Management 200 Introductory to Financial AccountingExam I Study Guide S14 Chapters 1-5Test Components:53 MC, 2 pts. Each = 106 pts.12 T/F, 2 pts. Each = 24 pts.Total = 130 pts. (125 pts. is 100%)Multiple Choice:Similar to pre-tests & HW from each chapter. If you understand homework, class PP’s, and class problems, you should be prepared. The questions will include problems as well as concepts. The items listed below are guides but are not all inclusive!Chap 1 – accounting definition, financial & managerial accounting, FASB, GAAP, accounting equation, forms of business organizations, basic accounting assumptions, 4 financial statements (order prepared) and components of each (accounts & organization, ROAChap 2 – account types, debits & credits, “normal” balances, calculate account balances, trial balance, recording transactions (JE’s), posting transactions, Debt ratioChap 3 – accrual & cash accounting, adjusting entries, adjusted trial balance, revenue recognition, matching principle, time period concept, depreciation, accumulated depreciation, financial statement impact of omitting adjusting entriesChap 4 – accounting & operating cycles, accounts and financial statements reporting balance, permanent & temporary accounts, closing entries, retained earnings, current ratioChap 5 – perpetual & periodic inventory, freight in/out, credit terms & discount, sales returns & allowances, calculations, FOB shipping point & destination, multi-step & single step income statementsChapter 1: Student Summary Handout Accounting and the Business Environment1. Accounting equation: ASSETS = LIABILITIES + OWNER'S EQUITYo Assets are something the business owns or has control of that has valueo Liabilities are something the business oweso Equity represents the amount of assets that are left over after the company has paid its liabilities, or net worth2. Transaction analysis using the accounting equationo Key: Both sides of the accounting equation must always be equal3. Four financial statementso Income Statemento Statement of Owner's Equityo Balance Sheet (uses the same accounts as the accounting equation)o Statement of Cash Flows o Headings on statements always listed as: Name of company Name of statement Descriptive date4. Return on Assets: Net income /Average total assetso Average total assets = (Beginning total assets + Ending total assets) / 2Chapter 2: Summary Handout for StudentsRecording Business Transactions1. Accounting equation: ASSETS = LIABILITIES + OWNER’S EQUITYo Exhibit 2-1 Asset Accountso Exhibit 2-2 Liability Accountso Exhibit 2-3 Equity Accounts2. Chart of accounts: a list of all the accounts with their account number3. Ledger: a collection of all the accounts of a business, the changes in those accounts, and their balances4. Record transactions in the journal using the rules of debit, credit, and double-entry accountingo Debits = Creditso Every transaction affects at least two accountso Type of account determines whether it increases with a debit or a credit Asset accounts increase with a debit Expense accounts increase with a debit Owner’s Withdrawals increase with a debit Liability accounts increase with a credit Revenue accounts increase with a credit Owner’s Capital increase with a credit The normal balance of an account is on the side of an increase to the accounto Journal entries should have:  Date of the transaction Title of the account debited, along with the dollar amount Indented title of the account credited, along with the dollar amount Brief explanation of transaction5. Post transactions from the journal to the ledger 6. Revenues and expenses affect equityo Revenues are increases (earned) in equity from providing goods or services to customerso Expenses are decreases (incurred) in equity through the operation of a business Using up assets  Or increasing liabilities7. The trial balance lists all the accounts in the ledger with their balanceso Total debits equal total credits8. Debt Ratio: Total Liabilities / Total AssetsMGMT 200 Chapter 3: Summary Handout for Students1. Cash basis accounting versus accrual basis accountingo Cash basis accounting records only cash receipts and cash payments Cash receipts are treated as revenues Cash payments are treated as expenseso Accrual accounting records the effect of each transaction as it occurs Revenues are recorded when earned Expenses are recorded when incurred2. More GAAP accounting concepts and principleso The Time Period Concept: business activities can be sliced into segments and financial statements can be prepared for specific periodso The Revenue Recognition Principle: revenue should be recorded when it has been earnedo The Matching Principle: expenses are recorded when they are incurred during the period and matched against the revenues of the period 3. Two Categories of Adjusting Entrieso Prepaids Prepaid Expenses- Prepaid expenses are assets until used Depreciation Expense- Allocates the cost of a plant asset to an expense- Accumulated depreciation, a contra asset account, holds the sum of all depreciation recorded for the asset over its useful life- Straight-line depreciation = (Cost-Residual Value) / Useful Life- Book Value: A depreciable asset’s cost minus accumulated depreciation Unearned Revenue- When the company is paid cash before it does all the work to earn it, a liability is createdo Accruals Accrued Expenses- Incurred costs which haven't been paid for yet Accrued Revenues- Earned revenue for which cash hasn't been collected foro Exhibit 3-3 Prepaid and Accrual Adjustments4. Adjusting entries always affects a revenue or an expense, and an asset or a liabilityo Adjusting entries never affect cash5. The adjusted trial balance gives the adjusted account balanceso A worksheet can be used to combine the trial balance amounts plus/minus any adjustments made at the end of the period6. Exhibit 3-6 Impact of Adjusting Entries on Financial StatementsMGMT 200 Chapter 4: Summary Handout for Students1. Relationships among financial statementso Statements must be prepared in ordero Income statemento Statement of owner’s equityo Balance Sheeto Net income (loss) from the Income Statement is carried to the Statement of Owner's Equity Net income increases capital Net loss decreases capitalo Capital then goes to the Balance Sheet2. The Classified Balance Sheet o Classify assets and liabilities as current or