A304 Study Guide

School: Indiana University, Bloomington - Course: BUS A304 - Subject: Accounting

A304 Study Guide Here are a few commonly tested or commonly missed items: Agency Issues -Know why there is a need for financial information and be able to identify the various decision-makers. -Know the issues surrounding Principal-Agent Relationships. Define principal and agent. -For a given scenario identify the principal and agent, issue, and possible solution. Know the two primary issues (conflicting incentives and information asymmetry) and distinguish between adverse selection and moral hazard. -Give an example of how companies reduce conflicting incentives and information asymmetry between shareholders and company executives. Financial Reporting: -Identify the primary users of the financial statements and their need for information. -Be able to identify and distinguish the objective, qualitative characteristics, assumptions, and principles of GAAP financial reporting. -Know the purpose, contents, typical sections, and subtotals for the four basic financial statements. Be able to identify the proper heading (titles) for each statement. Know how the financial statements are interrelated (financial statement articulation). -Know the order of preparation of the financial statements. -The Statement of Cash Flows will not be tested on this exam. -Know that comparative financial statements show 2 years of Balance Sheet information (at a point of time) and 3 years of activity (for a period of time) for the other financial statements. -Know the importance and contents of the financial statement disclosures (footnotes). -Understand accrual accounting and how it differs from cash accounting. -Review the accounts used in the textbook and class notes for the chapters covered for this exam. What category does each account fall into and does the account have a normal balance of debit or credit? Note - the A304 Course Resources in Modules contains Account Classification and Chart of Accounts tools which are helpful study tools that list many of the accounts used this semester. -Be able to give an example of a contra-asset account and identify the appropriate debit/credit balance for these accounts. -Income tax expense in A304 is calculated as Net income before income tax * tax rate = Income tax expense. Income tax expense is reported on the income statement and reduces net income. -Distinguish between operating and non-operating revenues and expenses.

-Dividends declared reduces Retained earnings. If the dividends are paid immediately then cash is also decreased. If not, then dividends payable is recorded until the dividends are paid later. -Dividends declared are reported in the Retained Earnings column on theStatement of Stockholders' Equity. -The amount of dividends paid is reported on the Statement of Cash Flows. Unpaid dividends (dividends owed) at the end of the year are reported on the balance sheet. Dividends declared do not affect net income! -Understand common stock, par value, and additional paid-in capital. Transactions & the Accounting Cycle: -Know the purpose and the order of the steps in the accounting cycle. Be able to prepare a journal entry and adjusting entries, post to T- account, prepare trial balances, prepare the income statement, balance sheet, or statement of stockholders' equity. -Know how to analyze transactions to determine their effect on the accounting equation. -Understand when an economic transaction has occurred, or not. -Know how to make journal entries or adjusting journal entries for the transactions and adjustments that we discussed in class and online exercises. -How would the omission of a journal entry or adjusting entry affects the accounting equation and/or the financial statements (i.e., if the company did not make the entry, how would thataffect net income or liabilities, etc.?) -Given a journal entry or amounts posted to the T accounts, be able to infer and explain the transaction. -Know the purpose of adjusting entries and be able to distinguish between an accrual and deferral adjusting entry. -Know the closing process.