Accounting 201 Final Exam Cheat Sheet

Accounting 201 Final Exam Cheat Sheet: Your Ultimate Guide to Success

Preparing for your Accounting 201 final exam can be daunting. This comprehensive cheat sheet covers key concepts and formulas to help you ace the exam. Remember, this is a supplement to your studies; it's crucial to understand the underlying principles, not just memorize formulas.

I. Fundamental Accounting Concepts

A. The Accounting Equation: The Foundation of All Accounting

The accounting equation is the bedrock of financial accounting: Assets = Liabilities + Equity. Understanding this equation is paramount.

• Assets: What a company owns (e.g., cash, accounts receivable, inventory, equipment).
• Liabilities: What a company owes to others (e.g., accounts payable, loans payable, salaries payable).
• Equity: The owners' stake in the company (for corporations, this is retained earnings and contributed capital; for sole proprietorships, it's the owner's capital account).

Understanding the relationships: Any transaction affects at least two accounts to maintain the balance of the accounting equation. For example, if a company purchases equipment with cash, cash (asset) decreases, and equipment (asset) increases.

B. Debits and Credits: The Language of Accounting

Every accounting transaction is recorded using debits and credits. The rules are fundamental:

• Debits increase assets, expenses, and dividends. They decrease liabilities, equity, and revenues.
• Credits increase liabilities, equity, and revenues. They decrease assets, expenses, and dividends.

Think of it like this: Debits on the left and Credits on the right. The total debits must always equal the total credits in each transaction and on every financial statement.

Mnemonic device: "DEAD CLIC" (Debits increase Expenses, Assets, and Dividends; Credits increase Liabilities, Income, and Capital).

C. The Accounting Cycle: A Step-by-Step Process

The accounting cycle summarizes the steps involved in recording and reporting financial information.

1. Analyze transactions: Identify the accounts affected and how.
2. Journalize transactions: Record transactions in a journal (chronological order).
3. Post to the ledger: Transfer journal entries to the general ledger (accounts organized by type).
4. Prepare a trial balance: Verify that debits equal credits.
5. Adjusting entries: Make necessary adjustments at the end of the period (e.g., accruals, deferrals).
6. Adjusted trial balance: A trial balance after adjusting entries are made.
7. Prepare financial statements: Create the income statement, statement of retained earnings, balance sheet, and statement of cash flows.
8. Closing entries: Transfer temporary account balances (revenues, expenses, dividends) to retained earnings.
9. Post-closing trial balance: A final trial balance to ensure accuracy after closing entries.

II. Financial Statements

A. Income Statement: Measuring Profitability

The income statement reports a company's financial performance over a specific period. The basic formula is:

Revenue - Expenses = Net Income (or Net Loss)

• Revenue: Inflows from the sale of goods or services.
• Expenses: Outflows related to generating revenue.
• Net Income: Revenue exceeds expenses.
• Net Loss: Expenses exceed revenue.

Key components: Gross profit, operating income, net income before taxes, net income.

B. Balance Sheet: A Snapshot of Financial Position

The balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time. It always follows the accounting equation:

Assets = Liabilities + Equity

• Current Assets: Assets expected to be converted to cash within one year (e.g., cash, accounts receivable, inventory).
• Non-current Assets: Assets with a lifespan exceeding one year (e.g., property, plant, and equipment).
• Current Liabilities: Obligations due within one year (e.g., accounts payable, salaries payable).
• Non-current Liabilities: Long-term obligations (e.g., long-term debt, bonds payable).

C. Statement of Cash Flows: Tracking Cash Movement

The statement of cash flows shows how a company's cash changed during a period. It's categorized into three activities:

• Operating Activities: Cash flows related to the company's main operations (e.g., cash from sales, payments to suppliers).
• Investing Activities: Cash flows related to investments (e.g., purchase of equipment, sale of investments).
• Financing Activities: Cash flows related to financing (e.g., borrowing money, issuing stock, paying dividends).

D. Statement of Retained Earnings: Tracking Equity Changes

The statement of retained earnings tracks changes in a company's retained earnings over time.

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

This statement links the income statement to the balance sheet.

III. Cost Accounting

A. Cost Classifications: Direct vs. Indirect Costs

Understanding cost classification is crucial for cost accounting.

• Direct Costs: Costs directly traceable to a product or service (e.g., direct materials, direct labor).
• Indirect Costs: Costs that cannot be directly traced (e.g., manufacturing overhead).

B. Costing Methods: Different Approaches to Cost Calculation

Several costing methods exist, each with its own advantages and disadvantages:

• Job-order costing: Used when individual jobs or projects are distinct.
• Process costing: Used for mass production of homogenous products.
• Activity-based costing (ABC): Allocates overhead costs based on activities.

Understanding the calculation of cost of goods sold (COGS) is also crucial.

IV. Key Ratios and Formulas

Several key ratios help analyze a company's financial health. These include:

• Current Ratio: Current Assets / Current Liabilities (liquidity)
• Quick Ratio: (Current Assets - Inventory) / Current Liabilities (liquidity)
• Debt-to-Equity Ratio: Total Debt / Total Equity (leverage)
• Gross Profit Margin: (Revenue - COGS) / Revenue (profitability)
• Net Profit Margin: Net Income / Revenue (profitability)
• Return on Assets (ROA): Net Income / Total Assets (profitability)
• Return on Equity (ROE): Net Income / Total Equity (profitability)

V. Important Considerations

• Understand the difference between accrual and cash accounting. Accrual accounting recognizes revenue and expenses when earned or incurred, regardless of cash flow. Cash accounting recognizes revenue and expenses when cash changes hands.
• Master the basics of journal entries and T-accounts. These are the fundamental building blocks of accounting.
• Practice, practice, practice! Work through as many practice problems as possible. The more you practice, the more confident you'll become.
• Seek help when needed. Don't be afraid to ask your professor, TA, or classmates for help if you're struggling with a concept.

This cheat sheet is a starting point. Your textbook, lecture notes, and practice problems are essential resources for comprehensive preparation. Remember to thoroughly review all concepts and practice problems to ensure a successful outcome on your Accounting 201 final exam. Good luck!