FundamentalsReview - REVIEW OF ACCOUNTING CYCLE In class,...

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1 REVIEW OF ACCOUNTING CYCLE In class, we will use various cases to review the accounting cycle and preparation of the basic financial statements. This review will provide some of the challenges ahead in this course. The accounting cycle is a review of material from previous indroductionary accounting courese. I. Accounting Identity The accounting identity equates economic resources to claims on those resources. Assets = Liabilities + Owners’ Equity Assets = Liabilities + Contributed capital + Retained earnings Assets = Liabilities + Contributed capital + R/E Beg. + Net Income – Dividends Assets = Liabilities + Contributed capital + R/E Beg. + Revenue – Expenses – Dividends Assets: the economic resources of the firm Liabilities: the creditors’ claims on the assets of the firm Owner’s Equity: the residual claims of the firm’s owners (shareholders) II. Preparing the Financial Statements: The Accounting Process A. Terminology and definitions Accounts: An account is a record of the impact of every transaction or event on a specific asset, liability, or owners' equity item. The visual representation of an account is the form of a T with a “left side” and a “right side”. Debit (Dr.): an entry on the left side of an account. Credit (Cr.): an entry on the right side of an account. Temporary (nominal) accounts: Revenue and expense accounts that explain changes in owners' equity (i.e., net income) resulting from operations. All temporary accounts begin the period with a zero balance. Temporary accounts appear on the income statement. Permanent accounts: Accounts that reflect cumulative changes in the accounts from the time that the firm was first organized. Permanent accounts begin the period with the balance from the end of the previous period. Permanent accounts appear on the balance sheet.
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2 Changes in account balances: Asset accounts: increases are placed on the left side, which matches the appearance of assets on the left side of the accounting identity; decreases are placed on the right side. Therefore, debits
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This note was uploaded on 05/04/2008 for the course ACCT 3320 taught by Professor Frankzhang during the Summer '06 term at University of Texas at Dallas, Richardson.

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FundamentalsReview - REVIEW OF ACCOUNTING CYCLE In class,...

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