Distributed Principles of Accounting Outline (Winter 2019) (Flipped).pdf

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1Financial Accounting Notes (Winter Quarter 2019)© 2019 Machiavelli Chao |Unauthorized use, dissemination or duplication of this material is strictly prohibitedUNIT 1: INTRODUCTION TO ACCOUNTING1A: Introduction and GAAPI.►Introduction to AccountingA.►What Are Generally Accepted Accounting Principles?1.►Definition: Common set of standards established by the accountingprofession on how recording of events are made2.►Assumptions used in GAAPa)►Cost principle(1)All assets are recorded at original cost (purchase price)(a)WHY use original cost instead of market value?(i)Cost is easily verified whereas market value issubjective and fluctuates(b)BUT, FMV may be more useful to determine the realworth of a company(i)EXAMPLE: Developer buys land at height ofmarket, but now the land is worth less becauseof real estate market collapseb)►Monetary units only(1)All accounting records are recorded in terms of money ONLY(2)Non-monetary transactions are not included in accounting1B: Introduction to Financial Statements: Balance Sheet (Assets)B.►Financial Statements (CH 2)1.►Classified balance sheeta)►EXAMPLE: As of December 31, 2018b)►PURPOSE: Reports assets, liabilities and stockholders’ equity of abusiness as of a specific datec)FORMAT: Assets first, then liabilities, then stockholders’ equity(1)►Assets MUST equal liabilities plus stockholders’ equityd)►Assets(1)►What are assets?(a)All the resources owned by a business which willprovide some future service or benefit(2)►COMPONENTS:(a)►Current assets(i)Assets a company expects to convert to cash oruse up within 1 year(b)►Long-term investments(i)Investments in stocks and bonds of othercompanies held for greater than 1 year(c)►Property, plant and equipment (aka fixed assets)(i)Assets with a long useful life(d)►Intangible assets1C: Introduction to Financial Statements: Balance Sheet (Liabilities and Equity)Copyrighted
2Financial Accounting Notes (Winter Quarter 2019)© 2019 Machiavelli Chao |Unauthorized use, dissemination or duplication of this material is strictly prohibitede)►Liabilities(1)►What are liabilities?(a)Claims made by creditors against a business’ assets(i.e., debts and obligations)(2)►COMPONENTS:(a)►Current liabilities(i)Obligations to be paid within 1 year(b)►Long-term liabilities(i)Obligations expected to be paid after 1 year(ii)REMEMBER: the current portion of long-termliabilities is reported under Current Liabilitiesf)►Stockholders’ equity(1)►What is stockholders’ equity?(a)The remaining assets of a business after all liabilitieshave been paid(2)►COMPONENTS:(a)►Common stock(i)In return for the contributions, the stockholdersreceive common stock(b)►Retained earnings(i)The cumulative earnings/loss history of thebusiness since its inception(ii)Components:(a)►Revenues (increase stockholders’equity)(i)Gross income earned by thebusiness(b)►Expenses (decrease stockholders’equity)(i)Costs incurred by the business togenerate revenues(c)►Dividends (decrease stockholders’equity)(i)Distribution of assets tostockholders(ii)

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Term
Fall
Professor
NoProfessor
Tags
Balance Sheet, Generally Accepted Accounting Principles, DR Cash, CR Cash

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