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3achapter3 - Financial Accounting Chapter 3 Tools for...

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Bob Anderson, UCSB 2004 3-1 Financial Accounting: Tools for Business Decision Making, 4th Ed. Kimmel, Weygandt, Kieso CHAPTER 3 Bob Anderson, UCSB 2004 3-2 Chapter 3 The Accounting Information System Analyze the effect of business transactions on the basic accounting equation. Explain what an account is, then apply debits and credits to those accounts (journal entries) Bob Anderson, UCSB 2004 3-3 External and Internal Events External Event – interaction between a business and its environment. Internal Event – event occurring entirely within a business. Transaction – any event that is recognized in a set of financial statements. RECOGNIZED- An accounting entry is recorded… it becomes reflected in the financial statements. REALIZED- regardless of whether it results in an accounting entry, the business actually receives or gives something. Bob Anderson, UCSB 2004 3-4 Exercise – Types of Events 1. A supplier of a company‘s raw material is paid an amount owed on account. External Internal Not Recorded 2. A customer pays its open account. 3. A new chief executive officer is hired. 4. The biweekly payroll is paid. 5. Raw materials are entered into production. 6. A new advertising agency is hired. 7. The accountant determines the federal income taxes owed based on the income earned. External External External Internal Internal Not Recorded Not Recorded
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Bob Anderson, UCSB 2004 3-5 Source Document – a piece of paper that is used as evidence to record a transaction. Sales invoice Payroll timecard Utility bill Stock certificate Promissory note (note payable) Source Documents Payment terms are 2/10, n/30 NOTE: Not all recordable events are supported by a standard source document. Bob Anderson, UCSB 2004 3-6 Assets = Liabilities + Equity Effect on the Accounting Equation Assets - Liabilities = Equity Assets - Liabilities = Net Assets Net Assets = Equity The accounting equation is made up of “ Accounts.” An account is a record used to accumulate amounts for each individual asset, liability, equity, revenue, and expense. Bob Anderson, UCSB 2004 3-7 Sara Lee Corp. –Assets Consolidated Balance Sheets Dollars in millions except share data July 3, June 28, June 29, 2004 2003 2002 Assets Cash and equivalents 638 $ 942 $ 298 $ Trade accounts receivable, less allowances of $184 in 2004, $181 in 2003 and $176 in 2002 1,929 1,857 1,768 Inventories 2,779 2,704 2,509 Other current assets 400 378 341 Net assets held for sale - 1 7 Total current assets 5,746 5,882 4,923 Other noncurrent assets 153 284 192 Deferred tax asset 275 437 4
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3achapter3 - Financial Accounting Chapter 3 Tools for...

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