Accounting 203 Exam 1 Review

Accounting 203 Exam 1 Review - Accounting 203 Test 1 Review...

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Accounting 203 Test 1 Review 1. Accounting – an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization’s business activities. 2. External Users – are not directly involved in running the organization. a. Ex: Lenders, Shareholders, Governments, Consumer groups, External auditors, and customers. 3. Internal Users – Those directly involved in managing and operating an organization. a. Ex: Officers, Managers, Internal auditors, Sales staff, budget officers, and controllers. 4. Objective of Accounting – to provide information useful to investors, creditors, and others. 5. Principles of Accounting – list and define. a. Measurement principle (cost principle) – means that accounting information is based on actual cost. b. Revenue recognition principle – provides guidance on when a company must recognize revenue c. Matching principle (expense recognition) – prescribes that a company must recognize revenue. d. Full disclosure principle – requires a company to report the details behind financial statements that would impact users’ decisions. 6. Assumptions of Accounting – list and define. a. Going-concern assumption – means that accounting information reflects a presumption the business will continue operating. b. Monetary unit assumption – means we can express transactions in money. c. Time period assumption – presumes that the life of a company can be divided onto time periods, such as months and years. d. Business entity assumption – means that a business is accounted for separately from its owner or other business entities. 7. Accounting Equation – Assets = Liabilities + Equity a. Assets – resources a company owns or controls, that are expected to yield benefits. The term receivable is used to refer to an asset that promises a future inflow of resources. A company that provides a service or product on credit is said to have an account receivable from that customer.
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i. Examples are Web servers for an online services company, musical instruments for a rock band, and land for a vegetable grower. b. Liabilities – creditor’s claims on assets that reflect company obligations to provide assets, products, or services to others. The term payable refers to a liability that promises a future outflow of resources. i. Examples are wages payable to workers, accounts payable to suppliers, notes payable to banks, and taxes payable to the government. c. Equity – the owner’s claim on assets. Equity is equal to assets minus liabilities. This is the reason equity is also called net assets or residual equity . i. Contributed capital – total amount of cash and other assets received from stockholders in exchange for stock (included under the title common stock).
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