BUS A201
EXAM 1 REVIEW SHEET

CHAPTER 1: An Introduction to Accounting
Definition of accounting and identify users of accounting information.
Role of Financial Accounting Standards Board (FASB) in establishing generally accepted accounting principles (GAAP).
Accounting theories underlying GAAP: cost principle, objectivity principle, monetary unit assumption, and economic unit assumption.
Identify components of the accounting equation: assets = liabilities + owners' equity.
Record effect of transactions on the accounting equation and financial statements using the +/- format.
Prepare four basic financial statements and understand what each statement discloses: income statement, statement of retained earnings, balance sheet, and statement of cash flows.
Classify cash flow transactions into the following categories: operating activities, financing activities, and investing activities.
Understand why the historical cost principle and matching concept are used under current US accounting standards and how the adoption of international standards will change the historical cost principle.
Know the components of an annual report.

CHAPTER 2: Accountinh for Accruals and Deferrals
Cash basis versus accrual basis accounting.
Understand why some accounts need to be adjusted prior to preparing financial statements under the matching concept.
Distinguish between accounting for accruals and accounting for deferrals.
Record adjusting entries for accruals using the +/- format: interest and salaries.

Record adjusting entries for deferrals using the +/- format: prepaid expenses (such as insurance), supplies, and unearned revenues (such as subscriptions).

CHAPTER 3: The Double-Entry Accounting System
Rules of debit and credit and identify normal balance of accounts.
Purpose of closing entries and a trial balance.
At this time, you do not need to record transactions in general journal format, post to t-accounts, nor prepare a trial balance.
Calculation and interpretation of return on assets ratio, debt to asssets ratio and return on equity ratios.