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Lecture03 Spring 2009 v2

Lecture03 Spring 2009 v2 - Lecture 3 Spring 2009 Balance...

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1 Lecture 3 Spring 2009 Balance Sheet Recording the Effects of Transactions and Events
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2 Goals of Today’s Class 1. Develop a better understanding of  Balance Sheet Concepts 2. Understand the Accounting Process and  Transactional Analysis 3. Understand Debits, Credits, and the use  of T-accounts
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3 Exercise II – Fill in the Gaps 1998 1999 2000 2001 Current Assets 8,435 9,975 9,988 Non-current Assets 14,960 Total Assets 24,025 Current Liabilities 6,733 7,642 8,287 Non-current Liabilities 5,999 9,207 Contributed Capital 1,149 1,399 Retained Earnings 6,719 7,922 Total L and E 20,468 25,535 d. Current Assets – Current Liabilities = $1,724 j. Net loss = $656 and Dividends = $1,117 n. Current Assets – Current Liabilities = $1,948 o. Net income = $2,524 and Dividends = $1,240 20,468 a b 12,033 1,017 c d 9,366 14,659 e f 24,025 7,312 g h 24,935 24,935 i j 6,149 1,292 k l 25,535 15,547 m n 8,040 o 7,433 p 8,663
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4 How do we get the numbers in the balance sheet? Record financial effects of transactions in accounts Calculate the ending balance Report the ending balance on the balance sheet Balance sheet accounts are cumulative
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5 Accounting Process Transaction analysis Recording transactions Deriving account balances Prepare financial statements
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6 Dual Effects of Transactions on the Accounting Equation + Increase Cash (an asset) + Increase Bank Loan (a liability) Assets = Liabilities + Equity 100 = 100 + 0 Assets = Liabilities + Equity Example #1: Receive $100 from bank loan
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7 Dual Effects of Transactions on the Accounting Equation + Decrease Cash (an asset) + Decrease Bank Loan (a liability) Assets = Liabilities + Equity 100 = 100 + 0 (20) = (20) + 0 Assets = Liabilities + Equity Example #2: Repay $20 of bank loan
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8 Dual Effects of Transactions on the Accounting Equation + Decrease Cash (an asset) + Increase Inventory (an asset) Assets = Liabilities + Equity 100 = 100 + 0 (20) = (20) + 0 +10 - 10 = 0 + 0 Assets = Liabilities + Equity Example #3: Purchase $10 of inventory with cash
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9 Dual Effects of Transactions on the Accounting Equation + Increase Common Stock (equity) + Decrase Bank Loan (a liability) Assets = Liabilities + Equity 100 = 100 + 0 (20) = (20) + 0 +10 - 10 = 0 + 0 0 = (50) + 50 80 = 30 + 50 Assets = Liabilities + Equity Example #4: Issue $50 of common stock to repay portion of bank loan
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10 All transactions will fit into one or a combination of two or more of the below This change will be accompanied by This change +A +A +A -A +L +E -L -L -L -A +L +E +E +E +E +A -L -E Or vice versa!
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11 Transaction Analysis Indicate the effects of the following transactions on the balance sheet equation using this format: Trans. # Assets = Liabilities + Equity 1. The firm issues 3,000 share of $10 par value common stock at par for cash Trans. 1 30,000 = 0 + 30,000 Subtotal 30,000 = 0 + 30,000 2. The firm purchases merchandise costing $18,900 on account.
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