HFT 2403 Financial Accounting Exam 1 Review Summer 2006

Chapters 1 & 2  Definitions of accounting principles –Cost Principle –Economic (Business) Entity –Continuity of the Business Unit (Going Concern) –Monetary Unit of Measurement –Objective Evidence –Full Disclosure –Consistency –Matching (Revenue & Expense Recognition) –Conservatism –Materiality –Time Period

Chapters 1 & 2  Fundamental Accounting Equation –Assets = Liabilities + Equity –Assets – Liabilities = Equity –Assets – Equity = Liabilities –Equity = Permanent + Temporary Owners Equity –Temporary Owners Equity = Revenue - Expenses

Chapters 1 & 2  Cash Basis vs. Accrual Accounting –When are revenues and expenses recorded?  Advantages & Disadvantages of: –Sole Proprietorship –Partnership –Corporation –S Corporation

Chapter 3  Debit vs. Credit (Left vs. Right)  Types of accounts and their definitions – Asset, Liability, Equity, Revenue, Expense (See p 27, Glossary Chapter 1.)  Normal Balances  Assets – Increase by debit, decrease by credit  Liability & Equity - Increase by credit, decrease by debit  Revenue – Increase by credit, decrease by debit  Expense – Increase by debit, decrease by credit  Trial Balance

Chapter 4  What is an adjusting entry?  Definition of depreciation  Accrual vs. cash basis accounting  Effects on financial statements for failing to prepare entries (see chart from handout) –Similar to handout problem

Chapter 5  Nominal vs Permanent Accounts  Preparing an adjusted trial balance  Closing adjusted trial balance to balance sheet and income statement  Closing net income –See handout problem

Final Note Bring a calculator!!! Cell phone calculators not permitted. You may want to use pencil rather than pen. Questions?