Accounting Final Exam Study Guide

• The final exam is comprehensive, with 75 multiple-choice questions covering all course material.
• The exam is closed book/no notes.

Financial Statement Preparation

• Income Statement: Understand single-step and multiple-step formats, including all necessary calculations.
• Statement of Stockholders’ Equity: Know the calculations and preparation, especially regarding Retained Earnings.
• Balance Sheet: Prepare a classified balance sheet.

Account Balances

• Know the normal balances of all financial statement accounts from every chapter.

Journalizing Transactions

• Be proficient in journalizing various transactions from all chapters.

Financial Ratios

• Be familiar with all the financial ratios covered at the end of each chapter, including their formulas and what they measure.

Key Definitions

• GAAP (Generally Accepted Accounting Principles).
• FASB (Financial Accounting Standards Board).
• Public Company Accounting Oversight Board.
• Accounting: Understanding accounting's role in business.
• Matching Concept
• Business Entity
• Cost Concept
• Unit of Measure
• Objectivity

Business Types

• Service, merchandising, and manufacturing businesses
• Internal versus external users of accounting information.
• Financial versus managerial accounting.

Business Entities

• Forms of business entities and their characteristics.

Accounting Equation

• Know the accounting equation (Assets = Liabilities + Equity) and how transactions affect it.

Stockholder's Equity

• Determine which accounts affect stockholders' equity and how (increase/decrease).

Financial Elements

• Assets: Resources controlled by the company.
• Liabilities: Obligations of the company.
• Equity: The owners' stake in the company.
• Revenue: Inflows from delivering goods or services.
• Expense: Outflows from using assets or incurring liabilities.
• Dividends: Distribution of earnings to stockholders.
• Profit: Revenue less expenses.

Transactions

• Identify which transactions affect stockholders’ equity.

Financial Statement Dates

• Determine which financial statements are dated (Balance Sheet) and which are prepared for a period of time (Income Statement, Statement of Stockholders’ Equity, Statement of Cash Flows).

Retained Earnings Calculation

• Ending Retained Earnings = Beginning Retained Earnings + Revenues - Expenses - Dividends

Assets Calculation

• Total Assets = Common Stock + Retained Earnings + Total Liabilities

Accounting Terms

• Accounts: Individual records of financial transactions.
• Account Balance: The amount in an account.
• Chart of Accounts: A list of all accounts used by a business.
• Double-Entry Accounting: Each transaction affects at least two accounts.
• Journal: A record of transactions in chronological order.
• Ledger: A collection of all accounts.
• Trial Balance: A list of all accounts and their balances at a specific time.
• Posting: Transferring journal entries to ledger accounts.
• Debit: The left side of an account.
• Credit: The right side of an account.
• Normal Balance: The expected balance of an account (debit or credit).

Debits and Credits

• Determine which accounts are increased/decreased by a debit and by a credit.

T-Account

• A T-account is a visual representation of an account, with debits on the left and credits on the right.

Trial Balance

• The proper order of steps for preparing a trial balance.

Matching Principle

• The matching concept/principle dictates that expenses should be recognized in the same period as the revenues they helped generate.

Adjusting Entries

• Definition: Adjusting entries update account balances for accruals and deferrals.
• Adjusting entries need to be journalized and posted.

Accrual vs. Cash Basis

• Accrual Basis: Revenues are recorded when earned, and expenses are recorded when incurred.
• Cash Basis: Revenues are recorded when cash is received, and expenses are recorded when cash is paid.
• GAAP requires accrual basis accounting.

Revenue and Expense Recognition

• Revenue Recognition: Recognize revenue when goods or services are provided.
• Expense Recognition: Recognize expenses when incurred, matching them to related revenues.

Deferrals vs. Accruals

• Deferrals: Cash is exchanged before the revenue or expense is recognized.
• Accruals: Revenue or expense is recognized before cash is exchanged.

Adjusting Entries Accounts

• Be familiar with the accounts used when preparing adjusting entries and their normal balances, and which financial statements and sections the accounts appear in.

Adjusting Entry Effects

• Identify the debit and credit parts of an adjusting entry and the type of entry the combination represents.

