[ACC 211] - Midterm Exam Guide - Comprehensive Notes for the exam (86 pages long!)

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ACC 211
MIDTERM EXAM
STUDY GUIDE
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Chapter 1
-Businesses are started by owners, or stockholders, of a company.
-Banks= creditors, finance the business.
-Stockholders hope to receive a portion of what the company earns in the form of cash payments
called dividends and to eventually sell their share of the company at a higher price than they
paid.
-Creditors lend money to stockholders based on financial statements.
Business activities include:
• Financing Activities: borrowing or paying back money to lenders and receiving additional
funds from stockholders or paying them dividends.
• Investing Activities: buying or selling items such as plant and equipment.
• Operating Activities: the day-to-day operations of the business, such as purchasing materials
from suppliers, delivering products and services to customers, collecting cash from customers,
and paying suppliers.
BALANCE SHEET – reports the amount of assets, liabilities, and stockholders’ equity of an
accounting entity at a point in time.
-The purpose of the balance sheet is to report the financial position (assets, liabilities, and
stockholders’ equity) of an entity at a particular point in time.
-Assets are economic resources owned by the company. All assets are expected to provide future
benefits to the company.
-Cash, short term investments, accounts receivable, notes receivable, inventory (to be
sold), supplies, prepaid expenses, long-term expenses, equipment, buildings, land,
intangibles
-Liabilities are the company’s debts or obligations.
-Accounts payable, accrued expenses, notes payables, taxes payable, unearned revenue,
bonds payable
-Stockholders’ equity: First, common stock indicates the amount of financing provided by
owners of the business. Next, retained earnings is the amount of earnings that have been
reinvested in the business rather than being distributed as dividends to shareholders.
-Common stock, retained earnings
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INCOME STATEMENT – reports the revenues less the expenses of the accounting period.
-Revenue: Companies earn revenues from the sale of goods and services to customers.
-Sales revenue, free revenue, interest revenue, rent revenue
-Expenses: represent the dollar amount of resources used to earn revenues during the period.
-Wages expense, rent expense, advertising expense, depreciation, insurance, repair, income tax
-Revenues > expenses = net income. Expenses > revenues = net loss.
-The bottom line/ Net Income/Loss = Revenue - Expense
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