Financial Accounting - Debits and Credits

Financial Accounting - Debits and Credits - Accounting 2:...

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Accounting 2: The Balance Sheet, T-accounts, Debits, and Credits Professor Robb Dixon Based on a lecture by Professor Eng Wu January 29, 2008
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Quiz 1 Stockholders’ equity is A.The fair market value of a company B. Liabilities minus assets C.Contributed capital plus retained earnings D.Revenue minus expenses
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Recap Balance Sheet SMG Corporation 13 September 2007 Assets Liabilities Owners Equity A = L + OE Current Current Long term assets Long term Liabilities Operating Activities Investing Activities Financing Activities
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Balance Sheet Some items commonly found in the balance sheet: Current Assets Cash Accounts receivable Inventories Prepaid expenses PPE Current Liabilities Accounts payable Wages Payable Accrued liabilities Unearned revenues Intangibles Others Notes Payable Bonds Payable Contributed capital Retained Earnings
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Transaction Analysis Once a company is formed and starts to do business, there will be many accountable activities. Some are: Explicit: Activities that are observable. Example: You buy a book from Barnes and Noble – B&N gives you the book and in return you pay for it with cash (or credit card). Some observable activities are not recorded because they have no immediate impact on Assets, Liabilities, or Owners Equity. Also, we cannot reasonably assign a $ amount to such event. Implicit: These are unobservable activities that must be recorded. ***Johan Santana signs with Red Sox ***
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The Balance Sheet Equation Accountable transactions usually have impact on two or more accounts. We need to examine each transaction and determine: 1. The accounts that are affected 2. Whether the impact is positive (increasing the value of the account) or negative (decreasing the value of the account). With the BS equation A=L+OE we can see the impact of the transaction on the balance sheet.
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The company borrowed $50,000 from a bank, signing a note agreeing to repay the amount in two years. The two accounts affected are: Cash Note Payable Cash is increased because Co. received $50,000 from a bank. N/P, a liability is increased because the company has committed to repay the loan. A
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Financial Accounting - Debits and Credits - Accounting 2:...

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