Accounting Chapter 3
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The Accounting Information System
The system of collecting and processing transaction data and communicating financial information
The type of economic events that need to be recognized or recorded are called accounting transactions.
Basic accounting Equation
Assets = liabilities + Stockholders equity
Is the process of identifying the specific effects of economic events on the accounting equation.
Retained Earnings Equals
Revenues - Expenses - Dividends
Notes Payable is a...
Common Stock is a
Stock holder Equity
Unearned Service Revenue is a
Cash payment for work that has yet to be completed.
Therefore a payment of $ 1,200 for a website to be built is a credit to unearned service revenue as well as a $ 1,200 credit to cash.
Go under both Assets and Stock holders Equity because Revenue increases Stockholders Equity.
For example: If a company receives a 10,000 check for services, the 10,000 would be credit in the Cash section under Assets
the 10,000 would also be credited in the revenue section under the retained earnings section which is under Stock Holders Equity.
Pre Paid Insurance is a
Payment of Rent is a
Rent is an expense incurred by Sierra Corporation in its effort to generate revenues. Expense decreases Stock holders equity & Cash.
For example: ABURA Enterprise pays 900 in rent on the analysis sheet we would Credit Cash and Debit expenses - under retained earnings which is under stock holders equity-.
Prepaid Expense or Prepaid Insurance
When a company purchases an insurance policy that will affect the company for more then one billing period these are unidentified as Prepaid under assets
for example: if a company paid 600 dollars for a one year insurance policy then cash would be credited 600 and prepaid insurance would be debited by 600 dollars.
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