EXAM 1 CONTENT learning objectives from ch 1 2 4 8 GO ON INVESTOPEDIA Go through exam review slides from class questions missed in class ch 1 ch 2 hw Study ch2 6 on ch2 homework Understand the accounting equation Balance equation as it said MUST BE BALANCED Understand all of the accounts on the balance sheet Differentiate between accrual cash basis accounting Steps in the accounting cycle 1 Proprietorships partnerships corporations know disadvantages advantages of each a Sole Proprietorships lots of liabilities i b Partnerships you guys are the management c Corporations lots of red tape 2 Financial resources a Operations retained earnings b c Creditors loans Investors issuing stock 3 Income statement revenue expenses net income a revenues sales of goods services i ii iii Revenue on account earned it but haven t gotten the money bill them Recognize revenue AS SOON as we earn it Accounts receivable is ALSO an asset hits accounts receivable assets b Expenses costs necessary to earn revenues Ex wages utilities advertising etc Dividends are NOT an expense on the income statement because they are OPTIONAL option not a legal requirement i ii c Matching principle expenses should be reported in the same period in which the corresponding revenue is earned 4 Accounting Equation a ASSETS CLAIMS 5 Basic Accounting Equation a Assets liabilities owners stockholders equity b Assets items owned by businesses supplies Trucks land etc c Liabilities something payable notes utilities and accounts i Borrowing money from a bank they would give you a note d Stockholders equity expenses stock revenue and dividends 6 Basic income statement RCS a Financial report of profitability measures the difference between revenues and expenses for the accounting period b Shows revenues expenses and profits c Closed to retained earnings at the end of the period 7 Retained Earnings a Cumulative tidal of earnings that have yet to be paid to shareholders b 8 Closing temp Accounts to retained earnings a Don t forget about beginning balances b Make sure you can identify types of expenses cash flows c Know Operating activities vs investing activities vs financing activities 9 FASB financial accounting standards board conceptual framework a objectives b Qualitative characteristics c Elements d Recognition and measurement 10 GAAP generally accepted accounting principles a Relevant b Reliable c Comparable 11 Accounting principles a Measurement principles b Revenue recognition principle c Full disclosure principle d Expense recognition principle matching principle 12 Key features of internal control systems a Control environment risk assessment b Control activities c Information communication and monitoring 13 Financial statement audit a A detailed examination of a company s financial statements and documents that support those statements b Tests reliability of accounting system 14 Audit opinions 15 Fraud Triangle a Unqualified opinion b Adverse opinion c Qualified opinion a Financial pressure b Opportunity c Rationalization