ACCT 3110 CH 2

ACCT 3110 CH 2 - Accounting 3110: Exter nal Financial Repor...

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Unformatted text preview: Accounting 3110: Exter nal Financial Repor ting I Chapter 2: Review of the Accounting Process (include all appendices) 2-2 Steps in an Accounting Cycle Record Transactions Adjust Accounts Prepare Statements Close Nominal Accounts Sequence of events that are completed every accounting period Step 1: Record Transactions Economic events cause changes in the financial position of a company. External events involve an exchange between the company and another entity. I nternal events do not involve an exchange transaction but do affect the companys financial position. Step 1: Record Transactions Obtain information about external transactions from source documents. Check stubs I nvoices Receipts Remittance advices Analyze transactions. Accounts affected? I ncrease or decrease? Account type? Debit or credit? Debits equal credits? 2-5 Step 1: Record Transactions Transactions can be classified into one of four categories: Asset use Increase assets, increase claims on assets. Increase one asset, decrease another asset. Decrease assets, decrease claims on assets. Asset source Asset exchange Claims exchange Increase one claims account, decrease another. Step 1: Record Transactions Record transactions in a journal. General journal or special journal Sometimes referred to as the book of original entry Transactions recorded chronologically Post transactions to general ledger. Reorganizes information by account Often handled with information technology Accounting Cycle Steps Prepare an unadjusted trial balance. Verifies the equality of debits and credits in the ledger Does not indicate an error-free AI S Record and post adjusting entries. Account for timing differences between cash and accrual Three types Accruals Deferrals Valuation adjustments (estimates) Expense Liability Cr edit Adjustment Debit Adjustment Accrued Liabilities (Expenses) I wont pay you until the job is done! Accr ued L iabilities Liabilities r ecor ded when an expense has been incur r ed pr ior to cash payment. Asset Revenue Cr edit Adjustment Debit Adjustment Accrued Receivables Yes, you can pay me in M ay for your Apr il 15 tax r etur n....
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ACCT 3110 CH 2 - Accounting 3110: Exter nal Financial Repor...

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