taken in Lieu of ACC 221

The Financial Accounting Cycle Proficiency Exam (taken in Lieu of ACC 221)
The paper and pencil exam consists of multiple-choice problems, writing accounting journal entries, and
preparing an Income Statement, Statement of Changes in Owner’s Equity, and a Balance Sheet from a
Trial Balance worksheet. A 75% score is required to pass the exam. If the waiver exam is not passed,
enrollment in ACC 221 is required.
To perform well on this exam, you need to:
Know the fundamental accounting equation (Assets = Liabilities + Equities) and the
meaning of each of those terms
Understand the essential characteristics of accrual accounting – be able to apply the
matching principle to identify when revenue is earned and when an expense is incurred
Be able to describe the effect of each of the following types of transactions on the
accounting equation above (identify which equation components decrease or increase)
and to record that effect in standard debit/credit journal entry format:
o Exchange of one asset for another (e.g. collection of accounts receivable or
purchase of equipment for cash).
o Acquisition of an asset in exchange for a promise to pay later (e.g. purchase of
inventory ‘on account’).
o Using an asset to ‘extinguish’ a liability (e.g. paying a bill/account payable owed
to a creditor).
o Receipt of assets from investors (e.g. addition of owner’s investment in the
business or issuance and sale of a new stock offering to the public).
o Earning revenue by receiving an asset such as cash or accounts receivable (a
cash or credit scale).
o Incurring expenses either by using an asset (e.g. paying a utility bill with cash or
recognizing the use of equipment through depreciation) or by promising trio
provide an asset later (incurring a liability such as A/P).
Know the basic components of and commonly used accounts that collect information
used to prepare the Income Statement.
Know the basic components of and commonly used accounts that collect information to
prepare the Balance Sheet and the Statement of Owner’s Equity.
Know how revenues and expenses affect Equity through Retained Earnings
Know the basic categories of Owner’s Equity for corporations.
Know how to determine changes to owner’s equity including profits (net income), and
owner investments and dividends.
Know how to compute depreciation expense (using the straight-line method) and how
to calculate interest expense.
ACC Waiver Info- updated 05/2011
Know how to record economic transactions using the standard Journal Entry format (i.e.
using debits and credits) and be able to relate those entries to the fundamental
accounting equation.
Know which accounts carry a normal debit balance and which carry a normal credit
Be able to distinguish temporary from permanent accounts.
Know how journals are used to record transactions, and how transactions are posted
from journals to subsidiary ledgers and the General Ledger (G/L). Know how subsidiary
ledgers and special journals are used.
Be able to prepare adjusting and closing entries, and to prepare a Multi-step Income
Statement and a Classified Balance Sheet from an adjusted Trial Balance. Know how the
Income Statement and Balance sheet articulate.
Note: although purchase discounts can be deducted from the cost of inventory when that
inventory is obtained (thereby included in COGS when those inventory items are sold), when a
company maintains a separate ‘Purchase Discounts Taken’ account, the balance in that account
is deducted from the Cost of Goods sold when preparing financial statements – it is NOT a contra
asset account.
Know the following basic business documents and their use:
o Purchase Order
o Vendor Invoice
o Receiving Report
o Customer Invoice
o Sales Receipt
Know the meaning of standard business terms used in accounting such as:
o 2/10, net 30
o FOB origin
o FOB destination
Two texts that you may find useful for review and study are:
 Gregory Mostyn. 2007. “Basic Accounting: Concepts, Principles, and
Procedures”, Vol 1
 “Building the Conceptual Foundation”. Worthy & James publishing
(specifically the Learning Goals 1 – 19 and 24 of Vol. 2.)
Both texts can be ordered on-line at WWW.worthyjames.com
ACC Waiver Info- updated 05/2011