ACCOUNTING CHAPTER 2 NOTES

ACCOUNTING CHAPTER 2 NOTES - ACCOUNTING CHAPTER 2 NOTES The...

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ACCOUNTING CHAPTER 2 NOTES The first objective of any accounting system is to identify the economic events that can be expressed in financial terms by the system. An economic event is any event that directly affects the financial position of the company. -financial position comprises assets, liabilities, and owners’ equity. -External events involve an exchange between the company and a separate economic entity. Examples are purchasing merchandise inventory for cash, borrowing cash from a bank, and paying salaries to employees. -internal events directly affect the financial position of the company but don’t involve an exchange transaction with another entity. Examples are the depreciation of machinery and the use of supplies. Accounting Equation: Assets = Liabilities + Owners’ Equity *resources always must equal claims to those resources* - Shareholders’ equity = ( 1) amounts invested by shareholders in the corporation and ( 2) amounts earned by the corporation ( on behalf of its shareholders). These are reported as ( 1) paid- in capital and ( 2) retained earnings. Retained earnings equals net income less distributions to shareholders ( primarily dividends)
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This note was uploaded on 09/19/2010 for the course ACCT 1 taught by Professor Lhggv during the Fall '09 term at Rutgers.

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ACCOUNTING CHAPTER 2 NOTES - ACCOUNTING CHAPTER 2 NOTES The...

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