121_02SG - Chapter 2Processing Accounting Information...

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20 Chapter 2 Chapter 2—Processing Accounting Information CHAPTER OVERVIEW Chapter Two uses the foundation established in the previous chapter and introduces you to the recording process for business transactions. A thorough understanding of this process is vital to your success in mastering topics in future chapters. The specific learning objectives for this chapter are to 1. Define and use key accounting terms: account, asset, liability, stockholders’ equity, revenue , and expense . 2. Use the accounting equation to analyze business transactions. 3. Understand how double-entry accounting works. 4. Record transactions in the journal and post from the journal to the ledger. 5. Prepare a trial balance. 6. Set up a chart of accounts for a business. 7. Analyze transactions without a journal. CHAPTER REVIEW Objective 1 - Define and use key accounting terms: account, asset, liability, stockholders’ equity, revenue , and expense . The terms used in accounting sometimes have meanings that differ from ordinary usage. Therefore, you must learn the accounting meaning of terms. Key terms to remember are: account, assets, liabilities, stockholders’ equity, common stock, retained earnings, dividends, revenues, expenses, double-entry bookkeeping, T-account, debit, and credit. An account is the basic summary device used to record changes that occur in a particular asset, liability, or stockholders’ equity. Assets are those economic resources that will benefit the business in the future. Examples of asset accounts are Cash, Notes Receivable, Accounts Receivable, Prepaid Expenses, Land, Buildings, Equipment, Furniture, and Fixtures. Liabilities are obligations that a business owes. Examples of liability accounts include Notes Payable, Accounts Payable, and Accrued Liabilities. Stockholders’ equity is the claim that the stockholders have on the assets of the business. Examples of stockholders’ equity accounts are common stock, retained earnings, and dividends; revenues, such as Service Revenue; and expenses such as Rent Expense. Objective 2 - Use the accounting equation to analyze business transactions. Every transaction will have a dual effect on the accounting equation. Therefore, the equation always remains in balance. Study carefully the eleven business transactions analyzed in the text, and reinforce your understanding by following the demonstration problems and explanations in this chapter of the Study Guide. You must have a thorough knowledge of how transactions affect the accounting equation in order to proceed further in this course.
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Processing Accounting Information 21 See exhibit 2-1 in the text. Transactions affecting stockholders’ equity result in changes to either Common Stock or Retained Earnings. Common stock is affected when a corporation issues stock certificates to shareholders and receives assets in return (usually cash). Retained earnings are affected when the corporation records revenues, expenses, or authorizes the payment of dividends to the
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This note was uploaded on 10/24/2010 for the course ACCOUNTING 31609 taught by Professor R.ambrose during the Fall '09 term at San Mateo Colleges.

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121_02SG - Chapter 2Processing Accounting Information...

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