Error Effects

• If an accrued expense was not journalized, understand the effect on the income statement, retained earnings, and the balance sheet, AND accrued revenue, deferred expense AND deferred revenue.

Depreciation and Book Value

• Depreciation: The allocation of the cost of a plant asset over its useful life.
• Book Value: Cost less accumulated depreciation.
• Contra Asset: An account that reduces the balance of an asset (example: Accumulated Depreciation).

Solvency and Liquidity

• Solvency: The ability of a company to meet its long-term obligations.
• Liquidity: The ability of a company to meet its short-term obligations.

Trial Balance Types

• Unadjusted Trial Balance: A list of accounts and balances before adjustments.
• Adjusted Trial Balance: A list of accounts and balances after adjustments.

Net Income/Loss

• Given an adjusted trial balance, determine net income/loss (Revenues - Expenses).

Closing Entries

• Closing Entries: Entries made at the end of an accounting period to transfer temporary account balances to permanent accounts.
• Real Accounts: Assets, liabilities, and equity accounts, and accounts are NOT closed.
• Nominal Accounts: Revenue, expense, and dividend accounts, and accounts ARE closed.
• Revenue is closed to Income Summary.

Classified Balance Sheet

• Be familiar with the classified balance sheet (assets, liabilities, and equity divided into current and non-current categories).

Accounting Cycle Step

• Steps in the accounting cycle:
  • Analyze transactions
  • Journalize
  • Post
  • Prepare unadjusted trial balance
  • Adjusting entries
  • Prepare adjusted trial balance
  • Prepare financial statements
  • Closing entries
  • Prepare post-closing trial balance

Worksheet

• On the worksheet, given an adjusted trial balance, know which statements each account would be extended to (especially dividends).
• Given a worksheet, prepare the closing entries.
• Look on the work sheet to find net income/loss, and how it was calculated.

Fiscal Year

• Fiscal Year: An accounting period of 12 months.
• Natural Business Year: An accounting period that ends when a company's business activities have reached their lowest point in the annual cycle.

Inventory Systems

• Periodic Inventory System: Inventory is updated at the end of the period.
• Perpetual Inventory System: Inventory is updated continuously.

Bank Credit Cards

• Know how bank credit card sales are accounted for by the seller.

Debit/Credit Memos

• Debit memo vs. credit memo for buyer/seller.

Credit Period

• The credit period begins at the date of sale.

Retailer's Accounts

• Know how to account for a retailer's accounts–buyer and seller (e.g., how is Mdse Inventory classified? –Sales?, Cost of Goods Sold, Sales Tax Payable, etc.)
• Know normal balances of these accounts.
• Which accounts involved in the buyer/seller transactions are included in the closing entries. (see closing entries for Net Solutions)

Expenses

• Selling: Expenses directly related to sales efforts.
• Administrative: Expenses related to the general administration of the business.

Cost of Goods Sold

• Cost of Goods Sold would be reported on the Income Statement.
• Merchandise Inventory would be reported on the Balance sheet.

Income Statement

• Multi-Step Income Statement: Separates operating revenues and expenses from non-operating items.

Inventory Shrinkage

• Inventory shrinkage is recorded by debiting Cost of Goods Sold and crediting Merchandise Inventory.

Credit Terms

• e.g. 2/10,n/eom - what do the numbers mean.

FOB

• FOB Shipping Point: Buyer pays shipping costs; title passes at shipment.
• FOB Destination: Seller pays shipping costs; title passes at destination.

Inventory Transactions

• Journal entries (purchase/sale, returns, payment/receipt-including discount) for the buyer and seller using the perpetual inventory method under terms of FOB shipping or FOB destination.

Financial Calculation

• CGS = Beginning Inventory + Purchases - Ending Inventory.
• Gross Profit = Sales - CGS.
• Income from Operations = Gross Profit - Selling and Admin Expenses.
• Net Income = Income from Operations + Rent Revenue - Interest Expense.

Subsidiary Ledger

• The subsidiary ledger used for inventory is the inventory ledger.

Inventory Safegaurds

• Documents and procedures are used to safeguard inventory.

