Chapter 2 Lecture 1

Chapter 2 Lecture 1 - ACIS 2115 - Chapter 2 Part 1...

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ACIS 2115 - Chapter 2 Part 1 Reporting Investing and Financing Results on the Balance Sheet
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Remember this from Chapter 1: Accounting is a system of analyzing, recording, and summarizing the results of a business’s activities and then reporting the results to decision makers . What are some common business activities?
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Some Examples of Business Activities Businesses… Buy goods to re-sell to customers Buy supplies Buy equipment Pay employees Pay utilities Borrow money Sell goods to customers Perform services for customers Sell stock
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Investing Activities In order to start up and run a business, businesses must acquire assets such as furniture, equipment and buildings. Purchasing these types of assets is referred to as an Investing Activity because the business is “investing” in assets. But where to businesses get the money they need to purchase these assets?
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Financing Activities Businesses must borrow money and/or obtain contributions from owners. These activities are referred to as Financing Activities . Debt financing increases liabilities. Equity financing increases stockholders’ equity.
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Business Activities Business activities involve an exchange because something is given and something is received. Exchanges that affect assets, liabilities, or stockholders’ equity are called transactions . Transactions must be captured by an accounting system.
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Transaction Analysis (1) Analyze (2) Record (3) Summarize Systematic process used to capture and report effects of business activities.
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Step 1: Analyze Transaction A transaction is an exchange or an event that has a direct economic effect on the assets, liabilities, or stockholders’ equity of a business.
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Step 1: Analyze External Exchanges Exchanges involving assets, liabilities, and stockholders’ equity that you can see between the company and someone else. Internal Events Events occurring within the company, for example, using some assets to create an inventory product.
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Transaction Analysis Two simple ideas are used when analyzing transactions: Duality of Effects Every transaction has at least two effects on the basic accounting equation. A = L+ SE Remember that assets must equal liabilities plus stockholders’ equity for every accounting transaction.
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Balance Sheet Accounts As part of transaction analysis, a name is given to each item exchanged. These names are called accounts.
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The chart of accounts is a summary of all account names (and corresponding account numbers) used to record financial results in the accounting system. Different companies assign
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This note was uploaded on 12/06/2011 for the course ACIS 2115 taught by Professor Jayardley during the Fall '07 term at Virginia Tech.

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Chapter 2 Lecture 1 - ACIS 2115 - Chapter 2 Part 1...

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