Exam 1 BMGT221 Review

BMGT220 Exam 1 Review
Sarbanes-Oxley Act of 2002 (SOX) – Est. a new oversight body called Public Company
Accounting Oversight Board (PCAOB)
Generally Accepted Accounting Principle (GAAP) – primarily developed by the Financial

Accounting Standards Board (FASB)
SEC – Has authority over the accounting & financial disclosures for companies whose stock
are public
Internat’l Accounting Standards Board – develop generally accepted accounting principles

outside the USA
Proprietorship – business entity owned by 1
Partnership – business entity owned by 2 or more
Corporation – separate entity divided into shares
Limited Liability Company (LLC) – partnership/corp. hybrid
Business Entity Concept – states that a bizz is viewed as separate
Cost Concept – states amounts are recorded at cost or purchase price
Objectivity Concept – states that the amounts recorded be based on objective evidence
Unit of Measure Concept – states that econ. Data be recorded in dollars
Accounting Equation: A=L+E
Stockholder Equity is increased by: Capital stock & revenues

 Decreased by: expenses & dividends
Income Statement – revenues & expenses for a pd. of time
Retained Earnings – change in retained earnings for a pd. of time
Balance Sheet – assets, liabilities, & Stockholder’s equity for a specific date
Statement of Cash Flows – summary of cash receipts & cash payments for a pd of time
Matching Concept – expenses incurred & revenue those expenses generated are matched
Order of Financial Statements – Income statement, Retained Earnings, Balance sheet &
statement of cash flows
Operating Activities – cash flow
Investing Activities – perm assets
Financing Activities – stockholders, borrowings, dividends
Ratio of liabilities to stockholder’s equity: liabilities/ S. Eq (the lower the better)
Posting – the transfer of Dr & Cr from journal entries to the accounts
Transposition – when the order of the digits is copied incorrectly
Slide – entire # is copied incorrectly 1 or more spaces to the right or left
Horizontal Analysis – item on a financial statement is compared w/ the same item on an

earlier statement
Accounting Period Concept – revenues & expenses are reported in the proper pd
Accrual Basis of Accounting – revenues are reported on the income statement in the pd in
which they are earned
Revenue Recognition Concept – revenues are reported when they are earned, when most of
the work has been done
Cash Basis of Accounting – revenues & expenses are reported when cash is received/paid
Prepaid Expenses – advanced payment of future expenses, recorded as assets when cash is
paid
Unearned Revenues – advanced receipt of future revenues, recorded as liabilities when cash
is received
Accrued Revenues – unrecorded revenues that have been earned by cash has not yet been
received
Accrued Expenses - unrecorded expenses that have been incurred but cash has not yet been
paid
Accumulated Depreciation: Contra Asset account

Journal Entry for Depreciation of Office Equipt: Depreciation Expense XXX
Accumulated Depreciation XXX
Book Value – Cost of the asset that has not yet been depreciated
Vertical Analysis – comparing each item in a FS w/a total amount from the same statement
BICE – Adjusting Process – 1 Balance Sheet Account, 1 Income Statement account, never
Cash, End of accounting pd
Deferrals – prepaid expense & unearned revenue  cash later
Accruals – accrued expense & accrued revenue

 Accruals do NOT require: an original entry; just an adjusting entry
Interest per Year: Principle x Rate x Time (1yr=360 days)
Perpetual Inventory System - each purchase & sale of merch is recorded in the inventory
account & related subsidy ledger
Buyers Journal Entry when repaying w/ purchase discount: Accounts Payable XXX
Cash XXX
Merch Inv. XXX
Sales made w/ credit cards are recorded as: Cash sales
Journal entry for processing fees for credit cards: Credit Card Expense XXX
Cash XXX
Seller’s journal entry when receiving payment w/sales discount: Cash XXX
Sales Discounts XXX
Act. Rec. XXX
Sales discounts = Contra Sales account (inc w/debit)
Seller’s Journal Entry for returns: Sales Returns & Allowances XXX
Act. Rec. XXX
Merch. Inv. XXX
Cost of Merch Sold XXX
FOB Shipping Point – buyer pays the freight costs
FOB Destination – seller pays the freight costs

Journal Entry for seller collecting sales tax & paying it off: Act Rec. XXX
Sales XXX
Sales Tax Payable XXX
Sales Tax Payable XXX
Cash XXX
Sales – Sales Returns – Sales Discounts = Net Sales
Net Sales – Cost of Merchandise Sold = Gross Profit
Gross Profit – Operating Expenses = Income from Operations
Income from operations + other revenues – other expenses = Net Income
Closing Entries (4) –

1. Dr each temporary account w/a Cr balance
2. Cr each temporary account w/a Dr balance
3. Dr Income Summary for the amount of its balance & Cr Retained Earnings
Ratio of Net Sales to Assets = Net Sales/Avg Total Assets (higher is better)
Cost of beginning inventory + Net purchases = Cost of Goods Available
Costs of goods available – cost of goods sold = Ending Inventory
W/returns, Seller’s account affected if merch NOT defective is: Dr. Merch Inventory
W/returns, Seller’s account affected if merch defective is: Cr. Costs of Goods Sold
Account type for cost of goods sold = expense

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BMGT220 Exam 1 Review

Generally Accepted Accounting Principle (GAAP) – primarily developed by the Financial

Internat’l Accounting Standards Board – develop generally accepted accounting principles

Proprietorship – business entity owned by 1

Partnership – business entity owned by 2 or more

Corporation – separate entity divided into shares

Limited Liability Company (LLC) – partnership/corp. hybrid

Business Entity Concept – states that a bizz is viewed as separate

Cost Concept – states amounts are recorded at cost or purchase price

Unit of Measure Concept – states that econ. Data be recorded in dollars

Accounting Equation: A=L+E

Stockholder Equity is increased by: Capital stock & revenues

Income Statement – revenues & expenses for a pd. of time

Retained Earnings – change in retained earnings for a pd. of time

Operating Activities – cash flow

Investing Activities – perm assets

Financing Activities – stockholders, borrowings, dividends

Ratio of liabilities to stockholder’s equity: liabilities/ S. Eq (the lower the better)

Posting – the transfer of Dr & Cr from journal entries to the accounts

Transposition – when the order of the digits is copied incorrectly

Slide – entire # is copied incorrectly 1 or more spaces to the right or left

Horizontal Analysis – item on a financial statement is compared w/ the same item on an

Accumulated Depreciation: Contra Asset account

Deferrals – prepaid expense & unearned revenue  cash later

Accruals – accrued expense & accrued revenue

Interest per Year: Principle x Rate x Time (1yr=360 days)

Sales made w/ credit cards are recorded as: Cash sales

Sales discounts = Contra Sales account (inc w/debit)

FOB Shipping Point – buyer pays the freight costs

FOB Destination – seller pays the freight costs

Sales – Sales Returns – Sales Discounts = Net Sales

Net Sales – Cost of Merchandise Sold = Gross Profit

Gross Profit – Operating Expenses = Income from Operations

Income from operations + other revenues – other expenses = Net Income

Closing Entries (4) –

Cost of beginning inventory + Net purchases = Cost of Goods Available

Costs of goods available – cost of goods sold = Ending Inventory

Account type for cost of goods sold = expense

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