BMGT220 SPRING 2014 FINAL STUDY GUIDE Content 40 multiple choice questions 10 questions on Chapters 1 2 3 5 6 8 and 9 o Will be selected from Practice Questions on ELMS 30 questions that will be evenly distributed on Chapters 11 12 13 and 14 Mix of conceptual and numerical questions CHAPTER 1 Introduction to Accounting and Business Generally Accepted Accounting Principles Generally Accepted Accounting Principles GAAP guideline for preparing financial statements o Subject to change as conditions warrant Financial Accounting Standards Board FASB Securities and Exchange Commission SEC works to reduce diversity in financial has primary responsibility for develop accounting principles International Accounting Standards Board IASB reporting practices around world US government agency that has authority over the accounting and financial disclosures for companies whose stock are traded and sold to the public presently has primary responsibility to establish auditing standards and reviews auditing firms in the US of its owners or creditors activities of a business must be recorded separately from the activities amounts are recorded at purchase price Public Company Accounting Oversight Board PCAOB Business entity concept Cost concept o Amounts recorded in records must be the final agreed upon amount o Dollar is the common unit of measurement for all transactions The Accounting Equation Assets Liabilities Stockholder s Equity Equation must remain in balance Each transaction has a dual effect Stockholder s Equity Increased by Investments by stockholders and revenues Decreased by dividends to stockholders and expenses Stockholder s Equity Revenues Expenses Common stock Dividends Retained Earnings Revenues Expenses Dividends Financial Statements Income Statement specific period of time time Prepared primarily for the benefit of people outside the company describes a company s revenues expenses and resulting net income for a o Net income is used in Retained earnings statement Statement of Retained Earnings summary of changes in retained earnings for a specific period of o Ending retained earnings is used in stockholder s equity section of Balance sheet Balance Sheet assets liabilities and stockholder s equity at a specific date o Position statement o Common stock represents amount invested in business by stockholders when stocks were o Cash should be equal to cash amount at end of period on Statement of cash flows Statement of Cash Flows summary of cash receipts and cash payments for a specific period of initially issued time Financial Analysis and Interpretation Ratio of Liabilities to Stockholder s Equity Total liabilities Total stockholder s equity CHAPTER 2 Analyzing Transactions List of all asset liability stockholders equity revenue expense and dividend accounts used by o Debit accounts Expenses Assets Dividends o Credit accounts Owner s equity Liabilities Revenues o Every transaction is recorded in at least 2 accounts o Total debits recorded for each transaction equals total credits recorded Chart of Accounts the company DEAD COLR Double Entry Accounting Requirements Steps 1 Analyze 2 Journalize 3 Posting 4 Trial Balance Trial Balance List of general ledger account titles and balances at a certain date Prepared to verify debits credits Errors that affect the balance o Journal entry is partially posted o Entering debit balance as a credit balance vice versa o Number amount is copied incorrectly CHAPTER 3 The Adjusting Process Adjusting Process Purpose Accrual basis of accounting in the period they occur rather than in the period in which cash is paid received events that change a company s financial statements are recognized o To record the proper amounts of revenue and expense in income statement o To establish the proper amounts of assets and liabilities in balance sheet o To accomplish the objective of offsetting the revenue of the period with all expenses incurred in generating that revenue Revenue recognition concept revenue is recognized when earned recorded in the accounting records and reported on the income statement when goods are sold and delivered to customer Accounts Requiring Adjusting Entries Prepaid expenses advance payment of future expenses Unearned revenues advance receipt of future revenues record as liability o Transaction journalize Debit Prepaid expense Credit Cash o Adjustment journalize Debit Expense Credit Prepaid expense o Transaction journalize Debit Cash Credit Unearned revenue o Adjustment journalize Debit Unearned revenue Credit Revenue are understated o Transaction no entry o Adjustment journalize Debit Asset Receivable Credit Revenue o Prior to adjustment balance sheet accounts are overstated and income statement accounts Accrued revenues unrecorded revenues that have been earned but cash has not been received yet Accrued expenses unrecorded expenses that have been incurred but cash has not been paid yet o Adjustment journalize Debit Expense Credit Liability Payable o Adjustment decreases net income for period Deferrals prepaid expenses and unearned revenues recording of related expense revenue is Accruals accrued revenues and accrued expenses related revenue expense should be recorded in deferred to a future period the current period Adjustment for depreciation on plant assets decreases net income for period CHAPTER 5 Accounting for Merchandising Business Merchandising Business Cost of goods available for sale o Cost of beginning inventory Net cost of purchases o Cost of ending inventory COGS Inventory Systems Periodic inventory system physical count of inventory on hand Perpetual inventory system continuously updated merchandise inventory at end of period is determined by taking a Amount of inventory purchased available for sale and sold are o Physical count done to verify Merchandise Inventory balance To make up for lower physical inventory than perpetual reduce Inventory account by difference discount taken by buyer for early payment of invoice to reduce cost of Purchases Transactions Purchase discount merchandise purchased Invoice for purchase journalize o Debit Merchandise Inventory o Credit Accounts Payable Payment at end of discount period journalize o Debit Accounts Payable o Credit Cash Merchandise Inventory amount of discount Purchases Returns and Allowances o Return of merchandise journalize Debit Accounts Payable Credit Merchandise Inventory o Return merchandise before paying invoice Deduct returned amount from the Accounts Payable Must be
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