FIU Entrance Exam Prep

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