RETL 261 1st Edition EXAM 4 STUDY GUIDE What is accounting Accounting is an information and measurement system that identifies records and communicates relevant reliable and comparable information about an organization s business activities What are the four primary financial statements 1 2 3 4 Income Statement Balance Sheet Statement of Owner s Equity Cash Flow Statement Who are external users Lenders shareholders governments consumer groups customers external auditors Who are internal users Officers managers internal auditors sales staff budget officers controllers What is the 10K filing and 10Q filing 10K is annual filing to the SEC and 10Q is quarterly filing to the SEC What are the elements of the fraud triangle 1 Opportunity 2 Pressure 3 Rationalization Where do journal entries come from Source documents such as receipts purchase orders checks and bank statements Debits and Credits go on which side Debits come first on the left side and credits come second on the right side What is a ledger A record containing all accounts used by a company What is the difference between an account receivable and a note receivable Accounts receivable are held by a seller and refer to promises of payment from customers to sellers A note receivable or promissory note is a written promise of another entity to pay a definite sum of money on a specified future date to the holder of the note What is the difference between a classified statement and an unclassified statement A classified statement will be broken into current and long term Unclassified is when everything is put together and not separated Is a worksheet a required report NO Which accounts are closed temporary or permanent Temporary accounts are closed These accounts include revenues expenses and withdrawals What is the difference between FOB Shipping Point and FOB Destination For FOB Shipping Point the buyer pays for shipping costs The delivery charges are included in the cost of the goods For FOB Destination the seller is responsible for getting goods to the buyer s doorstep The delivery expense will be recorded as a separate line item in the journal What does 2 10 n 30 mean 2 discount if paid within 10 days otherwise pay full amount within 30 days What are the four principles of accounting 1 2 3 4 Cost principle Revenue Recognition Matching Full Disclosure What are the four assumptions of accounting 1 Going Concern 2 Monetary Unit 3 Business Entity 4 Time Period Who is the consignor and who is the consignee The consignor is the owner of the goods and the consignee is the seller of the goods How long does a patent last 20 years How long does a copyright last The lifetime of the creator plus 70 years What is Goodwill Goodwill is the amount at which a company s value exceeds the value of its individual assets and liabilities What is leasehold Leasehold refers to the rights the lessor grants to the lessee under the terms of the lease What is gross pay Total compensation before any deductions What is net pay Total compensation after deductions What is the form called that your employer gives you at the end of the year referring to your wages and tax deductions W 2 Is depreciation a reflection of market value NO just book value What is the formula for straight line depreciation Cost Salvage Value Useful Life What is the formula for units of production depreciation Cost Salvage Value Expected Units of Production Depreciation Expense X Units produced Is land depreciable NO What are FICA taxes Social security taxes What is an internal control system An internal control system consists of the policies and procedures managers use to protect assets ensure reliable accounting promote efficient operations and urge adherence to company policies What are the two limitations 1 Human Error 2 Human Fraud KNOW HOW TO DO BANK RECONCILATION EXAMPLE LIFO AND FIFO EXAMPLE TRADE DISCOUNT EXAMPLES AND GENERAL JOURNALING EXAMPLES