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Chapter 3 lecture Notes 2-4-21 Student.docx - ACC 201...

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ACC 201 Intermediate Accounting – Chapter 3 – Review of a Company’s Accounting SystemThe primary purpose of a company'saccounting systemis to record, organize, summarize, and reportuseful information to external financial statement users and stakeholders, as well as to the company'smanagers for making operating, investing, and financing decisions.The Components of an Accounting SystemAccounting Equation:Assets = Liabilities + Shareholder’s EquityContributed CapitalRetained Earnings (Beg. R.E + Net Income – Dividends)Accumulated Other Comprehensive IncomeAssets: the company’s economic resourcesLiabilities:obligations owed to creditorsShareholders’ Equity: shareholders’ residual interest in the company’s assets after the liabilities havebeen satisfied1
Contributed capitalincludes the amount of capital invested by owners.Retained earningsis the cumulative amount ofnet incomegenerated by the company minusthedividendsdistributed to owners.Accumulated other comprehensive income (AOCI)measures and reports the total amountofother comprehensive income (OCI)items, which consist of a few specific income items thatthe FASB has designated to be recognized in AOCI until they are realized, at which time they arerecognized in net income.Revenues – measure the inflows of assets and the settlements of obligations from selling goods andproviding services to customersExpenses – measure the outflows of assets that a company consumes and the obligations a companyincurs in the process of operating the businessGains or losses – result from transactions in which the company sells assets or settles liabilities for moreor less than their book valuesNet Income = Revenues - Expenses + Gains - Losses2
How Business Activities Impact the Accounting Equation3
Transactions, Events, Arrangements, and Supporting DocumentsThe operating, investing, and financing activitiesthat change a company'seconomic resources(assets),obligations(liabilities), or residual interest(shareholders' equity) can arise through transactions, events,or arrangements.Transaction– the transfer orexchange of resourcesbetween the company and another partyEvent– an occurrence that affects the company.The event may be internal, such as using equipmentin operations, or external, such as a gain in the fair value of an investment security.Arrangement– an agreement or a promise by the company with another party.For example, acompany may have arrangements such as warranties to repair defective products sold to customers orpromises to pay pension and other retirement benefits to employees.Source documents– business documents that provide initial information for recording transactions,events, and arrangements within an accounting systemAccountsAccounts – store recorded monetary information from transactions, events, and arrangementsChart of Accounts – comprehensive list of all accounts and their assigned account numbersT-Accounts – format used to represent ledger accountsDebit – left side of a T-accountCredit – right side of a T-account4
Rules of Debits and Credits5

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Term
Winter
Professor
Laura
Tags
Generally Accepted Accounting Principles, Jaymie, Jaymie Corporation

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