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Midterm

Midterm Study Guide

6 Pages
766 Views

Department
Accounting
Course Code
ACC 100
Professor
Walter Krystia

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Page | 1
-
Chapter 1
Learning Objectives
1. Distinguish among the forms of organizations (p. 6)
a. Corporations t An entity organized under the laws of a government. Ownership is
evidenced by shares.
b. Proprietorships t Business with a single owner.
c. Partnerships t Business owned by two or more individuals and with the characteristic of
unlimited liability.
d. Non-business t Organization operating for another purpose other than profit.
2. Describe the various types of business activities (p. 8)
a. Financing t Sources of cash
i. Capital stock t KÁv[}v]µ]}v}}}]}vX
b. Investing t Uses of cash to procure future benefits (assets)
c. Operating t Cash flows from operating activities
3. Identify the users of accounting information and their needs (p. 11)
a. The primary users of financial statements are those who depend upon the economic
information conveyed in those statements to make decisions. Primary users may be
broadly classified as internal users and those external to the company.
i. Internal users are usually managers of companies.
ii. External users include shareholders, investors, creditors, and government
agencies.
b. Financial accounting is the branch of accounting used to communicate with outsiders
through financial statements.
i. Shareholders and potential shareholders
ii. Bondholders, bankers, and other creditors
iii. Government agencies
iv. Other external users t such as other companies that wish to sell their product.
4. Explain the purpose of each of the financial statements and relationships among them. (p. 13)
a. The three major financial statements
i. dZovZ]vZ}}(}uvÇ[(]vv]o}]]}vZv}(
Z]}X/(oZUo]]o]]UvZZ}o[µ]ÇX
1. Retained earnings t Z}(}Áv[µ]ÇZvincome
less dividends paid over the life of an entity.
ii. The income statement summarizes the financial activity for a period of time.
Items of revenue, expense, gains, and losses are reflected in the income
statement.
1. Summarizes revenues and expenses.
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Page | 2
iii. Ultimately, all net income (loss) and dividends are reflected in retained earnings
on the balance sheet. The statement of retained earnings links the income
statement to the balance sheet by showing how net income (loss) and dividends
affect the retained earnings account.
1. Links balance sheet and income statement by showing the how net
income becomes retained earnings after dividends have all been paid.
2. Dividends are not an expense, and so they do not appear on the income
statement. Instead they are a distribution of the income of the business
to the shareholders.
5. Identify and explain the primary assumptions made in preparing financial statements. (p. 19)
a. The usefulness of accounting information is enhanced through the various assumptions
set forth in the conceptual framework for the methods, rules, and practices that
comprise generally accepted accounting principles (GAAP).
b. Important assumptions in the conceptual framework are:
i. Economic entity concept t The assumption that a single, identifiable, unit must
be accounted for in all situations.
ii. Cost principle t Assets are recorded at the cost to acquire them.
iii. Going concern t The assumption that an entity is not in the process of
liquidation and it will continue indefinitely.
iv. Monetary unit t The yardstick used to measure amounts in financial statements,
the dollar.
v. Time period t Artificial segment on the calendar, used as the basis for preparing
financial statements.
6. Describe the various roles of accountants in organizations (p.21)
a. Accountants play an important role in the measurement, analysis, and communication
of financial information and are employed by business, non-business, and governmental
entities.
b. Public accounting also employs many accountants that provide auditing, tax, and
management consulting services.
Chapter 2
x Financial Statements
o Balance sheet
Shows obligations due in near future, and what assets can satisfy them.
o Income statement
Shows revenues and expenses for a period of time.
o Statement of cash flows
Shows where cash came from and how it was used during a period.
x Objectives of financial reporting
o Primary objective: Provide information for decision making.
Provide info for decision making.
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Description
P a g e 1 ZZZZ - Chapter 1 Learning Objectives 1. Distinguish among the forms of organizations (p. 6) a. Corporations J An entity organized under the laws of a government. Ownership is evidenced by shares. b. Proprietorships J Business with a single owner. c. Partnerships J Business owned by two or more individuals and with the characteristic of unlimited liability. d. Non-business J Organization operating for another purpose other than profit. 2. Describe the various types of business activities (p. 8) a. Financing J Sources of cash i. Capital stock J KL[Z }L]]}LZ} }}]}L: b. Investing J Uses of cash to procure future benefits (assets) c. Operating J Cash flows from operating activities 3. Identify the users of accounting information and their needs (p. 11) a. The primary users of financial statements are those who depend upon the economic information conveyed in those statements to make decisions. Primary users may be broadly classified as internal users and those external to the company. i. Internal users are usually managers of companies. ii. External users include shareholders, investors, creditors, and government agencies. b. Financial accounting is the branch of accounting used to communicate with outsiders through financial statements. i. Shareholders and potential shareholders ii. Bondholders, bankers, and other creditors iii. Government agencies iv. Other external users J such as other companies that wish to sell their product. 4. Explain the purpose of each of the financial statements and relationships among them. (p. 13) a. The three major financial statements i. @ZoL ZZ]ZZLZZ}} }KL[Z]LL ]o}Z]]}LZL} Z]}:o ZZZZZ7o]]o]]Z7LZZZ}o[Z]: 1. Retained earnings J Z}}L[Z]ZZLZincome less dividends paid over the life of an entity. ii. The income statement summarizes the financial activity for a period of time. Items of revenue, expense, gains, and losses are reflected in the income statement. 1. Summarizes revenues and expenses. www.notesolution.com
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