Week 3
Week 3
Week 3
Who are the primary users? What is the accounting equation? What are the accounting assumptions Name the financial statements and components What are the main income measures to watch? How can you tell if the company can pay their debt?
Transaction
A transaction is any event that has financial impact on the business Can be measured Provide objective information Must be able to assign $ amount to transaction
The Account
The account summarizes the changes that occur in the accounting equation:
Liabilities
What the company owes
+ Equity
What the company owes the owners
The Account
Assets are economic resources that benefit the business now and in the future Cash Accounts receivable Inventory Notes receivable Prepaid expenses Land Buildings Equipment, furniture, and fixtures
The Account
Liabilities are the debts of the company. Bank loan Notes payable Accounts payable Accrued liabilities (for expenses incurred but not paid) Long-term liabilities (bonds and mortgages)
The Account
Shareholders equity represents the claims to the assets of the company.
Contributed capital common shares Retained earnings accumulation of net income minus net losses and dividends
Accounting Cycle
1. Transaction occurs 2. Analyze the transaction 3. Record in a journal 4. Transfer to general ledger 5. Trial Balance
Learning Objective 1
Analyze transactions
A transaction is an event that both affects the financial position of the business entity and can be reliably recorded.
Total assets
$ 75,300
Question #2
During the year, ABC Co. had revenues of $75 and expenses of $40. Total liabilities at year end amounted to $105 and at the start of the year total owners equity was $45. What are the total assets at year end? a. b. c. d. $225 $185 $150 $145
Double-Entry Accounting
Double-entry bookkeeping uses debits and credits to record the dual effects of each business transaction. Assets = Liabilities + Shareholders Equity
The T-Account
Account Title Debit Credit
LEFT SIDE
RIGHT SIDE
Debit Credit +
Debit Credit +
Debit Credit +
Debit
70,000 70,000
Question #3
A transaction caused a $10,000 decrease in both total assets and total liabilities. This transaction could have been: a. Purchase of a delivery truck for $10,000 cash b. An asset with a cost of $10,000 was destroyed by fire c. Repayment of a $10,000 bank loan d. Collection of a $10,000 account receivable
Transaction Occurs
Transaction Analyzed
=
(9)
LIABILITIES
Accounts Payable 500 (3) Bal. 750 250
Accounts Receivable 4,200 (7) 1,250 2,950 Office Supplies 750 750 Land 50,000 50,000
SHAREHOLDERS EQUITY
(8) Bal.
REVENUE
Service Revenue (4) (5) Bal. 6,750 4,200 10,950 (6) Bal. (6) Bal. (6) Bal.
EXPENSES
Rent Expense 1,500 1,500 Salary Expense 1,400 1,400 Utilities Expense 500 500
Trial Balance
A trial balance lists all accounts with their balances assets first, followed by liabilities, and then shareholders equity.
DEBITS
CREDITS
$ 2,500
_______ $81,200
Which of the following errors is detected by preparing a trial balance: a. Recording a cash sale with a debit to Accounts receivable and a credit to Sales Revenue b. Recording of a payment on an electric bill with a debit to Delivery Trucks and a credit to Common stock c. Recording a credit purchase of tools with a debit to Equipment and a debit to Accounts payable d. Recording the cash sale of unused land with a debit to Cash and a credit to Accounts payable
Question #4
Learning Objective 5
End of Chapter 2