Accounting 201Chapter 02 Power Point Flashcards
Roles of Financial Accounting
1) Measure business activities of the company.2) Communicate those measurements to external parties for decision-making purposes.
Classification of Business Activities
EXTERNAL TRANSACTIONS = With a separateeconomic entity.INTERNALTRANSACTIONS = Do not includea separate economic entity.
Analyze the Impact of External Transactions on the Accounting Equation
Each transaction will have a dual effect. If aneconomic event increases one side of theequation, then it also increases the other sideof the equation by the same amount.I.E.Assets = Liabilities + Stockholder’s Equity{————–} {—————————————-}(resources) (Claims to resources)
Effects of transactions on the Expanded Accounting Equation
Assets = Liabilities+ Stockholder’s Equity Stockholder’s EquityCommon Stock + Retained Earnings {Revenues - Expenses - Dividends} Revenues - Expenses - Dividends = Net Income
Summary of All Ten ExternalTransactions of Eagle Golf Academy
Assets = Liabilities + Stockholder’s Equity Financing Activities: 1) $25,000 in Cash is an Asset and increases Common Stock by $25,000.2) $10,000 in cash, in advance, Goes to assets but is money owed so it is applied to an increase in Liabilities. Investing Activities:3) Equipment for $24,000 raises assets but lowers assets by $24,000 cash for money spent to purchase. Operating Activities:4) Prepaid Rent Raises Assets $6000 but Lowers Assets by $6000 because cash spent. 5) Supplies Raise Assets by $2300 but because its an Account Payable it hits Liabilities up by $2300.006) $3600 cash from Service Revenue Increases Assets and Stockholder’s Equity by $3600 each. 7)$2500 in Accounts Receivable, Increases Assets and Stockholder’s Equity by $2500.8) $600 in un-named revenue Increases Assets and Stockholder’s Equity by $600.9) $2800 in Salaries decreases Assets by $2800 but increases Stockholder’s equity by $2800. 10)Financing Activity: $200 in Dividends decreases Assets and Stockholder’s Equity $200
Assess Whether the Impact of ExternalTransactions Results in a Debit or Credit to anAccount Balance
Debit and Credit Effects on Accounts in the Accounting EquationAssets = Liabilities + Stockholder’s Equity Debit up Debit Down Debit DownCred Down Credit Up Credit Up
Debit and Credit Effects on Accounts inthe Expanded Accounting Equation
Assets = Liabilities + Stockholder’s Equity Debit up Debit Down Debit DownCred Down Credit Up Credit Up Common Stock + Retained EarningsDebit Down Debit Down Credit Up Credit Up Retained EarningsRevenues - Expenses - DividendsDebit Down Debit Up Debit UpCredit Up Credit Down Credit Down
Show an example of Record Transactions UsingDebits and Credits. A journal provides a chronological record of all transactionsaffecting a firm.
January 1 Debit CreditCash (+A ) ………………………. 25,000 Common Stock (+SE ) ……………………… 25,000 (Issue common stock for cash)January 1 Debit CreditCash (+A ) ……………………… 10,000 Notes Payable (+L ) ………………………….. 10,000 (Borrow by signing long-term note)
What are Post Transactions and T-accounts in the General Ledger
1) The process of transferring the debit and credit information from the journal to individual accounts in the general ledger is called posting.2) A T-account is a simplified form of a general ledger account with space at the top for the account title and two sides for recording debits and credits.________________ACCOUNT TITLE___________ DEBIT I CREDIT I I I
Define a Trial Balance and be able to prepare one.
a) A trial balance is a list of all accounts and their balances at a particular date, showing that total debits equal total credits.b) Another purpose of the trial balance is to assist us in preparing adjusting entries (for internal transactions).c) It is not a published financial statement to be used by external parties, there is no required order for listing accounts in the trial balance.d) The trial balance is used for internal purposes only and provides a check on the equality of the debits and credits.
