Accounting 201 – Exam 1 – Chapters 1, 2, & 3 – February 12, 2013
*Accounting is a system that identifies, records and communicates business activities that are RELEVANT,
RELIABLE & COMPARABLE.
*Both External and Internal users of accounting information.
**FINANCIAL accounting provides external users with Financial Statements = Follows Generally Accepted
Accounting Principles (GAAP)
**MANAGERIAL accounting provides information to internal users i.e. decision makers = Does not
necessarily follow GAAP
*Ethics are very important relative to accounting information: needs to be able to be relied on to make
*Governing set of rules for Financial Accounting are referred to as “GAAP” – Generally Accepted Accounting
** FASB is a private group that sets broad & specific principles
** SEC oversees the reporting requirements for publically traded companies.
** IASB sets preferred international standards. These standards are not imposed on US companies.
* Main principles of Accounting – Cost, Revenue Recognition, Business Entity, Matching…etc.
* Business Entity Forms: Sole Proprietorship, Partnership (LLC) & Corporations (S – Corp & C – Corp)
* ACCOUNTING EQUATION (AE): Assets = Liabilities + Equity
* EXPANDED AE: Assets = Liabilities + Equity (Common Stock – Dividends + Revenues – Expenses)
All transactions are recorded to insure that the Accounting Equation stays in balance.
Assets = Liabilities + Equity (C/S – Dividends + Revenues – Expenses)
Individual transactions impact at LEAST 2 accounts. Account examples include Cash, Accounts Receivable,
Equipment, Supplies, Accounts Payable, Wages Payable, Common Stock, Retained Earnings, Sales Revenue,
Wages Expense, Dividends, etc.)
Each Account belongs to one of the major categories (Assets, Liabilities, Equity, Revenues, Expenses or
All the transactions within and Account gives us its BALANCE.
Account Balances are used to prepare the Financial Statements:
Income Statement (Revenues & Expenses)
Statement of Retained Earnings (Beginning R/E + Net Income – Dividends)
Balance Sheet (Assets, Liabilities & Equity)
Statement of Cash Flows (Operating, Investing & Financing Activities that provided orused cash)