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UWL ACC 221 - Exam 1 Study Guide

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ACC 221Exam # 1 Study Guide Lectures: 1 – 5 Chapters 1-3Lecture 1-3 (September 3rd & 5th and 8th) An Introduction to Accounting Statements:Income Statement, Retained Earnings Statement, Balance Sheet, Statement of Cash Flows.1. Income Statement:- Reports revenues and expenses for a specific period of time in order to show how your business preformed.- Revenues > expenses= Net Income- Revenues < expenses = Net Loss - *Revenue and cash are not the same thing- *Dividends are not expenses2. Retained Earnings Statement:- Net income gathered from the Income Statement is needed to determine the ending balance in Retained Earnings. Retained Earnings is how much money was retained in the business in order to promote future growth. - Net income- Dividends= Retained EarningCorner Store CorporationIncome StatementJuly 31, 2014RevenuesService Revenue $ 80,500Rent Revenue $5,000Total Revenue $90,000ExpensesSalaries and Wage $ 50,000Supplies $10,500Total Expense $ 60,000Net Income $3,000Corner Store CorporationRetained Earnings StatementJuly 31, 2014Retained Earnings (August 1, 2013) $34,000Net Income $ 3,000Less: Dividends $ 5,000Retained Earnings (July 31, 2014) $32,0003. Balance Sheet:- Ending balance in retained earnings is needed in preparing the balance sheet, which displays all assets and liabilities.- Assets must equal liabilities- Liabilities: the claims of creditors (things you have to pay for)- Assets: Things that have value that the business owns4. Statement of Cash Flows:- Shows money made from a) operations, b) investments, and c) financing activities.If a business has revenue of $132,000 and expenses of $126,000, do they have a net income or a net loss? How much? What AccountingStatement wouldthis information be on?- The company received a net income of $6,000- This information would be on the income statement.Chapter One- What are the forms of business organization? - Sole Proprietorship: A business owned by one person only. It’s simple to set up, gives the owner the most control, and is usually small. Receives favorable tax $132,000-$126,000+$6,000Corner Store CorporationBalance SheetDecember 31,2014AssetsCurrent AssetsCash $ 10,000 Debt Investment $40,000Accounts Recievable $50,000Inventory $100,000Total Current Assets $200,000Plant Assets $10,000Total Assets $210,000Liabilities and Stockholder’s EquityCurrent LiabilitiesAccounts Payable $50,000Income Tax Payable $70,000Total Current Liabilities $120,000Bonds Payable $10,000Total Liabilities $130,000Stockholder’s EquityCommon Stock $48,000 Retained Earnings $32,000Total Stockholders Equity $80,000Total Liabilities and Stockholder’s Equity $210,000treatment, but owner faces personal liability.- Partnership: A business with 2 or more owners that usually bring unique skills. Favorable tax treatment, but has greater personal liability that a corporation.- Corporation- A business organized as a separate legal entity and owned by stockholders. *This class focuses on corporations.- Who uses the financial information recorded in the accounting statements?- Internal users- managers who plan, organize and run a business- External users- Investors, creditors, taxing authorities, customers, and regulation agencies- What types of activities are reported on the accounting statements?- Financial activities such as a change in liabilities, common stock or dividends. - Investing activities such as assets and cash.- Operating activities such as revenue, supplies, accounts receivable, expenses, accounts payable, interest payable, wages payable, sales tax payable, property tax payable, net income, and net loss.Chapter 2Classified Balance Sheets: Balance sheets that that group together similar liabilities and similar assets using a number of classifications such as:- Current Assets: assets a company expects to covert to cash or use within one year (or operating cycle) includes cash, debt investments, accounts receivable, notes receivable, inventory, supplies, prepaid insurance)- Long Term investments: investments in stock/bond, long term assets like land and buildings that are not currently in use and long term notes receivable.- Property, Plant and Equipment: assets with long lives that are currently being used- Intangible assets: assets that do not have physical substance but still have worth; an exclusive right (i.e. a copyright)- Current Liabilities: obligations the company has to pay within the next year (or operating cycle.) Examples include accounts payable, salaries payable, notes payable, interest payable, and income tax payable.- Long Term liabilities: obligations to be paid after one year. Example include bonds, mortgage, long term notes payable, lease liabilities, and pension liabilities.- Stockholder’s Equity: Common stock (investments of assets into the business by the stockholders) and Retained earningsWe use these financial statements to find ratios, and use ratio analysis to express the relationship between data. Ratios can measure the profitability, liquidity, and solvency of a company.- Liquidity: the ability to pay obligations that are due within the next year- Liquidity ratios: measure the short term ability of the company to pay unexpected needs for cash- Solvency: A company’s ability to pay interest as it comes due and to repay the balance of a debtTypes of data comparisons:- Intracompany (covering two years within the same company)- Intercompany (comparisons with a competitor in the same industry)- Industry-Average (based on the average ratios for particular industries)How do we use the income statement?- Earnings per Share: Measures the income earned on each share of common stock.How do we use the Classified Balance Sheet?- Working Capital: a measure of liquidity - Current ratio: a measure of liquidity - Debt to assets ratio: a measure of solvencyThere are many standards set when reporting financial information on accounting


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UWL ACC 221 - Exam 1 Study Guide

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