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Chapter 03 - Slides

Chapter 03 - Slides - Chapter 3 Objectives Review of the...

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Review of the Accounting Process Professor Dennis Chambers ACC 301 6/15/2007 ACC 301 2 Chapter 3 Objectives 1. Understand basic accounting terminology. 2. Explain double entry rules. 3. Identify steps in the accounting cycle. 4. Record transactions in journals, post to ledger accounts, and prepare a trial balance. 5. Explain the reasons for preparing adjusting entries. 6. Prepare closing entries. 7. Explain how inventory accounts are adjusted at year-end. 6/15/2007 ACC 301 3 Basic Terminology Transaction: An external event involving a transfer or exchange between two or more entities. Real Accounts: Real (permanent) accounts are assets, liability, and equity accounts; they appear on the balance sheet. Real accounts continue from one accounting cycle to the next. Nominal Accounts: Nominal (temporary) accounts are revenue, expense, and dividend accounts. Other than dividends, they appear on the income statement. Nominal accounts are closed out to Income Summary each accounting cycle Adjusting Entries: Entries made at the end of an accounting period to bring all accounts up to date on an accrual accounting basis. Closing Entries: Process by which all nominal accounts are reduced to zero and the net income or net loss is determined and transferred to an owners’ equity account (retained earnings). 6/15/2007 ACC 301 4 Basic Accounting Equation Assets = Liabilities + Owners Equity The equation must be in balance after every recorded transaction in the system.
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6/15/2007 ACC 301 5 Double entry accounting
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