Chapter_2__Lecture_1 - Chapter2Lecture1 LearningObjectives...

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Chapter 2  Lecture 1 Learning Objectives 1. Explain how the concepts of recognition, valuation, and classification apply to business  transactions and why they are important factors in ethical financial reporting.  2. Explain the double-entry system and the usefulness of T accounts in analyzing business  transactions.  3. Demonstrate how the double-entry system is applied to common business transactions.  4. There are six learning objectives in this chapter.  Objective one deals with  recognition, valuation and classification. OBJECTIVE 1: Explain, in simple terms, the generally accepted ways of  solving the measurement issues of recognition, valuation,  and classification. Summary Statement A sale is recognized (entered in the accounting records) when the title to  merchandise  passes from the supplier  to the purchaser, regardless of  when payment is made or received. This is called the  recognition point. The dollar value of any item involved in a business transaction is its  original   cost   (also called historical cost). Generally, any change in value  subsequent to the transaction is not reflected in the accounting records.  Accountants prefer this practice, which conforms to the   cost principle,  because the cost is verifiable and objective. Every business transaction is classified by means of categories called  accounts. Each asset, liability, stockholders’ equity, revenue, and expense  has a separate account . 10. Normally, a sale is recognized (entered into the accounting records) when  the title to merchandise passes from the supplier to the purchaser,  regardless of when payment is made or received. This point of sale is  referred to as the  recognition point .0 a0. Some business events, such as the hiring of a new employee, are  not  recordable transactions. b0. Other business events, such as payment to an employee for work  performed,  are  recordable transactions. 20. The  cost principle  states that business transactions should be recognized  at their original cost (also called  historical cost ). In this case,  cost  refers to a  transaction’s  exchange price —a verifiable measure based on the 
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agreement between the buyer and the seller—at the point of recognition.  Generally, any change in value that occurs after the original transaction is  not reflected in the accounting records.  30. Ethical financial reporting requires that accountants apply generally  accepted accounting principles when dealing with recognition, valuation, and  classification issues. For example, when a company overstates its revenue,  it has violated the guideline of recognition. When an asset is reported at an 
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This note was uploaded on 02/10/2011 for the course ACCOUNTING 201 taught by Professor Notsure during the Spring '11 term at Edmonds Community College.

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Chapter_2__Lecture_1 - Chapter2Lecture1 LearningObjectives...

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