Financial Accounting Study Guide Exam 1

GAAP

General Accepted Accounting Principles

Monetary Unit Assumption

assumption that financial reports are in currency

Matching Principle

states that revenues and expenses should be reported in the same period

Accrued Expense

Expenses not yet paid or not yet recognized

Business Entity Assumption/Principle

concept of separating personal business and transactions

Balance, Office. . .7,000, Jan 1, Supplies Purchased 3,000, 2K at end (adjusting journal)

8,000

Journalize (utility bill 250; will be paid in 10 days)

Utilities Expense 250
Accounts Payable 250

Journalize (3 yr 3000 insurance; paid in full)

Prepaid Insurance 3000
Cash 3000

Journal Entry (borrowed 10K from the bank)

Cash 10,000
Notes/Accounts Payable 10,000

What are the 4 general financial statements?

Income statement, State of SE, Balance Sheet, State of CF

What is an example of internal users of accounting?

managers, employees

What are 2 types of accounting?

Financial: internal users
Managerial: external users

Under cost principle, what will be used to. . .

$115,000

Assets are financed by whom?

owners, creditors

Revenue effects what pants of the accounting equation?

assets, equity

Liabilities are recorded where?

Balance sheet

Assets are recorded in what order?

In order of liquidity

Debits are where?

the left side

What is a list of accounts used by the business?

chart of accounts

SE is reduced by what 2 items?

expenses, dividends

Expenses follow the same debit and credit rules as what two accounts?

assets, dividends

When do we record revenue?

when earned

Unexpired insurance represents what type of expense?

deferred (prepaid) expense

How many closing journal entries are there?

2

What is the last step in the accounting cycle?

post-closing trial balance

Working capital

current assets - current liabilities

Current Ratio

current assets/current liabilities

Calendar year

Jan to Dec (or vice versa)

Fiscal year

Ex. July 1 to June 30 or Feb 1 to Jan 31

Accounting Cycle (Step 1)

Beginning balances

Accounting Cycle (Step 2)

analyze and journalize transactions

Accounting Cycle (Step 3)

post

Accounting Cycle (Step 4)

create unadjusted trial balance

Accounting Cycle (Step 5)

adjusting journal entries

Accounting Cycle (Step 6)

create adjusted trial balance

Accounting Cycle (Step 7)

prepare financial statements

Accounting Cycle (Step 8)

journalize post-closing journal entries

Accounting Cycle (Step 9)

prepare post-closing trial balance

Accounting Cycle (Step 10)

repeat