) Dec. 1 Borrow $10,000 from the local bank, signing a note to repay the full amount in three yearsDEBIT Cash and CREDIT Notes Payable $10,0003) Dec. 1 Purchase equipment for $24,000DEBIT Equipment $24,000 and CREDIT Cash $24,0004) Dec. 1 Pay one year of rent in advance, $6,000 ($500 per month)DEBIT Prepaid Rent $6,000 and CREDIT Cash $6,0005) Dec. 6 Purchase supplies on account, $2,300DEBIT Supplies and CREDIT Accounts Payable $2,3006) Dec. 12 Provide gold training to customers for cash, $4,300DEBIT


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