Acc 561 Week 2 Financial Accounting Essay
Lecture 2: Study Week 2
The Accounting Equation & the Double Entry System
Objectives for today
1. Analyzing transactions using the Accounting Equation 2. Next Week: How do firms actually measure Income?: Accrual vs. Cash Accounting g 3. Next Week: Determine when a company should record revenues and Expenses: The Matching Principle
The Operating Cycle
Start with cash and end with more cash
Collect cash from customers
Purchase inventory
Make sales to customers
The Recording Process
The sequence of five steps in recording and reporting transactions is as follows:
Transactions Documentation
Journal
Ledger
Trial Balance
Financial Statements
Source documents are the original records of any transaction …show more content…
Credit / Cr.
Normal Balance
Normal Balance
Normal Balance
Chapter 3-25
Chapter 3-25
Chapter 3-23
Revenues & Expenses
Revenue
Debit / Dr. Credit / Cr.
The purpose of earning revenues is to benefit the shareholders.
Normal Balance
Chapter 3-26
Expense
Debit / Dr. Credit / Cr.
The effect of debits and credits on revenue accounts is the same as their effect on equity.
Normal Balance
Expenses have the opposite effect: expenses decrease equity.
Chapter 3-27
Revenues & Expenses
Revenues result from business activities entered into for the purpose of earning income. Generally results from selling merchandise, performing services, renting property, and lending money. Expenses are the cost of assets consumed or services used in the process of earning revenue. Common expenses are salaries expense, rent expense, utilities expense, tax expense, etc. Dividends are the distribution of cash or other assets to shareholders.
Reduce retained earnings Not an expense
DoubleDouble-Entry Rules
Assets
ASSETS
=
Liabilities
LIABILITIES
+
Equity
EQUITIES
Debit
+
Credit
-
Debit
-
Credit
+
Debit
-
The Accounting Equation & the Double Entry System
Objectives for today
1. Analyzing transactions using the Accounting Equation 2. Next Week: How do firms actually measure Income?: Accrual vs. Cash Accounting g 3. Next Week: Determine when a company should record revenues and Expenses: The Matching Principle
The Operating Cycle
Start with cash and end with more cash
Collect cash from customers
Purchase inventory
Make sales to customers
The Recording Process
The sequence of five steps in recording and reporting transactions is as follows:
Transactions Documentation
Journal
Ledger
Trial Balance
Financial Statements
Source documents are the original records of any transaction …show more content…
Credit / Cr.
Normal Balance
Normal Balance
Normal Balance
Chapter 3-25
Chapter 3-25
Chapter 3-23
Revenues & Expenses
Revenue
Debit / Dr. Credit / Cr.
The purpose of earning revenues is to benefit the shareholders.
Normal Balance
Chapter 3-26
Expense
Debit / Dr. Credit / Cr.
The effect of debits and credits on revenue accounts is the same as their effect on equity.
Normal Balance
Expenses have the opposite effect: expenses decrease equity.
Chapter 3-27
Revenues & Expenses
Revenues result from business activities entered into for the purpose of earning income. Generally results from selling merchandise, performing services, renting property, and lending money. Expenses are the cost of assets consumed or services used in the process of earning revenue. Common expenses are salaries expense, rent expense, utilities expense, tax expense, etc. Dividends are the distribution of cash or other assets to shareholders.
Reduce retained earnings Not an expense
DoubleDouble-Entry Rules
Assets
ASSETS
=
Liabilities
LIABILITIES
+
Equity
EQUITIES
Debit
+
Credit
-
Debit
-
Credit
+
Debit
-