ACG2021 Intro to Financial Accounting Final Exam Study Guide Chapter 1 Proprietorship owned by 1 person o Pro Tax advantages o Pro Simple to set up o Con Personally liable for debts Partnership owned by 2 or more o Pro Tax advantages o Pro Unique skills from both people o Con Personally Liable for debts Corporation owned by many o Pro No personal liability o Pro Easier to raise funds o Pro Easier to sell Internal Users plan run and organize a business o Marketing managers management human resources finances o Just think of it as people with inside knowledge External Users Investors and creditors o On the outside looking in Preparing an Income statement o List revenues o List expenses o Subtract expenses from revenues this number is recorded as NET INCOME Preparing a Retained Earnings Statement o List beginning retained earnings o Add net income o Subtract dividends o The total is recorded as ENDING RETAINED EARNINGS Preparing a Balance Sheet o List assets o List liabilities and Stockholders equity and add together o Show that Assets equal Liabilities plus Stockholders Equity o IF THEY DON T EQUAL YOU MADE A MISTAKE Financing Activities borrowing money or issuing stocks for cash Investing Activities Purchases of resources necessary for operation o Ex equipment Operating Activities Activities caused directly by operation o Ex inventory salaries Preparing a Statement of Cash Flows o List cash flow from operating o List cash flow from investing o List cash flow from financing o Add the three together net increase in cash o Add amount of cash at beginning of period o This equals the ending cash balance The Accounting Equation Assets Liabilities Stockholders Equity Common stock Retained Earnings Which financial statement if for a specific date rather than covering a period of time o Balance sheet Chapter 2 assets and liabilities together Asset Classifications Classified Balance Sheet The same as a balance sheet but you group similar o Current assets convert to cash within 1 year operating cycle o Long term investments stocks and bonds held over 1 year AND long term assets not being used o Property Plant Equipment assets with long useful lives o Intangible Assets Goodwill Patents etc Liability Classifications o Current Liabilities obligations that have to be paid off in the next year operating cycle o Long Term Liabilities Expected to pay after 1 year Stockholder s Equity Classifications o Common Stock o Retained Earnings Working Capital current assets current liabilities Current Ratio current assets current liabilities o WEAKNESS it doesn t disclose the composition of the assets Solvency a company s ability to pay due interests and debts Free Cash Flow Cash by operations Capital expenditures Cash dividends 4 characteristics of useful financial info relevance reliability comparability to other companies consistency using consistent methods Monetary Unit Assumption on financial statements only include things that can be expressed in terms of money Economic Entity Assumption Every separate entity can be identified and Time Period Assumption The economic life of a business can be divided into Going Concern Assumption The enterprise will continue long enough to fufill accounted for artificial time periods objectives Cost Principle Record assets at cost Full Disclosure Principle Disclose circumstances that make a difference to financial statement users 2 Accounting Constraints o Materiality Companies don t have to follow GAAP Generally Accepted Accounting Principles for small amounts o Conservatism when in doubt choose solution that will least likely overstate assets and income Accrural vs Cash basis counting accrural records statement when even occurs as opposed to cash basis which is when cash is received for it or paid Matching Principle Expenses matched with revenues in the period when effortt are expended to generate the revenues Chapter 3 Steps of recording process o Analyze transaction o Enter transaction in journal o Transfer journal info to ledger accounts Ledger Contains entire group of accounts maintained by a company DEBITS LEFT CREDITS RIGHT Asset Debit for an increase Credit for a decrease Common Stock AND Retained Earnings Debit for a decrease Credit for an Liabilities Debit for a decrease Credit for an increase increase Revenue Debit for a decrease Credit for an increase Expense Debit for an increase Credit for a decrease Trial Balance o Lists accounts and their debits or credit balance o Add all the debits and all the credits o DEBITS MUST EQUAL CREDITS Chapter 4 Adjusting Entries Made at the end of the period to ensure revenue recognition and matching principles are followed o Revenue earned but not yet received in cash or recorded o Expense incurred but not yet paid in cash or recorded Deferral adjusting entries o Prepaid expense gets used o Unearned revenue gets earned Accrural adjusting entries Prepaid Expense Adjustment So and so Expense XX Prepaid so and so XX Used supplies adjustment Supplies expense XX Supplies XX Accumulated Depreciation Adjustment Depreciation Expense XX Equipment XX Unearned Revenue Adjustment Purpose of depreciation is cost allocation NOT VALUE Depreciation and Value shouldn t be used in the same sentence Unearned Revenue XX Service Revenue XX Accrued Revenue Adjustment XX Accounts receivable Revenue XX Finding Interest Expense Face Value Interest Rate Time in terms of 1 yr Adjusted Trial balance 2nd trial balance to be prepared following adjusting o Ex 1 12 1 month entries How to calculate salary expense amount made per day days worked Cost Accumulated depreciation Book Value Book Value and Market Value ARE NOT the same thing Temporary accounts Revenues Expenses and Dividends Closing entries 1 Service Revenue Income Summary 2 Income Summary All Expenses 3 Income Summary Retained Earnings 4 Retained Earnings XX XX XX XX XX XX XX XX The purpose of the post closing trial balance is to prove the equality of the Dividends permanent account balances Gross Profit AKA Gross Margin Sales Revenue Net Sales Cost of Goods Chapter 5 Sold The only expense that ISN T an operating expense is interest expense Goods Available for Sale Beginning Inventory Net purchases Costs of Goods Sold o Total cost of merchandise that has been sold during a specific period o Goods Available for Sale Ending Inventory Multi Step Net Income Gross Profit Net Sales CGS operating expenses or other items Periodic System Determine CGS at end of accounting period Perpetual System
View Full Document
Unlocking...