Accounting Notes 10-03 to 10-31 repaired

Accounting Notes 10-03 to 10-31 repaired - Ch 3 The...

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Ch 3   The Accounting Information System 1. Transaction analysis a. Economic event (transactions) i. External   corporation or some other entity outside the corporation ii. Internal iii. Mutual promises to perform   not recorded iv. Must be measurable b. Source documents  2. The accounting Information System a. Inputs   processing   outputs i. Economic events (Transactions)    Analyze, record, post   income  statement, balance sheet, cash flow, etc. 3. The Account a. Accounts divided into groups i. Assets, liabilities, equity, revenues, expenses, dividends b. The number of accounts vary by company 4. The General Ledger, “T” account a. Account Name     b. Assets = Liabilities + Equity c. Debits (Dr) = Credits (Cr) d. An accounts normal balance is the increase side 5. Extended Double Entry Accounting Equation a.    Debit Credit Asset + - Liabilitie - + Equity - + Capital  - + Retained  - + Expense
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Ch 4   Accrual Accounting Concepts 1. Revenues a. Inflows or other enhancement of the assets of an entity i. Inflows (cash sales) or other enhancements (Accounts Receivable) of the  assets of an entity (the sellers) or settlement of its liabilities (or a  combination of both from delivering or producing goods, rendering  services or other activities that constitute the entity’s ongoing major or  central operations 2. Revenue recognition principle a. Revenue is recognized in the income statement when realized (or realizable) and  earned i. Realized   when goods or services are exchanged for cash or claims to  cash (A/R) ii. Realizable   when assets received or held are readily convertible to  known amounts of cash or claims to cash (precious metals and  commodities).  There must be a ready market that sets the price and can  absorb all production iii. Earned   When a seller substantially accomplished what it must do to be  entitled to the cash or claims to cash 3. Applications of the Revenue recognition principle a. Long-term construction contracts i. Completed contract method ii. Percentage of completion method b. Franchises c. Commodities
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d. Installment sales   time shares and used cars 4. The Matching principle   Requires that expenses are record in the same fiscal year in  which the revenue they helped produce was recorded 5. Adjusting entries a. Start with the trial balance 6. Types of adjustments a. Prepayments i. Prepaid expenses   cash payments recorded as assets before expense  is incurred 1. Adjustment equals cost of goods (or services) used up or expired a. If not adjusted, assets are overstated and expenses are  understated ii. Unearned revenue   cash received and recorded as liabilities before  revenue is earned 1.
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Accounting Notes 10-03 to 10-31 repaired - Ch 3 The...

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