Accounting 200 Exam 1 Review Chapter 1 2 Forms of business organizations characteristics Proprietorship Partnership Corp Financial Statements the components their interrelationships Income Statement Statement of Retained Earnings Classified Balance Sheet including subtotal calculations Statement of Cash Flows Notes to Financial Statements Auditor s Report FASB GAAP IASB IFRS Objective of financial reporting related fundamental qualities Chapter 3 Asset Liabilities Stockholder s Equity Balance Sheet equation calculating for unknowns Debits Credits know rules and effects on type of account Normal Balances of accounts Analyze Transactions how each debit and credit impacts the accounting equation and related financial statements How failing to record an entry impacts the accounts and accounting equation Preparing journal entries Using T accounts Trial Balance Distinguish difference from trial balance and financial statements Chapter 4 Revenue Recognition Principle Adjusting entries Prepaid expenses including Depreciation unearned revenues accrued expenses accrued revenues Understand how a journal entry affects the accounting equation or financial statements and how failing to do adjustments impact the accounts and accounting equation Adjusted Trial Balance Prepare financial statements from an adjusted trial balance Closing process Permanent accounts versus Temporary accounts Result of closing process what accounts still have balances Chapter 7 Fraud triangle Principles of internal control establishment of responsibility segregation of duties documentation procedures physical controls independent internal verification and human resource controls Cash reconciliation between Company s cash account and bank statement and related journal entries Sarbanes Oxley Act Eegee s article 1 Chapter 1 and 2 Proprietorships Pros Cons Partnerships Corporations Financial Statements How They Are Connected 1 Income Statement 2 Stmt Of Retained Earnings 3 Balance Sheet 4 Statement of Cash Flows Solving for Ending Retained Earnings Using Accounting Equation If A 6 000 SE 2 000 L If L 4 000 SE 1 000 then A 2 FASB Standards Board standard setting body GAAP Accounting Principles rules for financial reporting IASB Standards Board standard setting body IFRS Reporting Standards rules for financial reporting Objectives of Financial Reporting To provide useful information Should have two fundamental qualities 1 2 Classified B S 7 sections 1 2 3 4 5 6 7 3 Chapter 3 Rules If A 20 000 L 7 000 CS 5 000 Beg R E 1 000 Rev 12 000 Divs 2 000 then what are Expenses Normal Balances to Accounts Normal balance is the side where INCREASES in the account are recorded Journal Entry Practice Also ask yourself How is accounting equation impacted Which F S s are impacted 1 Perform service for cash 2 Perform service on account 3 Customer pays what they owe you 4 4 Buy supplies on account 5 Buy printing for cash 6 Buy printing on account 7 Pay off A P 8 Prepay rent 9 Issue shares of CS Chapter 4 Revenue RecognitionExample Jan 2nd ordered jumping castle Jan 25th party with jumping castle Jan 27th got bill in mail Feb 2nd paid bill When does jumping castle company recognize revenue AJE s Impacts on accounts impacts if fail to record AJE s Deferrals 5 Prepaid Expense before recorded insurance supplies advertising rent PP E Example 1 Initial entry Dr Supplies 15 000 Cr Cash 15 000 AJE for use of 5 000 OR AJE if 8 000 of supplies remain If fail to make AJE Example 2 Initial entry Dr Equipment 20 000 Cr Cash 20 000 AJE for 2 000 annual depreciation Unearned Revenue before recorded season tickets airline tickets gift cards client deposits Example Initial entry Dr Cash 10 000 Cr Unearned Revenue 10 000 AJE for earning 2 000 OR AJE if 6K of unearned rev remains If fail to make AJE Accruals Accrued Expense Exp Recorded cash paid bills interest exp tax salaries Example 700 of unrecorded salaries earned during last 3 days of period If fail to make AJE Accrued Revenue Rev recorded cash received rent interest rev services 6 Example Unbilled services of 500 If fail to make AJE Closing the Books Temporary Accounts Permanent Accounts TB and Adjusted TB Steps Chapters 7 What is the Fraud Triangle Three factors contribute to fraud 1 2 3 What is the Sarbanes Oxley Act Enacted as a result of several corporate accounting scandals Enron WorldCom etc Goal is to prevent more corp accounting scandals Applies to public companies requires that they have internal controls that executives board take responsibility for Also must have independent outside auditor attest to adequacy of internal controls 7 Name the internal control activity defined below Control best when 1 person responsible for a given task Ex 1 person per cash register drawer Different people should be responsible for related activities record keeping physical custody ex Cash Checks Use prenumbered docs account for them Forward source documents for accounting entries to acct dept Safeguard assets with locks passwords alarms etc Records periodically verified by indep employee discrepancies reported to management Bond employees who handle cash rotate employees duties require vacation conduct background checks Which of the above would have helped Eegee s prevent the fraud described in the article Prestige Co has the following reconciling information in preparing its May bank reconciliation Cash balance per books 5 31 16 050 Cash balance per bank statement 5 31 26 700 Outstanding checks 10 000 Deposits in transit 2 400 NSF check 950 Bank charges fees 200 EFT collected by bank 4 200 What is the adjusted balance per the bank on May 31 What is the adjusted balance per books on May 31 8 Balance per bank Adj Bal Per Bank 26 700 Balance per books 16 050 Adj Bal Per Books What journal entries must Prestige Co record Additional Practice Cash Accounts Receivable Supplies on Hand Prepaid Insurance Equipment Accumulated Depreciation Accounts Payables Wages Payable MILLER INC ADJUSTED TRIAL BALANCE 12 31 08 DEBIT 55 000 28 000 5 000 2 000 85 000 CREDIT 40 000 10 000 5 000 9 Unearned Revenues Long Term Notes Payable Common Stock Retained Earnings 1 1 08 Dividends Sales Cost of Goods Sold Rent Expense Insurance Expense Depreciation Expense Wages Expense Supplies Expense Interest Expense Income Tax Expense Interest Revenue 12 000 20 000 65 000 1 000 4 000 186 000 72 000 24 000 8 000 7 000 25 000 2 000 6 000 18 000 Total 341 000 2 000 341 000 Answer the following questions using the above trial balance 1 How much