chapter 7 - Chapter 7 Study Guide Manual Accounting Systems...

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Chapter 7 Study Guide Manual Accounting Systems Accounting events: consist of three specific characteristics related to the four ac- counting concepts stated in chapter 1: 1. Must be specific to the entity for which the accounting records are kept. 1. Arises from business entity concept. 2. Must be measurable in monetary terms. 1. Arises from the monetary unit concept. 3. Must impact the entity’s assets, liabilities, and/or owners’ equity. 1. Related to the business entity, going concern, and periodicity concept. 2. The event must impact the company’s assets, liabilities, and/or owners’ equity. Because the company is assumed to continue into the future, assets, liabilities, and owners’ equity represent rights and obligations extending into the future. Since income needs to be determined periodically, revenues and expenses are re- cognized as part of owners’ equity. (A = L + OE) must remain in balance, therefore: Assets = liabilities + owners’ equity Assets increase; assets decrease +/- Assets increase; liabilities increase + + Assets increase; owners’ equity increases + + Assets decrease; liabilities decrease - - Assets decrease; owners’ equity decreases - - Liabilities increase; liabilities decrease +/- Liabilities increase; owners’ equity decreases + - Liabilities decrease; owners’ equity increases - + Owners’ equity increases; owners’ equity decreases +/- As one entry changes, it is necessary to change a corresponding event to balance the equation. One element of the equation changes, a second one is required to balance it. Hence, the
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This note was uploaded on 03/18/2011 for the course ACCT 2101 taught by Professor Clark during the Fall '10 term at Georgia State.

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chapter 7 - Chapter 7 Study Guide Manual Accounting Systems...

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