HFT 2403
Financial Accounting
Exam 1 Review
Summer 2006
Chapters 1 & 2
 Definitions of accounting principles
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Cost Principle
Economic (Business) Entity
Continuity of the Business Unit (Going Concern)
Monetary Unit of Measurement
Objective Evidence
Full Disclosure
Consistency
Matching (Revenue & Expense Recognition)
Conservatism
Materiality
Time Period
Chapters 1 & 2
 Fundamental Accounting Equation
– Assets = Liabilities + Equity
– Assets – Liabilities = Equity
– Assets – Equity = Liabilities
– Equity = Permanent + Temporary Owners
Equity
– Temporary Owners Equity = Revenue Expenses
Chapters 1 & 2
 Cash Basis vs. Accrual Accounting
– When are revenues and expenses recorded?
 Advantages & Disadvantages of:
– Sole Proprietorship
– Partnership
– Corporation
– S Corporation
Chapter 3
 Debit vs. Credit (Left vs. Right)
 Types of accounts and their definitions – Asset, Liability,
Equity, Revenue, Expense (See p 27, Glossary Chapter 1.)
 Normal Balances
 Assets – Increase by debit, decrease by credit
 Liability & Equity - Increase by credit, decrease by debit
 Revenue – Increase by credit, decrease by debit
 Expense – Increase by debit, decrease by credit
 Trial Balance
Chapter 4
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What is an adjusting entry?
Definition of depreciation
Accrual vs. cash basis accounting
Effects on financial statements for failing to
prepare entries (see chart from handout)
– Similar to handout problem
Chapter 5
 Nominal vs Permanent Accounts
 Preparing an adjusted trial balance
 Closing adjusted trial balance to balance
sheet and income statement
 Closing net income
– See handout problem
Final Note
Bring a calculator!!!
Cell phone calculators not permitted.
You may want to use pencil rather than pen.
Questions?