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Test #1 Review.docx

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Department
Accounting
Course
ACC 100
Professor
Paul Finlayson
Semester
Fall

Description
Test #1 Review Accounting: The process of identifying, measuring, and communicating economic information to various users (identifying  measuring  communicating economic information to various users) - business entities o sole proprietorship  a business with a single owner o partnerships  a business owned by two or more individuals and with the characteristic of unlimited liability • unlimited liability = the amount the owners can lose is unlimited o corporations  a form of entity organized under the laws of a particular province or the federal government; ownership evidenced by shares - types of business activities o financing  raising funds o investing  buying land, equipment, etc. o operating  selling goods / services Financial Statements: are reports from management to external users which summarize how the company performed during the period. - financial statements o income statement  results for operations o statement of retained earnings  changes in retained earnings o balance sheet  assets = liabilities + shareholder’s equity o cash flow statement  cash receipts and payments - regulatory agencies uses accounting information to ensure the entity is operating within prescribed rules - creditors use accounting information to determine whether the company can pay its obligations Income Statement Net Income = Revenues – Expenses - revenues are earned when a good is delivered / service is provided o eg. sales, interest revenue, fees earned, commissions earned - expenses are the costs of assets consumed / services used o must match the revenue they help generate o prepaid expense (eg. prepaid insurance) is NOT a expense, it is an asset o eg. costs of goods sold, rent expense, insurance expense, depreciation expense Statement of Retained Earnings Retained Earnings (BEG.) + Net Income – Dividends = Retained Earnings (END) - the money that is “retained” or kept within a business for future growth Balance Sheet Assets = Liabilities + Owner’s / Shareholder’s Equity - assets are owned by company o physical good or legal right o future economic benefit o eg. cash, account receivable, inventory, supplies, prepaid expenses, equipment - current assets are expected to be converted to cash or sold / used up / consumed in the business within a year of balance sheet date o eg. cash, short term investment, accounts receivable, inventory, prepaid expenses - long term assets are expected OVER a year
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