lec4 - Accrual Accounting Process: Part I 15.511 Corporate...

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1 Accrual Accounting Process: Part I 15.511 Corporate Accounting Summer 2004 Professor SP Kothari Sloan School of Management Massachusetts Institute of Technology June 11, 2004
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2 An accountant’s functions include ± Classifying and summarizing, made easier by the repetitive nature of business transactions ± All repetitive transactions of the same nature are recorded and summarized in one account ± An account is a storage unit used to classify and summarize money measurements of business activity of a similar nature ± Each account has a title
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3 T-Account ± Used for illustrative and pedagogical purposes ± Has two sides ± Debit means Left ± Credit means Right ± Created for each type of ± Asset ± Liability ± Stockholders’ equity
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4 Recording changes in Assets and Liabilities ± Increases in assets are recorded on the left side of the T- account ± Decreases are recorded on the right side of the T-account ± Reverse for liabilities and stockholders’ equity ± Assets = Liabilities + Stockholders’ equity ± Assets are on the left side of the Balance Sheet Equation ± Liabilities and owners’ equity are on the right side
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How does a T-account look like? 5 ± Like a Capital “T”
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6 Summary of T-account Rules Assets (cash, receivables, equipment) Increases Decreases Liabilities (loans payable) Decreases Increases Owners’ equity (contributed capital, retained earnings) Decreases Increases
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7 About T-Accounts ± What is one major objective of financial statements? ± To provide information to “users” regarding the financial performance of a business ± Which T-account includes the accountant’s estimate of financial performance over a given accounting period? ± Retained earnings (includes current period income) ± Which financial statement provides the details of the financial performance over a given accounting period?
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This note was uploaded on 04/05/2010 for the course FINANCE AN FRE6003 taught by Professor Marshall,ingridm during the Spring '09 term at NYU Poly.

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lec4 - Accrual Accounting Process: Part I 15.511 Corporate...

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