FIU Entrance Exam Prep
Prepared by: Maria Mari
FIU Entrance Exam Prep
Page 1 of 40
1
Covers:
§ Chapters 1 -15 in Warren/Reeve book
§ 100 multiple choice questions
§ 60% to pass
Chapter 1
What you need to know
...
FIU Entrance Exam Prep
Prepared by: Maria Mari
FIU Entrance Exam Prep
Page 1 of 40
1
Covers:
§ Chapters 1 -15 in Warren/Reeve book
§ 100 multiple choice questions
§ 60% to pass
Chapter 1
What you need to know
§ GAAP
§ FASB
§ Cost principle
§ Objectivity principle
§ Going-concern principle
§ Revenue Recognition principle
§ Business Entity Principle
§ Classification of Accounts
§ Accounting Equation
§ Financial Statements
Generally Accepted Accounting Principles (GAAP)
A set of rules for the preparation of accounting information
Financial Accounting Standards Board (FASB)
the authoritative body that has the primary responsibility for developing
accounting principles.
Accounting Principles and Concepts
Business Entity Concept
§ The activities of a business are recorded separately from the activities of
the stakeholders.
§ It limits the economic data in the accounting system to data related
directly to the activities of the business.
The Cost Concept
§ Is the concept that states that assets are entered at their cost.
§ Objectivity concept – requires that the accounting records and reports be
based upon the objective evidence.
§ Unit of measure concept – requires that economic data be recorded in
dollars.
The Going Concern Concept;
§ Prescribing that financial statements reflect the assumption that the business
will continue operations instead of being closed or sold.
The Revenue Recognition Concept;
§ Requires that revenue be recognized at the time it is earned
§ Allows the inflow of assets associated with revenue to be in a form other than
cash
FIU Entrance Exam Prep
Prepared by: Maria Mari
FIU Entrance Exam Prep
Page 2 of 40
2
§ Measures of the amount of revenue as cash plus the cash equivalent value of
any noncsh assets
The Accounting Equation:
Assets = Liabilities + Owner’s Equity
The accounting equation must always hold true!
Assets, Liabilities, and Owner’s Equity:
ASSETS – resources owned by the business
§ Cash
§ Accounts receivable – amounts owed by customers
§ Prepaid expense – assets to be used in the future {supplies, prepaid
insurance}
§ Merchandise Inventory – merchandise for sale in the course of
business
§ Equipment
§ Land
§ Building
LIABILITIES – rights of creditors or debts of the business
§ Accounts payable – amount owed to creditors
§ Dividends payable – amounts owed to shareholders
§ Accrued expenses
§ Mortgage payable
§ Notes payable
OWNER’S EQUITY (SHAREHOLDER’S EQUITY) – rights of
owners
§ Assets minus Liabilities
§ Capital stock – investment by shareholders
§ Retained earnings – earnings kept in the business
§ Dividends – distribution of income to shareholders
Revenue – income from the operation of the business
§ Sales
§ Fees earned
§ Commission income
Expenses – cost of doing business
§ Salaries expense
§ Rent expense
§ Depreciation expense
§ Miscellaneous expense
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