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AU / Accounting / ACCT 2110 / what is the meaning of GAAP?

what is the meaning of GAAP?

what is the meaning of GAAP?

Description

School: Auburn University
Department: Accounting
Course: Principles of Financial Accounting
Professor: Elizabeth miller
Term: Fall 2015
Tags: Accounting, auburn, Miller, and 2110
Cost: 25
Name: Chapter 2 Notes - The Accounting Information System
Description: Chapter 2 Notes. UPDATED AND COMPLETE on Saturday September 9th Reminder the first test is on Monday September 11th
Uploaded: 09/04/2017
7 Pages 8 Views 15 Unlocks
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Chapter 2: The Accounting


what is the meaning of GAAP?



Information System

GAAP - Generally accepted Acouuting. Principles.

Qualitative characteristics

-Fundamental

Relevance - information is capable of making a difference in a business decision L.Faithful Representation should be complete, neutral, and free from error

- Enhancing

"comparability - allows external users to identify similarities and differences between

two or more items. This also includes consistency

• Verifiability - independent parties can agree on the measurement of the activity

Timeliness - timely if information is available to users before it loses ability to influence decisions -- Understand ability - user with basic knowledge of accounting cun comprehend meaning Assumptions -

_• Economic Entity - Not looking at owners' expenses

. Continuity (going-concern)-company will.continue to operate long enough to carry


what is economic entity?



___out existing commitments 'Time period - measured for a specific period of time (menthly, quarterly, annually)

· Monetary Unit - consider Financial results only in monetary terms (like U.S. Dollars) Principles

.. Historical Cost - activities are measured at the exchange price at the time the activity occured __Revenue recognition - revenue is to be recorded in the period in which it is earned

• Expense Recognition - expense is to be recorded during the same period as the revenue

_ that it helped to generate . Conservatism - accountants should avoid overstating assets or income, when

- preparing financial statements

The Accounting Cycle 1. Analyze Transactions - Most important step 2. Journalize Transactions 3. Post to the Ledger Don't forget about the age old question of mgf1106 broward college

4. Prepare a trial balance 5. Adjust the accounts 6. Prepare Financial Statement 7. Close the Accounts


what is time period?



Economic Events Not every event that affects. a company is recorded in this accounting records - in order to be recorded, items in the event must affect at least two financial statement accounts (assets, liability, Stockholders' equity, revenue, or expense) and provide a faithful representation.

The Expanded Accounting Equation

Assets = Assets = Assets =

Liabilities Stockholders' Equity Liabilities t Contributed Capital ley.common Stock) + Retained Earnings Liabilities + Contributed Capital + Betained + Revenues - Expenses - Dividends

deginnine

Earnings

Step 1 of Accounting Cycle : Analyze Transactions

· Transaction analysis is the process of determining the economic effects of an

transaction on the elements of the accounting equation

• Transaction analysis involves_three_steps:

1. Write down the accounting equation 2. Identify the financial statement elements that are affected by the transaction 3. Determine whether the elements increased or decreased Don't forget about the age old question of chem 121 exam 3

- Example Transaction analysis _. Itaken from pg.68)

- Luigi Inc. purchased a $3,000 computer._from WorstBuy electronic on Credit, with

payment due in 60 days - Solution

Assets = Liabilities. I Stockholders.' Equity +$3,000__. +3000 fin computer)

in accounts)

astets

payable

☆ (Look at pages. 68-72 for_move_transaction analysis problems) A -

Accounts.

can account is a record of increases and decreases in each of the basic elements of the financial

Statement - the list of accounts used by the company is termed a chart of accounts

Double-Entry. Accounting describes the system used by companies to record the effects of transactions

on the accounting equation - the effects of transactions are recorded in accounts - Under double-entry accounting, each transaction affects at least 2 accounts... We also discuss several other topics like How they report their income?

Faccount -although an account can be shown. in a variety of ways, transactions are frequently analyzed

using a L-account - the left side is referred to as the debit sick and the right side is reffered to as the

Credit side

Title of Account Debit Credit (left side (Right site)

LO

Summary of Debit and credit Procedures

0 Assets. Liabilities t stockholders'

Assets

Habilities

Contributed

Capital Debit / Credit We also discuss several other topics like hegemory

Retained

Earnirts Debit i credit

Debit

Credit

Debit

Credit

Normal balance

Normal Balance

Normal Balance

Normal Balance

Beginning Retained Earnings Debit credit

Revenues Debit Credit

Expenses Debit I Credit

Dividends Debit | Credit

Normal Balance

Normal Balance

Normal

Balance!

Normal

Balance

Step 2 of Accounting Cycle : Journalize Transactions _A journal is a chronological record. Showing debit and credit effects of transactions

- ona company

each transaction is represented by a journal entry so that the entire effect of a transaction is contained in one plac 'the process of making a journal entry is often referred to as journalizing a transaction Don't forget about the age old question of estruscans

• The three parts of a journal entry are:

'the date of the transaction We also discuss several other topics like ba 301 psu

'the acounts and amounts to be increased ex decreased - a brief explanation of the transaction

P

.

Example

Journal Entry (taken from example on pg lee)

Credit

Date Jan L.

-Account and Explanation - Debit - Εαυίρωμά

3,000 Accounts payable _(purchased office equipment on credit)

3,000

* For the purpose of this class we skip over explanations to save space * ----- Also, always list the account debited first

Step 3 of the Accounting Cycle : Post to the ledger

• A general ledger is simply a collection of all the individual financial _ statensent accounts that a company uses

• The process of transferring the information from the journalized transaction - to the general ledger is called posting.

- The ledgers are made up of +-accounts

- this is also where changes in dicount balances happen -not in Journal

Example Post to ledger (taken from example on pg (68)

- Equipment Accounts Payable

3,000

3,00ð

_ Other journal Entry Issues

in some instances, more than two accounts may be affected by an economic event if this occurs va compound journal entry that affects more than two accounts is made

-

Example compound Journal Entry - Luigi, Inc., purchases a $3,000 computer from Worst boy Electronics by paying

$1,000 cash with the remainder clue in 60 days

Credit

Date Jan 1.

Debit 3,000

Account Equipment

Cash Accounts payable

1,000

2,000

Steps 1-3 - put together Example -On March 1, HiTech sold 1,000 shares of common stock to several investors

for cash of $12,000

Assets. - Liabilities t stock holder's Equity ↑ 12,000 cash

L

T 12000 common stock

2.

Debit

Credit

Date March

Account Cash

Common Stock

12,000

12,000

cash 12,000

Commann Stock

12,000

L

Step 4 of the Accounting Cycle : Prepare a Triad Balance - to aid in the preparation of financial Statements, some companies will prepare

a trial balance before they prepare financial statements the trial balance is a list of all active accounts and each account's debit

or credit balance - the accounts are listed in the order they appear in the ledger

cassets first, followed by liabilities, Stockholder's equity, revenues, and expenses

Example Trial Balance (taken from material on pg 81-86)

LL

Credit

Cash

HiTech Communications Inc

Trial balance

March 31, 2013 Account

Debit

$16,600 Accounts Receivable

- 300 Supplies

6,500 Pre paid Insurance

1,200 Equipment

4,500 Accounts Payable Unearned Service Revenue Notes Payable Common Stock Dividends Service Revenue Salaries Expense

1800 Utilities Expense

_5.200

$36,600

$ 500 9.000 3,000 12,000

-

500

12,100

$34,600

#* Beginning Retained. Earnings will come after. Common Stock **

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