Principles of Accounting 1 (ACCT 2101) Fall 2013Study Guide for Final Exam7:45 – 9:45 am Saturday, April 28thTest 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 themain test instrument and misunderstanding in the question wording. - Students need to bring their own scantron. 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 extra scantrons. - 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. Youare 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.Skills needed: Chapter 1:- Identify and understand the characteristics of the basic forms of business organization structures (i.e. sole proprietorship, partnership, and corporation).o Sole proprietorship – one ownero Partnership – two or more ownerso Corporation – many owners through shares and all that good stuff.- Understand the elements of accounting (assets, liabilities, owners’ equity, revenue, expense, and net income).o Asset – right to use resources with future benefito Liability – obligation to transfer resources in the future to suppliers of goods andserviceso Owner’s equity – net assets belong to owners (after all liabilities are met, everything else belongs to the owners)o Revenue – the amount received from providing services or transferring resourcesto customerso Expense – the amount incurred from using resources or services in order to generate revenueo Net income – total revenue minus total expenses- Know the accounting equation and calculate accrual basis net income.o Liabilities + owner’s equity = assets (I think that is the accounting equation according to the slides)o Accrual basis of accounting – income is the difference between revenue earned and expenses incurred during a period regardless of when cash is paid or received. (chapter 1, day 1, slide 8 and 9) revenue-expenses=income- Identify the purpose and relationship among the four financial statements (Exhibit 1.4).o Exhibit 1.4 shows it pretty well, hard to type hereChapter 2:- Know the definition of operating, investing and financing activities.o Operating – the profit making activities of a business Revenue side – marketing, sales, collection, customer service Expense side – purchasing, human resources, payment process Conversion process – turning expenses into revenueso Investing – the activities involving purchasing and selling of long-tern assets. Anything used over the course of multiple years (long term)o Financing – the activities involving obtaining and repaying cash and other capital resources- Given a scenario, identify which of the five basic controls would be involved. (i.e. properauthorization, separation of duties, maintaining adequate documentation, physically controlling assets and information, and providing independent checks on performance).o Internal control system – promotes operational efficiency, ensures the accuracy of information, encourage management and employee compliance with applicable laws and regulations. Requiring proper authorization – certain activities require that a groupof people or a single person has the authority to carry out that task. Whensomething goes wrong, it is easy to pinpoint who’s fault it is. Separation of duties – dividing responsibilities to prevent fraud. No employee should be responsible for two or more of these responsibilities:- Approval – an authority allows an employee to carry out a task- Execution – employee carries out task- Custody – employee possesses asset or inventory items- Recording – employee enters transactions into the accounting system Maintaining adequate documentation – documenting every aspect of atransaction involving the business Physically controlling assets and information – regards a variety of things, basically safe guarding information. Firewalls, passwords, locking storerooms, fireproof safes, and even fences around buildings areall included. Providing independent checks on performance – having an uninvolved employee check the work of another, comparing accounting records with those of the bank’s. This prevents fraud and theft.- Prepare a bank reconciliation.o Pages 49-52o Outstanding checks – deducted from bank balanceo Deposits in transit – added to the bank balanceo Bank service charges and NSF fees – deducted from company balanceo Interest earned – added to the company balanceChapter 3:- Understand the shipping terms of FOB destination and FOB shipping point.o FOB destination – liable when goods are receivedo FOB shipping point – liable when goods are sold- Explain and calculate purchase discounts.o Some companies use incentives to get customers to pay them back in a timely manner when they pay using credit.o For example – 5/10, n/30 means that customers will receive a 5% discount if theypay in full within 10 days, but after that, there is no discount. After 30 days, the amount owed is considered past due.- Understand cost and revenue behavior including fixed costs and revenues, variable costs and revenues, and mixed costs and revenues.o Activity drivers - bases that reflect the consumption or provision of resourceso Relevant range - span of operation activity that is considered normal for companyo Fixed costs and revenues - a cost or revenue that does not change in total as the amount of the activity driver changes throughout the relevant rangeo Variable costs and