Accounting : Chapter 2

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Author:
neKen
ID:
249307
Filename:
Accounting : Chapter 2
Updated:
2013-11-27 03:51:07
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Accounting
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Description:
Chapter 2 - Reporting Investing and Financing Results on the balance sheet
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  1. assets = liabilities + shareholders' equity
    (A) economic benefit - things = (L) debts + (SE) investment and reinvestment of shareholders
  2. 2 sources of financing
    equity - issues stock and debt - obtain loan
  3. how can assets can be obtain?
    can be obtain by cash or on account - require to operate the business
  4. transaction
    events or activities that have a direct and measurable financial effect on the asset/liability/shareholder equity of a business involve
  5. external exchanges
    assets/liabilities/shareholders between the company and someone else
  6. internal events
    • occur within the company
    • for example, using assets to create an inventory product
  7. apply transaction analysis
    analyze -> record -> summarize
  8. analyze -> record -> summarize
    duality of effects - transaction has at least 2 effects on the basic accounting equation
  9. chart of accounts
    summary of all account used to record financial results
  10. promises
    • exchange of only promises is not a transaction
    • does not affect the accounting equation
  11. journal
    record the effect of each day's transactions; organized by date
  12. ledgers
    summarize the effects of journal entries on each account; organized by account
  13. increase/decrease using debit/credit on asset/liability/shareholders' equity
    (+Dr) assets (-Cr) = (-Dr) liabilities (+Cr) + (-Dr) Shareholders (+Cr)
  14. journal entries
    record transaction and indicate the effects in a debits-equal-credit format
  15. t - accounts
    simplified version of a ledger account used for summarizing the effects of journal entries
  16. trial balance
    internal report that lists all accounts and their balance, and provides a check on debits = credits
  17. classified balance sheet
    shows subtotal for current assets and current liabilities
  18. current assets
    used up or converted into cash within 12 months
  19. current liabilities
    obligation that will be paid/settle/fulfilled within 12 months
  20. noncurrent (long term)
    asset/liabilities that do not meet the definition of current
  21. current ratio
    • show whether current assets are sufficient to pay current liabilities
    • higher ratio mean better ability to pay
    • = current assets/current liabilities
  22. balance sheet concepts and values
    • report what a company own and owes
    • does not show the company is worth
    • recorded at cost
  23. convervatism
    lead to recording decreases in assets value, but generally not increases

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