Accounting Test 1 - Exam 1 Review and Notes PDF

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Exam 1 Review and Notes...

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Accounting: Test 1 Lecture Notes/Exam Review Accounting: An information system that measures business activities and processes that information into reports for decision makers What do we call the branch of accounting that provides information to external users? Financial Accounting What do we call the branch of accounting that provides information to internal users? Managerial Accounting List the four common types of business organizations and indicate which of these types are required to pay tax on their income. 1. Sole Proprietorship = no income tax 2. Partnership = no income tax 3. Limited Liability Company = no income tax 4. Corporation = pays tax on its income List the four common types of business organizations and indicate which of these types of businesses the owners of the business are personally liable for the liabilities of the business entity. 1. Sole Proprietorship = personally liable 2. Partnership = personally liable 3. Limited Liability Company = not liable 4. Corporation = not liable What types of accounts compromise and make up Net Income? Revenues and Expenses What types of accounts appear on the balance sheet? ● Assets ● Liabilities ● Stockholders equity Revenue Inflows of resources that increase retained earnings Expenses Outflows of resources that decrease retained earnings Financial Statements The business documents that companies use to report the results of their activities

Assets Economic resources expected to produce a benefit in the future ● Ex. Corporation's cash, merchandise inventory, equipment, buildings Liabilities Debts you must pay to outsiders or creditors ● Ex. account payables, note payables Owner's Equity Equity = ownership; a company's stockholder's equity is the stockholder's interest in the assets of the company Assets Equations = Liabilities + Owner's Equity = Accounts payable + common stock + retained earnings Paid in capital The amount the stockholders have invested in the corporation Retained Earnings The amount earned by income producing activities and kept or "retained" for use in the business Dividends Distributions of cash to stockholders; dividends are not expenses, they don't affect net income ● Dividends are direct reductions from retained earnings Income Statement A financial statement listing an entity's revenues, expenses, and net income for a specific time period ● Ex. "for year ending December 31st, 2011" Statement of Retained Earnings Retained Earnings + net income - dividends = current retained earnings i.e. "for the year ending December 31st, 2003" Balance Sheet measures financial position by reporting assets, liabilities, and stockholders equity i.e. "As of March 17th, 2013" What's the difference between current assets and long term assets? Current assets are expected to be converted to cash, sold, or consumed within a year. Long term assets are things like property and equipment and also intangible things like patents, trademarks, and goodwill.

What's the difference between current liabilities and long term liabilities? Current liabilities are debts payable within a year. Long term liabilities are bigger payables that you won't pay back in a year. The statement of cash flows: Measures cash receipts and payments, only in times when cash is exchanged. i.e. "Payments on account are not recorded here." Unearned revenue is a... A. Asset B. Liability C. Owner's equity B. Liability ● It's on the right side of the balance sheet along with service revenue. A prepaid expense is a... A. Asset B. Liability C. Owner's equity A. asset Which is a better predictor for future operations: Net income or current cash flows? Is service revenue on the right or left side of the balance sheet? Why? Right side along with unearned revenue; revenue is on the right side. ● Revenues = credits (where we get the money) ● Expenses = debits (what we did with the money) Left side of the balance sheet increases with _____ and the right side of the balance sheet increases with _____. Debits, credits Net income + retained earnings = ? Owner's equity Explain what a journal entry is and how one is made. A journal records all transactions. The first line in a single transaction is always the debit. The second line of the same transaction is the credit. Net income flows into _______ Retained Earnings.

In what order must you produce these 3 reports? 1. Income statement 2. Statement of retained earnings 3. Balance sheet Current ratio Current assets/Current liabilities Debt Ratio Liabilities/Assets. What are the 3 types of activities presented in the Statement of Cash Flows? 1. Financial 2. Operational 3. Investment activities The time period concept Accounting information is reported at regular intervals...