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ACC 230 Review for first exam

ACC 230 Review for first exam Or The minimum you should know! Describe the relationship between Management FASB SEC AICPA CPA’s -Auditors Stockholder’s Board of Directors GAAP Underlying principles and Conventions Company Annual Report Company Financial Statements Investors Lenders

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ACC 230 Review for first exam

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  1. ACC 230Review for first exam Or The minimum you should know!

  2. Describe the relationship between Management FASB SEC AICPA CPA’s -Auditors Stockholder’s Board of Directors GAAP Underlying principles and Conventions Company Annual Report Company Financial Statements Investors Lenders SFAS’s APB’s Fin. Acctg. Process Financial Accounting and it’s environment

  3. Transaction Analysis and Financial Statements • What is the basic accounting equation (for the balance sheet) • What does the left side of the balance sheet tell us? • How can the right side be interpreted? • Define Assets, Liabilities and Owners’ Equity

  4. Transaction Analysis and Financial Statements • What is the basic equation for the income statement? • Give an example of a transaction for which the company would record revenue. • Give an example of a transaction for which the company would record expense. • What are earnings?

  5. Transaction Analysis and Financial Statements • What is the basic equation for the statement of owners’ equity? • Using the basic accounting equation (for the balance sheet) show how the balance sheet, income statement, and statement of owners’ equity are tied together.

  6. Transaction Analysis and Financial Statements • What is accrual accounting? Give an example of its use. • What is the matching principle. Give an example of its application. • Is the matching principle more closely tied to the accrual or cash basis of accounting? • What is the cost principle? Give an example of its application.

  7. Transaction Analysis and Financial Statements • What is the accounting entity principle? Give an example of its application. • How do we account for credit sales and their subsequent collection? Why do we account for the transactions this way? • How do we account for the purchase and subsequent sale of inventory? Why do we account for the transactions this way?

  8. Transaction Analysis and Financial Statements • Is inventory expensed at the time of purchase? Why or why not? • Is property plant and equipment expensed at the time of purchase? Why or why not? • How do we account for the purchase of plant and equipment? Why?

  9. Transaction Analysis and Financial Statements • What is the revenue recognition principle? Is it consistent with accrual accounting or cash based accounting? • Describe the Net Trade Cycle, also called the Business Cycle. • Why are accounts receivable considered more liquid than inventory?

  10. Sales Revenue 132,000 COGS 38,000 Accounts Rec. 1,500 Fixtures 15,000 Deprec. Expense 3000 Operating Exp. 37,300 Owner’s Withdrawal 10,000 Cash 155,500 Owners’ Equity 123,700 Accounts Payable 47,300 Rent Expense 20,000 Inventory 2,000 Owner’s investment 100,000 Accumulated Deprec. 3000 From this list of accounts, prepare a balance sheet, income statement and statement of owners’ equity.

  11. Transaction Analysis and Financial Statements • Enter the following transactions on a spread sheet. • Or, given a spread sheet, tell what transaction gave rise to each transaction. • (See the next slide.)

  12. 2-24 And owners’ equity Mesa Community College

  13. The Balance Sheet • What do we mean by liquidity? • Name two ratios that measure liquidity. • What do they tell us about liquidity? • What is the “acid test” and why and when is it used?

  14. The Balance Sheet • If you are given industry averages, you should intelligently discuss them.

  15. How to do Ratio Analysis • Describe what the ratio is designed to measure and how it is expressed (days, times, % or $’s). Is a larger or smaller number better? • Compute the ratio • Interpret the ratio you computed • Compare the ratio between years • Compare the ratio to an industry average. • Draw a conclusion

  16. Compute and interpret the following ratios (you will NOT be given the formulas) • Debt Ratio • Debt to Equity Ratio • Current Ratio • Quick Ratio • Average Collection Period • Days Inventory Held • Days Payables Outstanding • Net Trade Cycle

  17. Income Statement • Be able to classify income statement items: • Sales Revenue • Cost of Goods Sold • Operating Expenses • Other income and expenses • Separate line items shown net-of-tax You are not responsible for this, this semester.

  18. Income Statement • Be able to do ratio analysis: • Net profit margin • Gross profit margin • Operating profit margin • Effective tax rate • Other items on the income statement • Extraordinary Items • Discontinued Operations You are not responsible for this, this semester.

  19. Profitability Ratios • Be able to do the 6-step procedure for: • Return on Assets (ROA) • Return on Equity (ROE) You are not responsible for this, this semester.

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