ACTG REVIEW SHEETCH. 1External 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 investmentsReturn: net income Risk: uncertainty about the return we hope to make CH. 2Accounting 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.Debit: left side of T-account Credit: right side of T-account increase… assets, expenses, &dividends increase… liabilities, common stock, and revenues. Decrease… liabilities, common stock, & revenues decrease… assets, expenses, & dividends *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. 3Deferrals: 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 insurance expense (debit) & prepaid insurance (credit) Supplies supplies expense (debit) & supplies (credit)Depreciation Depreciation expense (debit) & accumulated depreciation (credit) Rent Rent expense (debit) & prepaid rent (credit) Season ticket unearned revenue (debit) & revenue earned (credit)Salaries Salaries expense (debit) & Salaries payable (credit) Future payment of salaries Salaries payable & salaries expense (debit) & cash (credit)Services revenue accounts recievable (debit) & consulting revenue (credit)*Know how to adjust entriesClosing 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 dividendsAccrued 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,