Acc 100 Exam Review

Chapter One Sole Proprietorship: A business with one owner (and is not a taxable entity) Partnerships: Owned by two or more individuals (also not a taxable entity) Non-business entities: organized for a purpose other than earning a profit Economic Entity Concept: Assuming that everything is accounted for in a business. Personal costs must be separate from the business. Operating Activities: “Day to day” activities Investing Activities: Purchase and sale of long-term assets Financing: Money needed to start a business Retained Earnings Equation: Beginning RE + Net Income – Dividends = Ending Retained Earnings Cost Principle: Assets are recorded at the cost to acquire them Going Concern: That a company will continue to operate in the near future 4 Fundamental Financial Statements 1.) Income Statement a. Reports the results from Operations in a specific period of time b. Revenues, expenses, and Net Income/Loss (Part of “performance”) 2.) Balance Sheet a. Shows the financial position of the company up to date b. Assets, Liabilities, and Shareholders’ Equity 3.) Cash Flow Statements a. Shows the movements of cash and cash consequences of transactions by the type of activity for a period of time. 4.) Statement of Retained Earnings a. Shows the changes in retained earnings for a specific period of time (format similar to equation) Income Statement => Statement of Retained Earnings => Balance Sheet => Cash Flow

Chapter Two Characteristics that make accounting information useful: - Understandability o The quality of accounting information that makes it comprehensive to those willing to spend the necessary time. - Relevance o The capacity of information to make a difference in a decision - Reliability o The quality that makes accounting information dependable in representing the events that it purports to represent  Verifiability  Representation faithfulness  Neutrality  Conservatism - Comparability o Allows for comparison to be made between or among companies -