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GSU ACCT 2101 - Accounting Exam 1

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Chapter 1: Identify the advantages of the sole proprietorship, partnership, and corporate form of business organizations.Sole Proprietorship Partnership Corporation● Owned by one person● Simple to set up● Owner controlled● Tax advantagesEx: barber shops, auto repair shops, law offices● Owned by 2 or more people associated as partners● Simple to set up● Shared control● Broader skills and resources● Tax advantagesEx: retail and service type businesses like doctors*often formed because oneindividual doesn’t have enough economic resources● A business organized by a separate legal entity owned by stockholders● Easier to transfer ownership● Easier to raise funds○ Individuals can becomestockholdersby investing relatively small amounts of money● No personal liability*normally started as sole proprietorship or partnerships then incorporateIdentify internal and external users of financial information.Internal User External UserManagers who plan, organize, and run a businessEx: marketing managers, finance directorsFAQ:● Finance: Is cash sufficient to pay dividends to X stockholders?● Marketing: What price should X charge for a X to maximize company’s net income● HR: Can X afford to give its employees pay raises this year?● Management: Which X product line is the most profitable? Which should be terminated?*accounting provides internal reports suchInvestors (owners): Uses accounting information to make decisions to buy, hold, or sell stock. Creditors (suppliers and bankers): Uses accounting information to evaluate the risks of selling on credit or lending money.FAQ:● Investors: Is X earning satisfactoryincome?● Investors: How does X compare insize and profitability with X● Creditors: Will X be able to pay its debts as they come due?as: financial comparisons of operating alternatives, projections of income from new sales campaigns, forecast of cash needs for the next yearIdentify activities such as operating, investing, or financing.Financing Activities: collecting the necessary funds to support the businessInvesting Activities: acquiring the resources necessary to run the businessOperating Activities: putting the resources of the business into action to generate a profitBorrowing (debt financing)Bonds: debt securities (?)Creditors: Persons or entities to whom a business owes moneyLiabilities: Amounts owed to creditorsNotes Payable: represents a loan; a borrower obtains aspecific amount of money from a lender and promises to pay it back with interest over a predetermined time periodBonds Payable: Debt securities sold to investors that must be repaid at a particular date some years in the future.Issuing (selling)Commons Stock: the total amount paid in by stockholders for the sharesthey purchase.Dividends: cash payments to stockholdersInvolves the purchase of the resources a company needs in order to operate.Assets: Resources owned by a business (cash is the most important asset a business can have)Fixed Assets= Property, plant, and equipmentSupplies:Revenue: Amounts earned from the sales of products and other sources (sales revenue service revenue, and interest revenue)Inventory: Goods available for sale to customersAccounts receivable: Right to receive money from a customer as the result of a sale.Expenses: the cost of assets consumed or services used in the process of generating revenues. (cost of goods sold, selling, marketing, administrative, interest, income taxes expense)Net income: When revenues exceed expensesNet loss: When expenses exceed revenuesCalculate components of the income statement, retained earnings statement, and balance sheet and identify the interrelationshipsIncome Statement: To show how successfully your business performed during a period of time (revenues and expenses)Retained Earnings Statement: To indicate how much of a precious income wasdistributed to you and the other owners of your business in the form of dividends, and how much was retained to allow for future growthBalance sheet: To present a picture at a point in time of what your business owns andwhat it owesStatement of Cash Flows: To show where your business obtained cash during a period of time and how that cash was used.Define and identify assets, liabilities, and stockholders’ equity accounts and the accounting equation.Assets: resources owned by a business ● Cash● Property, Plant, and Equipment (also known as Fixed Assets)● Sales Revenue● Service Revenue● Interest Revenue● Supplies● Inventory● Account ReceivableLiabilities: amount owed to creditors (debt and other obligations)● Notes Payable ● Bonds Payable● Accounts Payable● Interest Payable● Wages Payable● Sales Tax Payable● Property Payable● Income Tax Payable Stockholders’ Equity:Equation:Identify the purpose of the auditor’s report.Auditor’s report: A report prepared by an independent outside auditor stating the auditor’s opinion as the the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles.- Without an “unqualified opinion” (auditor’s report) we cannot have complete confidence that the financial statements give an accurate picture of the company’s health.Chapter 2:Identify, define, and/or calculate the different sections of a classified balance sheet.Define and identify a current asset(s).Current Asset:Calculate earnings per share.Calculate the current ratio and understand its purpose.Identify a solvency concern.Define Generally Accepted Accounting Principles (GAAP), the quality “verifiability”, andthe concept of “full disclosure”. *** Chapter 3:Analyze the effect of business transactions on the accounting equation.Prepare or analyze journal entries. ***Apply debit/credit rules and normal account balances.Analyze account activity and calculate ending account balances.Identify the purpose of a trial balance. Chapter 4:Apply the revenue recognition principle.Calculate net income using the accrual basis of accounting.Identify why adjusting entries are needed and analyze the impact of not making adjusting entries.Prepare adjusting journal entries.Define depreciation.Identify the characteristics of the adjusted trial balance.Identify the purpose of closing entries.Calculate the retained earnings balance after closing


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