ACCT 2301 Midterm Exam Study Sheet

Test #1

Chapter 1: Introduction to Accounting

Key Terms:

• FASB/GAAP: Governing bodies and principles of accounting.

• Assets: Resources owned by the company.

• Liabilities: Obligations owed.

• Stockholders’ Equity: Ownership interest (Common Stock + Retained Earnings).

• Net Income: Revenues - Expenses.

• Dividends: Profits distributed to stockholders.

Key Concepts:

1. Accounting Equation:

   • Assets = Liabilities + Stockholders' Equity

   • Expanded: Assets = Liabilities + Common Stock + Retained Earnings

2. Retained Earnings Calculation:

   • Beginning RE + Revenues - Expenses - Dividends = Ending RE

3. Financial Statements:

   • Income Statement: Performance (Revenues - Expenses = Net Income).

   • Balance Sheet: Financial position at a specific time.

   • Statement of Cash Flows: Cash inflows/outflows by activities (Operating, Investing, Financing).

Chapter 2: Accrual Accounting

Key Terms:

• Accounts Payable/Receivable: Money owed/earned but not yet paid/received.

• Accrual: Recognizing revenues/expenses when earned/incurred.

• Matching Concept: Match revenues with related expenses.

Key Concepts:

1. Accrual vs. Cash Accounting:

   • Accrual: Record revenues/expenses when earned/incurred.

   • Cash: Record only when cash is received/paid (not GAAP-compliant).

2. Transaction Effects on Financial Statements:

   • Horizontal Analysis: Every transaction affects at least two accounts.

Chapter 3: Adjusting Entries

Key Terms:

• Deferred Revenue/Expenses: Cash received/paid before services are performed/expenses are incurred.

• Accrued Revenue/Expenses: Services performed/expenses incurred before cash is received/paid.

Key Concepts:

1. Prepaids (Deferred Expenses):

   • Formula: Beginning Supplies + Purchased Supplies - Used Supplies = Ending Supplies.

2. Unearned Revenue (Deferred Revenue):

   • Cash received → Recognize revenue when earned.

3. Accrued Revenue:

   • Service performed → Record accounts receivable → Collect cash.

4. Accrued Expenses:

   • Record expense → Pay cash later.

Common Transaction Examples

1. Receiving cash from investors: + Assets, + Stockholders' Equity.

2. Borrowing money: + Assets, + Liabilities.

3. Providing services for cash: + Assets, + Revenues.

4. Paying expenses: - Assets, - Retained Earnings.