Accounting Exam 1 Study Guide (Chapters 1-2)

Exam 1 Study Guide (Chapters 1-2)

• The exam covers 40 questions, multiple choice, multiple select, and fill-in-the-blank.
• The questions focus on definitions, accounting processes, and financial statements.
• Review pages 5-8 for question formatting details.
• Write down the accounting equation on scrap paper before starting the exam.
• Use T-accounts during the exam, starting with the original transaction.

Recall and Explain Definitions

• New Terms: Study all new terms introduced.
• Basic Account Definitions: For each basic account, know:
  • Account name
  • Definition
  • Account major category
  • Financial statement it appears on
  • Normal balance (debit or credit)
• Business Transactions: Conceptualize how transactions impact each account. For example, a customer paying cash before receiving a service affects deferred revenue.
  • Understand how transactions impact specific accounts (e.g., asset, liability, equity, revenue, expense).

Accounting Process Overview (Chapter 1)

• Primary Functions: Accounting measures and communicates financial information.
• Accounting Equation: Students should draw the accounting equation on their scratch paper (Assets = Liabilities + Equity).
• Financial Statements: Define, format, and understand linkages between the following:
  • Income Statement
  • Statement of Stockholders' Equity
  • Balance Sheet

Accounting Process (Chapter 2)

• Business Transactions: Examples and analysis of typical business transactions and their impact on accounts, including issuing stocks, obtaining loans, purchasing inventory, prepaying rent, purchasing supplies, receiving cash for future services, selling products, and collecting cash on accounts.
• Accounting Equation Impact: Illustrate how each business transaction affects the accounting equation, showing how assets, liabilities, and equity are impacted.
• Journal Entries: Record business transactions in journal entries.
• Posting to Ledger: Transfer entries from the journal to the general ledger T-accounts.
• Trial Balance: Prepare an unadjusted trial balance from account balances.

Overall Exam 1 Summary

• Financial Statements: Construct financial statements (Income Statement, Statement of Stockholders' Equity, Balance Sheet) from an unadjusted trial balance.
• Financial Statement Links: Demonstrate connections between the three primary financial statements.

Exam 1 Definitions (Page 3)

• Accounting Equation: Assets = Liabilities + Equity
• GAAP: Generally Accepted Accounting Principles are rules of financial accounting
• Assets: Resources owned by a company
• Liabilities: Amounts owed to creditors
• Equity: Owners' claims to the resources
• Revenues: Amounts earned from sales
• Expenses: Costs of providing products or services
• Business Transaction: An economic event that triggers recording in accounting systems.
• Accounting Period: The specific time frame for preparing financial statements.
• Account: Summary of transaction effects related to an item during a period.
• Chart of Accounts: List of all account names.
• Financial Statements: Periodic reports for external users.
• Income Statement: Summarizes revenues and expenses over a period.
• Statement of Stockholders' Equity: Shows changes to equity over a period.
• Balance Sheet: Presents the financial position of a business as of a specific date.
• Statement of Cash Flows: Summarizes cash receipts and payments over a period.
• General Ledger: Central record of all accounts and their balances
• Journal: Chronological record of all transactions
• Posting: Transferring journal entries to accounts in the general ledger.
• Unadjusted Trial Balance: List of accounts and balances before adjustments.
• Specific Account Examples: Include examples of accounts like Cash, Accounts Receivable, Inventory, Prepaid Expenses, Supplies, Accounts Payable, Notes Payable, Common Stock, Retained Earnings, Service Revenue, Utility Expense. Know the normal balance for each.