Inventory Costing

• Specific Identification: Each item is tracked individually.
• FIFO (First-In, First-Out): Assumes the first units purchased are the first ones sold.
• LIFO (Last-In, First-Out): Assumes the last units purchased are the first ones sold.
• Weighted Average: Calculates a weighted average cost based on total cost of goods available for sale divided by total units available for sale.

Inventory Methods

• FIFO assumes cost flow is in the order in which costs were incurred.
• Review section that compares the inventory costs methods.

Inventory

• Calculate inventory and CGS under periodic fifo, lifo, and weighted average and perpetual lifo and fifo.
• Which ones are most used to determine cost of inventory?

Net Realizable Value

• Calculate inventory using net realizable value method.

Price Impacts

• Know the impact of rising and falling prices on net income, CGS, Mdse Inventory, etc. using fifo or lifo.
• If mdse inventory is misstated (over or under), how does it affect net income, assets, capital, gross profit, CGS?

Net Realizable Value

• Calculate net realizable value.

Cost or Market

• Calculate inventory based on lower of cost or market.

Consignment

• Consignor: The owner of the goods.
• Consignee: The party holding the goods for sale.
• Only the Consignor includes goods on consignment in their inventory.

Inventory Estimation

• Gross Profit Method and Retail Inventory Method.
• Estimated methods calculate inventory based on lower of cost or market

Internal Controls

• Objectives of internal controls.
• Elements of internal controls: be familiar with the components of each (control environment, risk assessment, control activities, information and communication, and monitoring).

Terminology

• Bank Reconciliation
• Bank Statement
• Cash
• Cash Equivalents
• EFT (Electronic Funds Transfer)
• Sarbanes-Oxley Act of 2002
• Internal Control
• Petty Cash
• Employee Fraud
• NSF Check (Non-Sufficient Funds)
• Change Fund
• Deposits in Transit
• Outstanding Checks

Cash Definition

• “Cash” includes currency, coins, and amounts on deposit in bank accounts, checking accounts, and some savings accounts. The cash account is a current asset on the balance sheet.

Cash Short/Over

• The cash short and over account is used to record discrepancies in cash counts, and how it is accounted for.

Bank Service Charge

• A bank service charge is recorded by debiting "Bank Service Charge Expense" and crediting "Cash" in the journal.
• Bank service charge is deducted on the bank reconciliation statement.

Bank Reconciliation

• Why a bank reconciliation should be prepared, and how the bank statement is reconciled.

Petty Cash Fund

• How the petty cash fund is handled, replenished, and its normal balance.

Receivables

• A/R (Accounts Receivable)
• N/R (Notes Receivable)
• Trade Receivables
• Other Receivables
• Factoring
• Bad Debts Expense
• Direct Write-Off Method
• Allowance Method

N/R

• How are current N/R reported? Long-term?

Uncollectible Accounts

• When an account becomes uncollectible.

Uncollectible Receivables

• Two methods of accounting for uncollectible receivables.

Bad Debt Expense

• Know adjusting entry and how to calculate for Bad Debts Expense (AKA Uncollectible Accounts Expense) under the allowance method.
• What effect does the allowance method year-end adjusting entry have on net income, assets, liabilities, equity?
• What would a debit balance in the AFDA account before adjustment indicate?

Account Write Off

• How would you write off an account under the allowance method? the direct write off method? (Review my "Receivables" notes in D2L)
• What effect would subsequent collection of a bad debt written off under the allowance method have on net income, assets, equity?

Net Realizable Value

• Define Net Realizable Value.

AFDA

• AFDA's (Allowance for Doubtful Accounts) normal balance and what type of account it is.

Promissory Note

• Maker: The borrower.
• Payee: The lender.

Dishonored Note

• What is a dishonored note receivable, and journalize a dishonored note when it comes due.

Note Receivable

• Determine maturity value, due date, interest on a note receivable.
• Journalize: a note issued on account and receipt of maturity value from customer’s N/R when due.

Plant/Fixed Asset

• Characterize a plant/fixed asset.

Capitalizable Cost

• Be familiar w/ the capitalizable cost of a plant asset (e.g., what would be included in the cost of the land? land improvements? machinery? building?, etc.).

Operating Lease

• What is an operating lease, and who are the parties involved (lessee/lessor)?

Plant Asset Decline

• What factors contribute to a decline in the usefulness of a plant asset?

