ACTG REVIEW SHEET CH 1 External users users not directly involved in running the organization Internal Users users directly involved in managing and operating an organization Financial accounting the area of accounting aimed at serving external users by providing them with the general purpose financial statements Managerial Accounting area of accounting that serves the decision making needs of internal users SEC a government agency has a legal authority to set GAAP FASB private sector group that sets both broad General Accepted Accounting Principles GAAP measurement principle cost accounting information is based on actual cost Objectivity information is supported by independent unbiased evidence Revenue Recognition Principle provides guidance on when a company must recognized revenue Expense recognition principle matching prescribes that a company record the expenses it is incurred to generate the revenue reported Full disclosure principle prescribes that a company report the details behind financial statements that would impact users decisions Going concern assumption accounting information reflects a presumption the business will continue operating instead of being closed or sold Monetary unit assumption means that we can express transactions and events in monetary or money units Time period assumption presumes that the life of a company can be divided into time periods such as months and years and that useful reports can be prepared for those periods Business entity assumption a business is accounted for separately from business entities including its owners Materiality constraint prescribes that only information that would influence the decisions of a reasonable person need be disclosed Cost benefit constraint prescribes that only information with benefits of disclosure greater than the costs of providing it need be disclosed 3 major activities or organizations financing used to pay for resources investing refers to buying and selling of resources used in acquiring and selling products and services and operating activities necessary for carrying out the organizations plans ASSETS LIABILITIES EQUITY Assets resources a common owns or controls Liabilities creditors claims on assets Equity owners claim on assets know how to do transaction analysis pg 16 17 income statement statement of retained earnings and balance sheet pg 21 Return on Assets Net Income Average Total Assets also called return on investments Return net income Risk uncertainty about the return we hope to make Accounting Process identifies business transactions and events analyzes and records their effects and summarizes and prepares information useful in making decisions Account a detailed record of increases and decreases in a specific asset liability or equity Ledger a record containing all accounts used by a company and their balances Common Current Assets cash accounts receivable supplies prepaid asset inventory and intangible assets copyrights patents etc Common Plant Assets automobiles accumulated depreciation office equipment land building Common Liabilities Accounts payable notes payable unearned revenue accrued liabilities wages taxes and interest payable Equity Accounts invested equity common stock earned equity retained earnings dividends revenue earned expenses Dividends account used in recording asset distributions to stockholders T Account represents a ledger account and used to understand the effects of one or more transactions Credit right side of T account increase liabilities common stock and revenues increase assets expenses dividends Decrease liabilities common stock revenues decrease assets expenses dividends Debit left side of T account know how to write a Journal Entry Pg 58 1 date of transaction 2 Titles of accounts 3 Dollar amount know how write Trial Balance pg 67 Debt Ratio Total Liabilities Total Assets one way to assess the risk associated with a company s use of liabilities CH 2 CH 3 Deferrals cash paid received BEFORE expense revenue incurred earned is recognized prepaid expense unearned revenue Accrual cash paid received AFTER expense revenue incurred earned is recognized accrued expense accrued revenue Accrual basis accounting uses the adjusting process to recognize revenues when earned and expenses when incurred Cash Basis accounting recognizes revenues cash is received and records expenses when cash is paid Book Value Asset Cost Accumulated depreciation Adjusting entry entry made at the end of an accounting period to reflect a transaction or event that is not yet recorded Prepaid Insurance Supplies Depreciation Rent Season ticket Salaries insurance expense debit prepaid insurance credit supplies expense debit supplies credit Depreciation expense debit accumulated depreciation credit Rent expense debit prepaid rent credit unearned revenue debit revenue earned credit Salaries expense debit Salaries payable credit Future payment of salaries Salaries payable salaries expense debit cash credit accounts recievable debit consulting revenue credit Services revenue Know how to adjust entries Closing process an important step at the end of an accounting period after financial statements have been completed know how to close entry 1 Identify account for closing 2 Record and post the closing entries 3 Prepare post closing trial balance Identical under U S GAAP and IFRS Step 1 Close credit balances in revenue accounts to income summary Step 2 Close debit balances to expense accounts to income summary Step 3 Close income summary to retained earnings Step 4 Close retained earnings account to dividends Accrued interest principal amount owed x annual interest rate x fraction of year since last payment Temporary Accounts accumulate data related to one accounting period closed at period end Includes revenues expenses dividends and income summary Permanent or real Accounts report on activities related to one or more future accounting periods not closed at period end Includes assets liabilities common stock and retained earnings Income Summary a temporary account only used for the closing process that contains a credit for the sum of all revenues and a debit for the sum of all expenses Classification Categories Current assets cash and other resources that are expected to be sold collected or used within one year or the company s operating cycle whichever longer long term investments assets expected to held for more than one year or operating cycle Plant assets tangible assets both long lived and