Ch_02_03_2(2) - Chapter 2 Investing and Financing Decisions...

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Investing and Financing Decisions and the Balance Sheet Chapter 2
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The Conceptual Framework Qualitative Characteristics (IFRS) Understandability Relevancy Reliability Comparability True and Fair View/Fair Presentation Objective of Financial Reporting Reflect true and fair view of the business affairs of the organization.
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Assumptions (IFRS) - Accrual basis: effect of transactions recognized when they occur not as cash is gained or paid. Going Concern (Continuity): The entity is expected to continue its operations in the near future. Stable measuring unit assumption: Accounting measures are reported in the national monetary unit ($). Periodicity: The long life of a company can be reported over a series of short time periods. The Conceptual Framework
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Typical Account Titles Assets Assets Cash Cash Short-Term Investment Short-Term Investment Accounts Receivable Accounts Receivable Notes Receivable Notes Receivable Inventory (to be sold) Inventory (to be sold) Supplies Supplies Prepaid Expenses Prepaid Expenses Long-Term Investments Long-Term Investments Equipment Equipment Buildings Buildings Land Land Intangibles Intangibles Liabilities Liabilities Accounts Payable Accounts Payable Accrued Expenses Accrued Expenses Notes Payable Notes Payable Taxes Payable Taxes Payable Unearned Revenue Unearned Revenue Bonds Payable Bonds Payable Shareholders’ Equity Shareholders’ Equity Share Capital Share Capital Retained Earnings Retained Earnings The Balance Sheet
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Typical Account Titles Revenues Revenues Sales Revenue Sales Revenue Fee Revenue Fee Revenue Interest Revenue Interest Revenue Rent Revenue Rent Revenue Expenses Expenses Cost of Goods Sold Cost of Goods Sold Wages Expense Wages Expense Rent Expense Rent Expense Interest Expense Interest Expense Depreciation Expense Depreciation Expense Advertising Expense Advertising Expense Insurance Expense Insurance Expense Repair Expense Repair Expense Income Tax Expense Income Tax Expense The Income Statement
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The Accounting Cycle (1) (1) During the period: During the period: Analyze Analyze transactions. Record Record journal entries. Post Post amounts to the general ledger. (2) (2) End of the period: End of the period: Adjust Adjust revenues and expenses and related balance sheet accounts. Prepare Prepare a complete set of financial statements. Disseminate Disseminate statements to users.
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A A = = L L + + SE SE The Debit-Credit Framework ASSETS ASSETS Debit for Increase Credit for Decrease EQUITIES EQUITIES Debit for Decrease Credit for Increase LIABILITIES LIABILITIES Debit for Decrease Credit for Increase Debits and credits affect the Balance Sheet Model as follows:
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The Debit-Credit Framework ASSETS ASSETS Debit for Increase Credit for Decrease EQUITIES EQUITIES Debit for Decrease Credit for Increase LIABILITIES LIABILITIES Debit for Decrease Credit for Increase Remember that  Shareholders’ Equity  includes  Share Capital  and  Retained Earnings .
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