Accounting Test Chapters:1, 2, 6

Investor

Shareholder

Supplier

Credit Holder

Regulatory Agency

General Accepted Accounting Principles

GAAP ARE PRINCIPLES OR GUIDELINES

The Generally Accepted Accounting Principles are basically guidelines that tell us what to do, they are like rules.

Publicly traded companies have to follow GAAP.

As asset is a resource used to generate revenue.

Examples of revenue are:

• cash
• inventory
• equipment
• plant

A liability is an obligation, or amount owed to another company

PROBABLY FUTURE SACRIFICE

Accounting rules used to prepare, present, and report financial statements for a wide variety of entities.

GAAP ARE PRINCIPLES OR GUIDELINES

GAAS are standards that tell accountants what the standards require and what work will need to be done in performing an audit.

STANDARDS BY WHICH WE WILL AUDIT

A Balance Sheet is a snapshot of a point in time of the assets, liabilities and owners equity.

An Income Statement shows if the company operated for a profit during the period of time in consideration. The income statement will always list the time period in the title.

1. Assets
2. Liabilities
3. Owners Equity

• Statement of Earnings
• Profit and Loss Statement
• Statement of Operations

Period ending in __________

Ex; For the Year Ended 08/31/2011

FASB...authoritative stamdard setting body within the accounting professionals.

SEC....authority to establish acctg principles for firms registered w/SEC.

AICPA...profesional member org that CPA's belong to.

PCAOB...has authority to set and enforce auditing and ethics standards.

Unqualified Opinion, is regarded by many as the equivalent of a “clean bill of health” or a "thumbs up".

Assets - Liabilities = Owners Equity

Net Assets = Owners Equity

Revenue

Gains/Losses

Expenses

Asset acct - Normal Balance Left Side

Liabilities - Normal Balance Right Side

OE - Normal Balance Right Side

Current asset  < 12 months

Current liabilities < 12 months

Long Term asset > 12 months

Long Term liabilities > 12 months

List of account names with type of asset: current/non current

• cash is a current asset
• inventory is a non current asset
• accounts receivable is a current liability
• what are non current liabilities
• accts payable are always considered short term
• inventory are current assets
• equipment is non curent asset

Increases

ASSETS=LIABILITIES + OWNERS EQUITY

or ALOE

Economic Event triggers Journal Entry triggers Balance Sheet triggers Income Statement triggers Cash Flow .

IS triggers Net Income triggers Retained Earnings flowing back to BS.

GAAP General Accepted Accounting Principles. THEY ARE  PRINCIPLES.

• Integrity
• Be Objective
• Independence

or OII!

Balance Sheet- listing of org. assets, liabilities & OE at a point in time!

1. Assets
2. Liabilities
3. Owners Equity

Asset is a resource that the company uses to generate revenue. Examples:

1. Cash
2. Inventory
3. Equipment
4. Plant

1. Assets
2. Liabilities
3. Owners Equity

Net Income = R - E + G - L

Net Income = Revenues - Expenses + Gains - Losses

Date and for period ending

Sum of net sales

- Cost of Goods Sold

PG 50 CHART

Retained earnings + net income - dividends = ending retained earnings

Cash Flows

exhibit 2-4 Know the 3 categories on page 51

Net Income = Revenues - Expenses

N I R E (DONT WALLOW IN THE NIRE (NOT MIRE)

INCOME - WALLOW - NIRE

PCAOB over

GAAS over

GAAP

Economic Event _ JE: IS _ BS _ CF

                                      NI _ RE

• Common stock
• Retained earnings
• Dividends are subtracted from retained earnings
• They equal each other or xx = xx

Matching Principle

They are treated as an expense

They are on Income Statement

Gross Profit

Revenues

- Expenses

_______________

NET Income

Beginning RE

+ NI

- DIV

-----

Ending RE

Ethics:

Objective

Integrity

Independence