Principles of Accounting 1 ACCT 2101 Spring 2014 Study Guide for Final Exam Test Format Multiple choice questions 50 6 25 points each Total possible points are 312 50 Maximum grade is 300 The extra points are to compensate for any weakness in the main test instrument and misunderstanding in the question wording Students need to bring their own scantron and 2 pencils Do not mark your scantron until you have selected your FINAL answer Eraser marks confuse the scantron grading machine All adverse consequences of eraser marks and mismarks are the student s responsibility Bring an extra scantron You are permitted to use a simple four function calculator cell phones are NOT simple four function calculators Instructors exam proctors will check each student s calculator while distributing the exams This is a closed book closed note and closed neighbor exam You are NOT permitted to have scratch paper You are NOT to look around during the exam You are to keep your scantron sheet covered to the extent possible Questions regarding the exam cannot be asked during the exam period You must turn in your exam and scantron with your name your instructor s name and the version letter of the exam on both You will be asked to show a picture id when you turn in your exam and scantron You will have 120 minutes to complete the exam This exam covers Chapters 1 10 Approximately 40 of the exam will come from Chapters 9 10 and 60 from Chapter 1 8 Identify and understand the characteristics of the basic forms of business organization structures Exhibit 1 2 Skills needed Chapter 1 Sole Proprietorship one owner Partnership Two or more owners Corporation Many Owners Merchandising Buy and sell products Service Private Service Manufacturing Make and sell products Understand the elements of accounting assets liabilities owners equity revenues and expenses Asset Right to use resources with future benefit Current Used in period one year or less Long Term More than one year ex Accounts Receivable Cash Liability Obligations to transfer resources in the future to suppliers of goods and services ends in payable Owner s Equity Not assets belong to business ex Stock retained owners Revenue Amounts earned from providing goods and services Expenses Amounts incurred in an attempt to generate revenues Know the accounting equation and calculate accrual basis net income Accounting Equation Assets Owners Equity Liability Revenue Expenses Income Identify the purpose and relationship among the four financial statements Exhibit 1 4 Income Statement Indicates revenue less expenses net income for period of time Balance Sheet Ending balances of assets liabilities and owner s equity at point in time Statement of Owner s Equity Changes in owner s equity for a period of time Statement of Cash Flows Cash inflows and outflows from operating investing and financing activities for a period of time Chapter 2 Identify activities as operating investing and financing Operating Profit making Activities of Company Investing Creating the infrastructure to support operating activities buying and selling long term assets Financing Borrowing money owners shareholders investing in company Given a scenario identify which of the five basic controls would be involved i e proper authorization separation of duties maintaining adequate documentation physically controlling assets and information and providing independent checks on performance Proper Authorization Persons responsible for certain activities have authority to enforce the policies associated with that activity Separation of Duties Prevent employees from performing more than one phase of any business transaction Maintaining Adequate Documentation Documents that capture all of the necessary information about transactions in the most efficient and effective way Prepare a bank reconciliation Physically Controlling Assets and Information Protecting physical assets and accounting records by limiting access to them by unauthorized personnel Providing Independent Checks on Performance Having another person not involved in the activity check the work of the individual who completed it Bank 8610 825 Outstanding Check 1268 Deposits in Transit 9053 Calculate or interpret the return on owners equity ratio Return on Owner s Equity Ratio Net Income Average Owner s Equity Found on income statement found on balance sheet Books 9060 7 service charge 9053 Chapter 3 Understand the shipping terms of FOB destination and FOB shipping point FOB Destination Legal title to the goods does not pass until the customer receives the goods FOB Shipping Point Goods legally belong to customer when they are picked up by the common carrier Explain and calculate purchase discounts Purchase Discounts Suppliers offer discounts to encourage buyers to pay their bill in a timely fashion Ex 50000 x 02 12000 n 30 2 10 Understand cost and revenue behavior including fixed costs and revenues variable costs and revenues and mixed costs and revenues Cost Behavior Cost reacts to changes in the level of operating activity Revenue Behavior Refers to how revenue reacts to changes in the level of operating activities estimating profits at different levels of operating activity Y a b x Fixed Costs and Revenues Does not change in total as the amount of the activity driver changes throughout the relevant range Variable Costs and Revenues Changes in direct proportion to the change in the amount of the activity driver throughout the relevant range Mixed Costs and Revenues Varies but not proportionately to a change in activity throughout the relevant range Use the high low method to estimate costs or revenues Slope Highest Cost x Lowest Cost Highest Activity x Lowest Activity Total Cost Revenue Fixed Cost Variable Cost Slope x Lowest Cost Chapter 4 Solve cost volume profit problems Total Revenues SP x Q Selling Price x Quantity Total Costs VC x Q FC Variable Cost x Quantity Fixed Cost Breakeven SP x Q VC x Q FC 0 Selling Price x Quantity Variable Cost x Quantity Fixed Cost 0 Contribution Margin SP VC Selling Price Variable Cost CM x Q FC 0 Contributed Margin x Quantity Fixed Cost 0 shortcut or breakeven Target Profit Before Taxes SP x Q VC x Q FC 0 Selling Point x Quantity Variable Cost x Quantity Fixed Costs 0 CM x Q FC P Contribution Margin x Quantity Fixed Cost Profit Target Profit before taxes 1 tax rate Identify costs as unit related batch related product sustaining or facility sustaining Unit Related Vary with units produced or sold Direct