ACCT 3110 CH 2 - A ccounting 3110 E xter nal F inancial...

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Accounting 3110: External Financial Reporting I Chapter 2: Review of the Accounting Process (include all appendices)
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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
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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. Internal events do not involve an exchange transaction but do affect the company’s financial position.
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Step 1: Record Transactions Obtain information about external transactions from source documents. Check stubs Invoices Receipts Remittance advices Analyze transactions. Accounts affected? Increase or decrease? Account type? Debit or credit? Debits equal credits?
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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.
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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
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Accounting Cycle Steps Prepare an unadjusted trial balance. Verifies the equality of debits and credits in the ledger Does not indicate an error-free AIS Record and post adjusting entries. Account for timing differences between cash and accrual Three types Accruals Deferrals Valuation adjustments (estimates)
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Expense Liability Credit Adjustment Debit Adjustment Accrued Liabilities (Expenses) I won’t pay you until the job is done! Accrued Liabilities Liabilities recorded when an expense has been incurred prior to cash payment.
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Asset Revenue Credit Adjustment Debit Adjustment Accrued Receivables Yes, you can pay me in May for your April 15 tax return.
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