ing Midterm Review 463w14

MIDTERM REVIEW Chapters 1-5 approx 60 questions, all multiple choice definitions as well as journal entries PRACTICE CHAPTER RATIOS Chapter 1 ing is when you analyze and record transactions of a company and show them to others in formal financial statements. Financial ing – for outsiders looking at our company – external this is different from tax ing. You keep different books for financial and tax ing Managerial ing – for internal s in the company – managers, CEOs etc. Ethics – try to be morally correct and honest GAAP – Generally Accepted ing Principles general principles set over the years, as well as specific principles specific principles are set by FASBI. FASBI sets up the GAAP. SEC – governs publicly owned companies Cost Principle – your balance sheet and income state numbers are going to be at the cost that you paid for it. Objectivity Principle – everything has to be based on fact, not principles Going Concern – your company is going to stay functioning for a long time Business Entity – a business is separate from its owner Monetary Unit – numbers are all in currency Revenue Recognition – revenue is recorded only when it is earned. Sole proprietorship – owned by one person Unlimited liability – owned by two or more people Assets = Liabilities + Owner's Equity assets – things you own that will be used to bring in revenue. If you shut down, creditors and owners can claim these assets. Liability – anything you owe to someone else Owner's Equity – Capital, Retained Earnings ( Revenue – Expenses – Dividends) Four Basic Statements Balance Sheet – assets, liabilities, owner's equity for a certain point in time Income Statement – revenue and expenses for a period of time Statement of cash flow – how cash has changed from beginning to end of period Statement of Retained Earnings – Beginning RE + Net Income – Dividends = Ending RE Chapter 2 Prepaid expense – asset Unearned revenue – liability Cash, A/R, N/R, land, building, equipment -assets Payables – liability revenue, expense, dividends, stocks – owners equity double entry ing – the value of debits and credits must be equal in value. Posting – when you take your info from your journal to your ledger

Transactions trial balance – list of s and their balances at a point in time. More info on statements Chapter 3 period – calendar year (january – december), fiscal year – any 12 month period, natural business year – when business has calmed down GAAP says you can only use accrual basis for financial statements, but you can still use cash basis for internal ing. Cash basis – record only when cash changes hands Accrual basis – record expenses over time (such as 10 year insurance policies etc)– more accurate and better for business decisions. Adjusting entries – used because of matching principle Four major types of adjustment. They all affect the income statement and balance sheet but never the cash . Deferred adjustments – prepaid expenses (supplies, insurance, depreciation etc) depreciation (building purchases etc) total depreciation is a contra . To calculate depreciation you do purchase cost – salvage value divided by years of use unearned revenue money you have received that you have not done your part for yet accrued adjustments accrued expenses – salary, accrued revenue – you have earned the revenue but have not received payment closing process – close temporary s – income statement s (revenue, dividends) put net income into retained earnings after you close you can start s for the new year Chapter 4 Merchandising Activities Income Statement Formula Sales – COGS = Gross Profit Gross Profit – Expenses = Net Income Ending Inventory Formula Beginning Inventory + Purchases = GAFS GAFS – COGS = Ending Inventory If you understate COGS, Net Income will be overstated. Perpetual System – you update MI and COGS with every transaction. Periodic System – use temporary s until the end of the year, then adjust MI and COGS. p.164, p.171-173 for closing entries Gross Profit Method Beginning Inventory + Purchases = GAFS GAFS – EI (?) = COGS (?) Sales (100%) – COGS (?) = GP (20%)

If you know the percentages of your sales and gross profit, then you can find out the COGS %, 80% in this case. Once you find out your COGS, you can find your EI. Lifo, Fifo, WA Lifo – reduces taxes WA – middle ground – smooths out price changes Fifo – most sales – best looking IS