ch 3 - 3 REVIEW OF A COMPANYS ACCOUNTING SYSTEM CHAPTER...

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Unformatted text preview: 3 REVIEW OF A COMPANYS ACCOUNTING SYSTEM CHAPTER OBJECTIVES After careful study of this chapter, students will be able to: 1. Understand the components of an accounting system. 2. Know the major steps in the accounting cycle. 3. Prepare journal entries in the general journal. 4. Post to the general ledger and prepare a trial balance. 5. Prepare adjusting entries. 6. Prepare the financial statements. 7. Prepare closing entries. 8. Complete a worksheet (spreadsheet). 9. Use subsidiary ledgers. 3-1 10. Understand special journals. 11. Convert cash-basis financial statements to accrual-basis (Appendix). 3-2 SYNOPSIS The Accounting System 1. An accounting system is a means by which a company records and stores the financial and managerial information from its transactions so that the information can be retrieved and reported in an accounting statement. 2. A basic accounting model provides a framework for the accounting system and serves as a basis for recording transactions. This model for a corporation, called the residual equity theory model, may be expressed as an equation: Assets = Liabilities + Stockholders' Equity Assets are the corporation's economic resources. Liabilities are its obligations owed to creditors. Stockholders' equity is the owners' residual interest in the corporate assets. 3. The equation may be expanded to include other components: Contributed capital includes stockholders' investments in shares of stock sold by the corporation. Retained earnings is the lifetime amount of net income reinvested in the corporation rather than distributed to stockholders. Dividends (which are not expenses) are amounts distributed to stockholders as a return on their investment. Revenues are charges to customers for goods and services. Expenses are the costs incurred by the corporation in providing goods and services. 4. In financial accounting, a transaction involves the transfer of something of value between the company and another party. An event is a happening that affects the company. An event may be (a) internal , such as the use of equipment in operations, or (b) external , such as a decline in price. 5. Source documents are business documents (such as sales invoices, checks, and freight bills) which provide initial information for recording transactions or events. A company keeps its source documents to verify and substantiate the accounting records....
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ch 3 - 3 REVIEW OF A COMPANYS ACCOUNTING SYSTEM CHAPTER...

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