Lecture03 2010.09.14

Lecture03 2010.09.14 - Lecture 3 Balance Sheet Recording...

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1 Lecture 3 Balance Sheet Recording the Effects of Transactions and Events
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2 Goals of Today’s Class 1. Develop a better understanding of Balance Sheet Concepts 2. Understand the Accounting Process and Transactional Analysis 3. Understand Debits, Credits, and the use of T-accounts
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3 How do we get the numbers in the balance sheet? 1. Record financial effects of transactions in accounts 2. Calculate the ending balance 3. Report the ending balance on the balance sheet Note: Balance sheet accounts are cumulative
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4 Accounting Process • Transaction analysis • Recording transactions • Deriving account balances • Prepare financial statements
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Transaction Analysis • Every transaction affects at least two accounts ( Dual Effects ). • The accounting equation must remain in balance after each transaction. 5
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6 Dual Effects of Transactions on the Accounting Equation + Increase Cash (an asset) + Increase Bank Loan (a liability) Assets = Liabilities + Equity 100 = 100 + 0 Assets = Liabilities + Equity Example #1: Receive $100 from bank loan
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7 Dual Effects of Transactions on the Accounting Equation + Decrease Cash (an asset) + Decrease Bank Loan (a liability) Assets = Liabilities + Equity 100 = 100 + 0 (20) = (20) + 0 Assets = Liabilities + Equity Example #2: Repay $20 of bank loan
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8 Dual Effects of Transactions on the Accounting Equation + Decrease Cash (an asset) + Increase Inventory (an asset) Assets = Liabilities + Equity 100 = 100 + 0 (20) = (20) + 0 +10 - 10 = 0 + 0 Assets = Liabilities + Equity Example #3: Purchase $10 of inventory with cash
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9 Dual Effects of Transactions on the Accounting Equation + Increase Common Stock (equity) + Decrease Bank Loan (a liability) Assets = Liabilities + Equity 100 = 100 + 0 (20) = (20) + 0 +10 - 10 = 0 + 0 0 = (50) + 50 80 = 30 + 50 Assets = Liabilities + Equity Example #4: Issue $50 of common stock to repay portion of bank loan
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10 All transactions will fit into one or a combination of two or more of the below This change will be accompanied by This change +A +A +A -A +L +E -L -L -L -A +L +E +E +E +E +A -L -E Or vice versa!
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Transaction Analysis Exercises Indicate the effects of the following transactions on the balance sheet equation using this format: Trans. # Assets = Liabilities + Equity 1. The firm issues 3,000 share of $10 par value common stock at par for cash Trans. 1 30,000 = 0 + 30,000 Subtotal 30,000 = 0 + 30,000 2. The firm purchases merchandise costing $18,900 on account. Trans. 2
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This note was uploaded on 12/18/2010 for the course ACCT 101 taught by Professor Armstrong during the Fall '09 term at UPenn.

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Lecture03 2010.09.14 - Lecture 3 Balance Sheet Recording...

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