Chapter 2 - Click to edit Master subtitle style Chapter 2...

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Unformatted text preview: Click to edit Master subtitle style Chapter 2 Reporting Investing and Financing Results on the Balance Sheet Learning Objectives 1. Identify financial effects of common financing and investing activities. 2. Apply transaction analysis to financing and investing transactions. 3. Use journal entries and T-accounts to show how transactions affect the balance sheet. 4. Prepare a classified balance sheet. 5. Interpret the balance sheet using the current ratio and an understanding of related concepts. Building a Balance Sheet Assets amounts presently owed by a business to creditors. the amount invested and reinvested in a company by its shareholders. resources presently owned by a business that generate future economic benefit. Stockholders Equity Liabilities = + Financing and Investing Activities Assets Debt Financing Equity Financing Companies rely on two sources of financing: Stockholders Equity Liabilities = + Invest in Assets & Financing and Investing Activities 1. A company always documents its activities. 2. A company always receives something and gives something. 3. A dollar amount is determined for each exchange . Key Features Your Goals Picture each activity. Name the items. Analyze the effects. Transactions and Other Activities External Exchanges Exchanges involving assets, liabilities, and stockholders equity that you can see between the company and someone else. Internal Events Events occurring within the company, for example, using some assets to create an inventory product. Accounts Cash Equipmen t Inventory Notes Payable An organized format used by companies to accumulate the dollar effects of transactions. Common Balance-Sheet Accounts p Assets n Current assets p Cash p Short term investments p Account receivable p Inventories n Property, Plant and Equipment n Other long term investment n Intangible assets p Liabilities n Current Liabilities p Account payable p Wages payable p Interest Payable p Current portion of long- term debt n Long-term debt p Shareholders Equity n Contributed Capital n Retained earnings Assets are listed in order of how fast they will be used up or turned into cash. Liabilities are listed in order of how soon they will be paid. The Accounting Cycle (1) Analyze (2) Record (3) Summarize How do business transactions affect each account? Record the transactions in accounting system: double-entry bookkeeping Summarize the total effect of transactions in T- accounts (ledger). Step 1: Analyze Transaction A transaction is an exchange or an event that has a direct economic effect on the assets, liabilities, or stockholders equity of a business. DECIDE: An Approach to D etect transactions. Go to next step only if a transaction exists....
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This note was uploaded on 02/03/2011 for the course ACTG 210 taught by Professor Staff during the Spring '08 term at Ill. Chicago.

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Chapter 2 - Click to edit Master subtitle style Chapter 2...

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