Mgmt 200 Spring 2011 Chapter 2

Mgmt 200 Spring 2011 Chapter 2 - 1/20/2011 The Language of...

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1/20/2011 1 Investors Companies Make Decisions About Activities Information The Language of Business Financial Accountants Measured by Communicated to 1. Bal Sheet: ( A = L + O ) (A L = O) 2. Stmt of O: (CS + RE) (RE = NI D ) 3. Inc Stmt: (NI = R E ) 4. Stmt of CF: (Cash is an A) D I V E X P A S T L I A O E Q R E V DR = CR = DR = CR = The Accounting Information Accounting Information System (Measurement) LO1 Identify the Basic Steps in Measuring External Transactions o Most business enterprises use a computerized accounting system due to the sheer volume of data they must process. oC o mputerized data processing is fast, accurate, and affordable. o Knowledge of manual accounting information system will provide an essential understanding of the basic model that underlies the computerized programs.
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1/20/2011 2 Measuring External Transactions The accounting process TRANSACTIONS (Events) occur. Transaction data is recorded on SOURCE DOCUMENTS. Each transaction is analyzed in terms of impact on the Each transaction is analyzed in terms of impact on the accounting equation and ENTERED in the JOURNAL. (Journal entry) The information in the journal entries is POSTED to the LEDGER. (Ledger account) [A listing of the ledger account balances is a TRIAL BALANCE] LO2 Analyze the Impact of External Transactions on the Accounting Equation Each transaction will have a dual effect. If an economic event increases one side of the equation, then it also increases the other side of the equation by the same amount. =+ (resources) (claims to resources) Assets Stockholders' Equity Liabilities
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1/20/2011 3 Exercise 2-2 Below are the external transactions for Shockers Incorporated. 1.Issue common stock in exchange for cash. 2.Purchase equipment by signing a note payable. 3.Provide services to customers on account. 4.Pay rent for the current month. 5.Pay insurance for the current month. 6.Collect cash from customers on account. Required: Analyze each transaction. Under each category in the accounting equation, indicate whether the transaction increases, decreases, or has no effect. The first item is provided as an example. Assets = Liabilities + Stockholders’ Equity 1. Increase = No effect + Increase Ask yourself these questions… 1. “What is one account in the accounting equation affected by the transaction? Does that account increase or decrease?” 2. “What is a second account in the accounting 2. What is a second account in the accounting equation affected by the transaction? Did that account increase or decrease?” 3. ”Do assets still equal liabilities plus stockholders’ equity?” Exercise 2-15 Green Wave Company plans to own and operate a storage rental facility. For the first month of operations, the company has the following transactions.
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This note was uploaded on 02/27/2012 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue University-West Lafayette.

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Mgmt 200 Spring 2011 Chapter 2 - 1/20/2011 The Language of...

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