MBADM 811 – Exam 1 Study Guide
Background information – be able to explain:
 Who are the users of financial information (stakeholders in the company)
 Roles of the SEC and FASB
 What GAAP is
 The characteristics of useful financial information under GAAP
Financial statements – understand and recognize:
 Elements included in each financial statement (balance sheet, income statement, SE statement,
cash flow statement)
 Relationships among the financial statements
 Structure of a classified balance sheet and a multi-step (classified) income statement
o Know the order in which the line items are presented
 Be able to calculate net income, given transactions, account names, and/or income statement
line items
Accounting equation
 Be able to calculate amounts of missing elements of the accounting equation, given related
information
Accounts
 Identify given accounts as assets, liabilities, or stockholders’ equity
 Calculate the balance in an account, given the debits and credits for the accounting period
Retained earnings
 Be able to calculate retained earnings, given other elements of the financial statements
Transaction analysis
 For common transactions, analyze which areas of the accounting equation (and balance sheet)
increase or decrease
 Understand and recognize the two transactions that are recorded when inventory is sold
Debits and credits
 Know the accounting meaning of debit and credit
 Know the normal balance of specific accounts (whether an account increases on the debit or
credit side)
o Conversely, know whether the account decreases on the debit or the credit side
Journal entries
 Know how a journal entry is structured
 Be able to recognize and interpret a journal entry for a given transaction
T-accounts
 Be able to interpret T-account notation
 Given numerical information, be able to calculate the balance or the missing increase or
decrease in an account
Accounting cycle
 Know the general order of steps in the accounting cycle
 Understand the structure and purpose of the three trial balances in the accounting cycle
Accrual vs. cash accounting
 Given a transaction, determine the amount of revenue or expense recognized on the income
statement for the relevant accounting period
 Determine the amount of cash flows from transactions
 Understand the difference between accrual and cash accounting
Adjusting journal entries
 Understand and recognize when and why adjusting entries are needed
 Understand the effects of adjusting entries on accounts and financial statements
 Determine the appropriate accounts and amounts to debit or credit in an adjusting entry in a
given circumstance
 Determine which areas of the accounting equation are affected when an adjusting entry is not
recorded
Closing process
 Understand and explain the purpose of closing the temporary accounts
 Be able to interpret and recognize closing journal entries
 Understand how net income is added to retained earnings via closing entries