Terminology

• Depreciation
• Initial Cost
• Book Value
• Expected Useful Life
• Residual Value
• Depreciable Cost

Depreciation Calculation

• Units of Production, Straight-Line, Double Declining Balance (be familiar with the characteristics of each method e.g. SL provides for the same amount of depreciation annually over asset’s useful life.)
• Calculate depreciation expense with revision of an estimate.

Expenditures

• Revenue and Capital Expenditures - Know the difference with examples and how they would be recorded.

Sale of Plant Asset

• On the sale of a plant asset, how do you determine if there is a gain or loss, and be able to journalize the sale.

Depletion and Amortization

• Depletion: The allocation of the cost of natural resources.
• Amortization: The allocation of the cost of intangible assets.
• Give examples which assets are subject to either; also know journal entries.
• How would Accumulated Depletion be reported?
• How is a fixed asset reported in the financial statements?

Current Liability

• Define current liabilities.

Long Term Debt

• How is the current portion of long-term debt classified?

Notes Payable

• Know how to calculate due date, interest expense and maturity value on notes payable.
• Define proceeds, discount, discounted note.
• Be able to give the journal entries for issuance or payment of an interest bearing or a non-interest bearing (discounted) note payable.

Product Warranty

• When should you recognize product warranty as an expense, and what would be the journal entry?

Pay

• Gross Pay and Take-Home (Net) Pay for employees–make sure you can calculate both.

Taxes

• Which taxes have a ceiling on the amount of employee annual earnings subject to tax?

Payroll Tax

• What are the components of the employer's payroll tax expense, and to be able to calculate them.
• When do payroll taxes levied against employees become liabilities?
• Internal controls over payroll might include?

Benefit Plans

• What is the difference between a defined benefit and a defined contribution plan, and how would they be recorded and reported if they are fully funded or partially funded?

Vacation/Warranty Pay

• How are vacation pay and product warranty expenses accounted for, and estimating product warranty expense follows which accounting concept/principle?

Quick Assets

• What are "quick assets?"

Corporation Characteristics

• Advantages and disadvantages of the corporate form

Stockholder's equity

• What are the components of stockholder’s equity?

Value

• Define par value and stated value.
• Differentiate between shares “outstanding”, “issued”, and “authorized”.
• The number of shares of stock that a corporation is authorized to issue is stated in its charter.

Stock Issuance

• How would you journalize issuing common stock in exchange for legal fees for corporate organization?

Dividend Calculation

• Be able to calculate dividend distributions to preferred and common stockholders if the preferred is cumulative—remember—you must first determine the amount the preferred shareholders are entitled to per year.

Fixed Asset Exchange

• If you exchange stock for a fixed asset, what value should you debit the new fixed asset for?

Stock Value

• Be able to journalize the issuance of stock given par and market value.

Stock Dividend

• What is the effect of declaring and distributing a stock dividend on net assets/total stockholders’ equity, retained earnings, contributed capital?

Treasury Stock

• Be able to journalize the purchase of Treasury Stock and the subsequent resale if the resale is for greater than the original purchase price.

Stock Split

• How would you record a stock split?

Cash Dividend

• What are the prerequisites for paying a cash dividend?
• What three dates are important for declaring dividends?
• When does a cash dividend become a binding legal obligation?
• What are the journal entries to declare and pay cash dividends, and stock dividends?
• What is the effect of a stock split on the number of shares and par value?

Statement of Cash Flow

• What are the 3 sections of the Stmt of Cash Flows (SofCF)? (Operating, Investing, Financing).
• What goes in each section of the stmt of CF; see exercises 13-2,3,4.
• Where would you report stock dividends, dividends payable, and RE?
• Where does NI go if you’re using the indirect method on the SofCF; also depriciation expense?
• How are cash receipts from interest and dividends reported on the SofCF?
• How would increases or decreases in current assets and liabilities be treated on the SofCF; see exercise 13-4.

Noncash activities

• Be able to identify noncash financing and investing activities AND where are noncash financing and investing activities reported on the SofCF.
• Where would patent amortization, gains, losses, etc. go on the SofCF?
• Calculate cash flows from operating activities ($5,100).
• What would cash at the end of the year be ($12).