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Intermediate Accounting

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2 A Review of the Accounting Cycle Overview This chapter covers the nuts and bolts of basic accounting, or rather basic bookkeeping. Accounting tends to cover much wider territory, and it features much more analysis, when compared with bookkeeping. Accountants do need to know how to do bookkeeping, however. If for no other reason, then they at least need to learn bookkeeping to be able to understand much of the remainder of the textbook which relies on a solid foundation in understanding how the accounting cycle works and how transactions flow through an accounting system. Accounting entries can be broken down into three categories: recording entries (LO2), adjusting entries (LO3), and closing entries (LO3). The vast majority of entries fall into the first category. The final category of closing entries are only made once a month, quarter, or year depending on how often the company closes out it books in order to issue financial statements. Finally, the chapter discusses the importance, an ever-increasing role, of computers in the field of accounting. Learning Objectives Refer to the Review of Learning Objectives at the end of the chapter. It is crucial that this section of the chapter is second nature to you before you attempt the homework, a quiz, or exam. This important piece of the chapter serves as your CliffsNotes or “cheat sheet” to the basic concepts and principles that must be mastered. If after reading this section of the chapter you still don’t feel comfortable with all of the Learning Objectives covered, you will need to spend additional time and effort reviewing those concepts that you are struggling with. The following “Tips, Hints, and Things to Remember” are organized according to the Learning Objectives (LOs) in the chapter and should be gone over after reading each of the LOs in the textbook.
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2-2 Chapter 2 Tips, Hints, and Things to Remember LO1 – Identify and explain the basic steps in the accounting process (accounting cycle). How? Synthesize the steps of the accounting process down into these easy-to- remember components. There are three types, or categories, of accounting entries as mentioned on page 2-1. In between those entries come trial balances, and at or near the end of the process come the financial statements. LO2 – Analyze transactions and make and post journal entries. How? Debits and credits, credits and debits: How is one to ever remember which is which? Do I really have to memorize something as complicated as Exhibit 2-2? The answer is no. Debits and credits are much simpler than that. You really only need to remember two things: the basic format of a balance sheet and that debits are on the left. Everything else flows out of those two easy-to-remember items. In this textbook balance sheets usually have assets at the top, followed by liabilities and
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032459237X_174361 - 2 A Review of the Accounting Cycle...

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