class3a-Dual Effects & SS2

class3a-Dual Effects & SS2 - Session 3a Transaction...

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Session 3a Document Transaction Recording in a Draft from an event Analysis Spreadsheet Financial Statements 1. TRANSACTION (or event) ANALYSIS a) From documents, recognize an economic event that changes the financial position of the business firm, i.e., assets, liabilities, or owner equity increase or decrease as a result of the event. IF NONE IS CHANGED im- mediately, the event is considered executory (i.e.,conditional upon future events) and is NOT RECOGNIZED. Identify balance sheet items which have been changed by the event. At least two items must have changed . Balancing requires at least two, equal changes or else recognition cannot be given. b) Classify the items changed as either Asset, Liability, or Owner Equity . Recall, owner equity includes paid-in capital on stock, revenue and expense of net income, and dividends declared. c) Measure the value or amount of change. First note whether value increases + or decreases – the balance sheet. The total change on assets must equal the total change in liabilities plus shareholder equity. Analysis should result in a narrative statement about two balance sheet items which increased or decreased, e.g., “Ajax Enterprises borrowed money from the Bank; asset cash increased and liability note payable increased: + A = L +. Financial Position
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class3a-Dual Effects & SS2 - Session 3a Transaction...

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