Chapter 2 - Chapter 2 Notes Analyzing Business Transactions...

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Chapter 2 Author: Anna Rovira Beavers Needles 2008 8/15/08 1 Financial Accounting Chapter 2 Notes Analyzing Business Transactions I. Measuring Issues: Business transactions are economic events that affect the financial position of an entity. To measure a business transaction, the accountant must decide when the transaction occurred (recognition issue) , what value to place on the transaction (valuation issue) , and how should the transaction should be categorized (classification issue). Example: Jostel Incorporated purchase supplies for $500 on January 2, 2005. When is the transaction recognized? How much is the transaction value? What accounts should the components of this transaction be assigned to? REMEMBER THE FOLLOWING TERMINOLOGY! Recognition: When does a business transaction occur? A transaction occurs when: For supplier - when it ships the merchandise to buyer, in other words the merchandise is out of their inventory. For buyer – when it receives the merchandise. The predetermine time at which a transaction should be recorded is the recognition point. In-Class: SE1 Valuations : Assigning the correct monetary value to a business transaction. GAAP
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This note was uploaded on 03/10/2011 for the course BUS 1B taught by Professor Kite during the Spring '11 term at Laney College.

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Chapter 2 - Chapter 2 Notes Analyzing Business Transactions...

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