COMM 2010

COMM 2010 - COMM2010Lecture1

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COMM 2010- Lecture 1 Basic financial statements are important to creditors (banks),  shareholders, competitors, investors, regulators, employees, tax  auditors (IRS), customers and suppliers.  NOTE: Corporations keep two sets of accounting records. One  is the generally accepted principles (GAP) for everyone and the  other is for tax purposes. Doing this is mandatory.  Financial Statements: Balance Sheet - Lists the accounts of a company at a particular  point in time although most balance sheets are yearly i.e. fiscal  year (not necessarily calendar).  The accounting equation is  Assets= Liabilities + Equity.  Balance sheets are permanent  accounts. Assets include:  Cash (deposits, checks, currency)  Securities and Investments (stocks and bonds) inventory (merchandise for resale, finished goods for completed  but unsold goods) Sccounts receivable (cash), notes receivable (formal note of  credit or loan), interest receivable (on bond or note) Prepaid expenses (rent, insurance, advance to suppliers) Patents (rights granted by the government to exclude others  from producing similar goods), Goodwill (customer loyalty) Land, building, and equipment, and accumulated depreciation  (negative asset; contra account). 
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Liabilities include:  Long term debt Accounts payable (informal cash), Notes payable (formal credit  owed), Interest payable, Accrued salaries and other benefits,  Income taxes payable, Deferred incomes taxes (delayed) Unearned revenue (advances of cash from customers) Equity includes: Common and preferred stock Additional paid in capital Retained earnings (net assets= assets – liabilities which  increase as net income increases)  Treasury stock (firm buys back stocks- negative equity) Recording transactions: Journal Entry-  Formalizes the reasoning that supports entering  the results of transactions directly into T-accounts. If an error  occurs in the T-account, you can go back to the journal entry  since individual entries can affect multiple T accounts.   (Debit  Entry; DR- could be Cash of $ 10,000 and Credit Entry; CR-  could be equity of $ 10,000) Accounting equation- 10,000= 0 +  10,000. NOTE: Negative numbers are never entered in journal  entries.  Account debited  ___________                        Account credited    _____________ Prepaid Rent   12,000                          Cash          12,000 Cash    3,000
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            Advances from customers 3,000 II) Ledger Account-  A T account is a convention for organizing  and accumulating the entries that affect individual accounts  such as cash or accounts payable. Hence the left side of a T 
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This note was uploaded on 02/27/2011 for the course COMM 2010 taught by Professor Maryeriksson during the Spring '11 term at UVA.

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COMM 2010 - COMM2010Lecture1

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