Part 1:
1. What is the accounting equation? Suppose your company paid $6,000 in cash for its rent. How does this transaction impact the accounting equation?
2. What are the four basic financial statements? Describe the balance sheet, and explain why it is important.
3. What is the Sarbanes-Oxley Act? Why is it important to accounting investors?
4. How does vertical analysis of financial statements differ from horizontal analysis? Which method do you think is a better analysis tool?
Part 2:
1. Why is capital budgeting important? What is the cash payback period? How is it calculated?
2. What are five different types of decisions that could use incremental analysis? What are the factors to be considered in retaining or replacing equipment?
3. How is a transfer price determined? Describe the cost-based method. Do you think it is better than the market-based method?
4. What are direct materials? Give an example of a direct material. How do direct materials differ from indirect materials? Give an example of an indirect material.
Part 3:
1. What is the formula for margin of safety? What does this formula tell a company? Why is this important to know?
2. What is a budget? How does this differ from a long-term plan? Which do you think is more important to do if you can only prepare one of them?
3. What is responsibility accounting? What is a cost center? How does a cost center differ from a profit center?