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midterm study guide - ACCT 331 Intermediate Accounting I...

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1 ACCT 331 – Intermediate Accounting I Fall 2011 Study Guide for Chapter 1, 2, 5A, and 7 1. Environment of Accounting Types of business organizations Information needs of external users – cash flow perspective Information intermediaries Accounting standard setters (establishment of accounting standards is a political process) SEC FASB AICPA GASB IASB IFRS 2. Conceptual Framework Phase A: Objectives of financial accounting Phase A: Hierarchy of accounting qualities Primary: Relevance (predictive value, confirmatory value) and Faithful representation (completeness, neutrality, free from material error) Enhancing: Comparability and Consistency, verifiability, timeliness, and understandability SFAC No. 6: Basic elements of financial statements (Assets, Liabilities, Equity, Investment by owners, Distribution owners, Comprehensive income, Revenues, Expenses, Gains, and Losses) SFAC No. 5 and No. 7: Recognition and measurement concepts Basic assumptions (Economic entity, Going concern, Periodicity, and Unit of measure) Principles (Historical cost principle, Realization, Matching, and Full disclosure principle) Constraints (Cost effectiveness, Materiality, and Conservatism) 3. Accounting Cycle 1) Transaction analysis 2) Journal entries (General journal) 3) Ledger accounts (General ledger) 4) Unadjusted trial balance 5) Adjusting entries
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2 Adjusting Entries Expenses Revenues Deferrals (prepayments) Debit Credit Expense Asset Debit Credit Liability Revenue Accruals Expense Liability Asset Revenue Estimates Expense Contra Asset 6) Adjusted trial balance 7) Financial statements 8) Closing entries To close the revenue accounts to income summary Revenues ................................................................. Income summary ................................................ To close the expense/dividend accounts to income summary Income summary .................................................... Expenses/dividends ............................................ To close income summary to retained earnings Income summary .................................................... Retained earnings ............................................... 9) Post-closing trial balance 4. Installment Sales Method versus Cost Recovery Method 1) Applicable when uncertainties about collectibility exists 2) Installment method Gross Profit % = Gross Profit/Net Sales.
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