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Chapter 2 - Chapter 2 Class Notes Reporting Investing and...

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Key Elements of the Balance Sheet (B/S) Remember, the set-up is based on the basic accounting equation: In this chapter we will focus on how business activities affect this equation. In accounting records, we use a separate _______________ for each financial statement item. An individual account is a summary of every increase or decrease affecting that item. The number and types of accounts used by a business will depend on the nature of the business. Common question: How do you know what names to use for these accounts? Use a name that describes the underlying _________________. The ___________________________________ is a summary of all account names (and corresponding account numbers) used to record financial results in the accounting system. Use it as a guide for naming accounts. (See Exhibit 2.2 – page 46) Tracking Financial Results of Business Activities Chapter 2 Class Notes Reporting Investing and Financing Results on the Balance Sheet Compiled by: Janice H. Fergusson, CPA Certain Materials used with permission of The McGraw-Hill Companies, Inc.
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ACCT 225 – Fall 2008 Page 2 of 9 Chapter 2 The system of accounting follows three basic steps: A ____________________ is any exchange or event that has a direct economic effect on the assets, liabilities, or stockholders’ equity of a business. Signing an agreement or contract is not considered a transaction because it typically involves the exchange of only ____________, not the exchange of assets, liabilities, or stockholders’ equity. Two basic ideas are used when analyzing transactions: 1. Duality of Effects every transaction has ________________________________________________. look for the things that are exchanged (“give and take”): 2. A = L + SE assets must equal liabilities plus stockholders’ equity for every accounting transaction. Remember – the accounting equation must ___________________________________! All transactions can be recorded so that they fit into this equation.
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