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ACCT 23310 - Exam I

University of Houston, Accouting

QuestionAnswer
ACCOUNTING EQUATIONS (3) * ASSET = LIABILITY + STOCKHOLDER EQUITY (A =L+SE) * NET INCOME = REVENUE - EXPENSE (NI=R-E) * STOCKHOLDER EQUITY=NET INCOME - DIVIDEND (SE=NI-D or SE=R-E-D)
5 DIFFERENT TYPE OF ACCOUNTS, ALSO WHAT INCREASES THEM? 1. ASSETS - DEBIT 2. REVENUE - DEBIT 3. EQUITY - CREDIT 4. LIABILITY - CREDIT 5. STOCKHOLDER EQUITY - CREDIT
ECONOMIC ENTITY (ASSUMPTION) A SEPARATE ENTITY • Example in class: student is a MD. Starts a business & uses 1 bank. Do not commingle personal expense with business expense. So the medical practice is a separate entity.
GOING CONCERN (ASSUMPTION) WILL CONTINUE TO OPERATE INDEFINITELY
MONETARY (ASSUMPTION) UNIT, I.E. DOLLARS
PERIODICITY (ASSUMPTION) STATEMENTS OVER A PERIOD OF TIME
LIST THE ASSUMPTIONS (4) 1. ECONOMIC ENTITY 2. GOING CONCERN 3. MONETARY 4. PERIODICITY
GAAP GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
LIST GAAP PRINCIPLES (4) 1. REVENUE RECOGNITION 2. MATCHING 3. HISTORICAL COST 4. FULL DISCLOSURE
REVENUE RECOGNITION (GAAP PRINCIPLE) *BOTH EARNED AND REALIZED * EARNED - COMPLETE WHEN CUSTOMER TAKES PHYSICAL POSSESSION * REALIZED - COMPLETE WHEN RECEIVE CASH OR CASH EQUIVLENT
HISTORICAL COST (GAAP PRINCIPLE) TRANSACTIONS INITIALLY RECORDED AT COST
FULL DISCLOSURE (GAAP PRINCIPLE) ALL MATERIALS SHOULD BE DISCLOSED IN FINANCIAL STATEMENT, NOTES, OR SUPPLEMENTARY INFORMATION
CONSTRAINTS (3) 1. COST 2. INDUSTRY PRACTICES 3. CONSERVATISM
COST (CONSTRAINT) COST OF PROVIDING INFO SHOULD NOT EXCEED ITS BENEFIT TO THE ENTITY
INDUSTRY PRACTICES (CONSTRAINT) GAAP WILL NOT BE FOLLOWED IN CERTAIN INDUSTRIES TO PREVENT MISLEADING INFORMATION
CONSERVATISM (CONSTRAINT) WHEN THERE IS UNCERTAINTY THE ALTERNATIVE HAVE THE LESS FAVORABLE EFFECT ON NET INCOME OR TOTAL ASSETS IS PREFERABLE
FUNDAMENTAL QUALITATIVE CHARACTERISTICS (2) 1. RELEVANCE 2. FAITHFUL REPRESENTATION
RELEVANCE (FUNDAMENTAL CHARACTERISTIC) information can make a difference to users of financial information (on previous exams) a. Predictive value – information can be used by users to help predict the future b. Confirmatory value – can be used to confirm previously reported information or cause it to be changed c. Material – information is material if its omission or misstatement can change a user’s decision  
FAITHFUL REPRESENTATION (FUNDAMENTAL CHARACTERISTIC) is true and correct a. Completeness – all information is reported b. Neutrality – information is not biased (objectively verified) c. Freedom form error - TRUE
ENHANCING QUALITATIVE CHARACTERISTICS (4) 1. COMPARABILITY 2. VERIFIABLE 3. TIMELINESS 4. UNDERSTANDABILITY
COMPARABILITY (ENHANCING CHARACTERISTIC) the same information should be reported each period
VERIFIABLE (ENHANCING CHARACTERISTIC) information can be objectively verified
TIMELINESS (ENHANCING CHARACTERISTIC) INFORMATION IS REPORTED TIMELY
UNDERSTANDABLE (ENHANCING CHARACTERISTIC) CLEARLY AND CONCISELY REPORTED
FOUR BASIC FINANCIAL STATEMENTS 1. CASH FLOW (OPERATING, FINANCING, INVESTING) 2. OWNER EQUITY 3. BALANCE SHEET (A,L,SE) 4. INCOME STATEMENT (R-E)
WHAT IS ON AN INCOME STATEMENT? *REVENUE - EXPENSES = NET INCOME *ONE COLUMN
WHAT IS ON A STOCKHOLDER EQUITY STATEMENT? 3 COLUMNS 1. COMMON STOCK 2. RETAINED EARNINGS 3. TOTAL SE
WHAT IS ON A BALANCE SHEET? 2 COLUMNS (A=L+SE) 1. ASSETS 2.0 LIABILITIES 2.1 SE
WHAT IS ON A TRIAL BALANCE? 3 COLUMNS 1. ACCOUNTS 2. DEBIT 3. CREDIT
ASSET EXAMPLES CASH ACCOUNT RECEIVABLE SUPPLIES EQUIPMENT PREPAID RENT
EXPENSE EXAMPLES RENT EXPENSE SUPPLIES EXPENSE SALARIES EXPENSE UTILITIES EXPENSE INTEREST EXPENSE
REVENUE EXAMPLES SERVICE REVENUE
LIABILITY EXAMPLES ACCOUNT PAYABLE SALARIES PAYABLE UTILITIES PAYABLE INTEREST PAYABLE NOTES PAYABLE DEFERRED REVENUE
STOCKHOLDER EQUITY EXAMPLES COMMON STOCK RETAINED EARNINGS
Created by: genechem