Exam 1 Recap

Question 1

3 Steps to Financial Accounting

Answer 1

1. Identify - Identify economic events
2. Record - Record events in books
3. Communicate - Communicate those economic events to interested users through the use of financial statements

Question 2

Ethics

Answer 2

1. Recognize an ethical situation and the ethical issues involved.
2. Identify the stakeholders and analyze the principal elements of the situation.
3. Identify the alternatives.

Question 3

Generally Accepted Accounting Principles (GAAP)

Answer 3

The rules of Accounting

Question 4

Financial Accounting Standards Board (FASB)

Answer 4

Makes the rules for accounting

Question 5

Securities and Exchange Commissions (SEC)

Answer 5

Enforces the rules for accounting

Question 6

Cost Principle

Answer 6

Record and report assets at their cost. (When you buy assets, you record them at their cost)

Question 7

Monetary Unit Assumption

Answer 7

We have a transaction that can affect a company but can only be determined using data expressed in money terms.

Question 8

Economic Entity Assumption

Answer 8

Requires that activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.

Question 9

Proprietorship

Answer 9

• Owned by one person
• Limited to resources
• Owner receives and profits, suffers and losses, and is personally liable for all debts

Question 10

Partnership

Answer 10

• Owned by one or two persons

Question 11

Corporation

Answer 11

• Ownership is divided into shares of stock
• Limited Liability

Question 12

Basic Accounting Equation

Answer 12

Assets = Liabilities + Stockholders’ Equity

Question 13

Asset Accounts

Answer 13

Cash, Accounts Receivable, Supplies, Equipment

• Resources a business has
• Provided future services or benefits

Question 14

Liability Accounts

Answer 14

Notes Payable, Accounts Payable

• Anything we owe is considered to be a liability

Question 15

Stockholders’ Equity Accounts

Answer 15

Common Stock, Retained Earnings, Revenue (+), Expenses (-), Dividends (-)

• The amount of assets the company owns

Question 16

Transactions

Answer 16

• A business’s economic events are recorded by accountants
• Effects different accounts

Question 17

Expanded Accounting Principles

Answer 17

Assets = Liabilities + Common Stock + Retained Earnings + Revenues - Expenses - Dividends

Question 18

Income Statement

Answer 18

• Report the net profit or income or if you had a net loss over a specific period of time.
• Revenues go first then the expenses (Revenues - Expenses)

Question 19

Retained Earnings Statement

Answer 19

• Reports the changes in our retained earnings for a specific period of time
• Changes that will affect retained earnings include net income or net loss and/or dividends

Question 20

Balance Sheet

Answer 20

• Reports the Assets, Liabilities, and Stockholders’ Equity at a specific date
• Will only see two accounts under stockholders’ equity. (Common Stock and Retained Earnings)

Question 21

Statement of Cash Flows

Answer 21

• Provides financial information about the cash receipts and payments for a specific period of time.

Question 22

Normal Balance

Answer 22

The side of the account that increases the account’s balance.

Question 23

Normal Debit Balance

Answer 23

• Amount on the debit (left) side of the account increase the account’s balanceAccount
  Debit Credit
  + -

Question 24

Normal Credit Balance

Answer 24

• Amount on the credit (right) side of the account increase the account’s balance.

  Account Debit	Credit   -	            +

Question 25

D.E.A.D

Answer 25

D Debits Increase
E Expenses
A Assets
D Dividends

• All other account types have a normal credit balance –> Liabilities, Common Stock, Retained Earnings & Revenues

Question 26

Journalize

Answer 26

Enter transactions in journal

Question 27

Post

Answer 27

Transfer journal information to ledger accounts

Question 28

Journal

Answer 28

A chronological record of the companies’ tranactions

Question 29

Ledger

Answer 29

A collection of the accounts maintained by the company

Question 30

Prepaid Expense

Answer 30

An asset account that represents the prepayment of expenses to take place in the future.

Question 31

Unearned Revenue

Answer 31

A liability account which represents advanced payments received from customers for goods or services we have not yet provided.

Question 32

Trial Balance

Answer 32

• A list of general ledger accounts and their balances
• Purpose is to prove that total debits equal credits
• Not a financial statement just a report

Question 33

Time Period Assumption

Answer 33

Break time down into periods

Question 34

Deferrals

Answer 34

When cash was exchanged before the revenue is earned or when the expense was incurred.

Prepaid Expenses
- Expenses paid in cash before they are used or consumed

Unearned Revenues
- Cash received before services are performed

Question 35

Accruals

Answer 35

When revenue is earned or when the expense was incurred before cash was exchanged.

Accrued Revenues (Unreported)
- Revenues for services preformed but not yet received in cash or recorded

Accrued Expenses
- Expenses incurred but not yet paid in cash or recorded.