RETL 261 1st EditionEXAM # 4 STUDY GUIDEWhat 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. Income Statement2. Balance Sheet3. Statement of Owner’s Equity4. Cash Flow StatementWho 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. Opportunity2. Pressure3. RationalizationWhere 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. Cost principle2. Revenue Recognition3. Matching4. Full DisclosureWhat are the four assumptions of accounting?1. Going Concern2. Monetary Unit3. Business Entity4. 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 LifeWhat is the formula for units of production depreciation?(Cost – Salvage Value)/ Expected Units of Production= Depreciation Expense X Units producedIs 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 Error2. Human FraudKNOW HOW TO DO BANK RECONCILATION EXAMPLE, LIFO AND FIFO EXAMPLE, TRADE DISCOUNT EXAMPLES, AND GENERAL JOURNALING