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UA - AC 310 - AC 310 Chapter 2 notes - Class Notes

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UA - AC 310 - AC 310 Chapter 2 notes - Class Notes

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background image AC 310 Chapter 2 notes 
 
 
Accounting Equation: 
 
Assets =Liabilities  + Stockholders Equity 
       ↓                                ⇓ 
  Total economic             Total claims 
 Resources 
 -Each event or transaction, has a dual effect on the accounting equation 
 
Shareholder’s equity: 
​relies primarily on two sources : Amounts invested by shareholders in  the company and amounts earned by the corporations (because of shareholders) -Reported as 
Paid-in capital and retained earnings 
 +Paid- in capital, +Retained earnings, +Revenue, +Gains, -Expenses, -Losses, -Dividends 
 
T-accounts:  
Account title at top debits left, credits right 
 
Steps of the accounting processing cycle: 
 
 
During the accounting Period: 
1. Source documents 
2. Transaction analysis 
3. Journal 
4. General Ledger 
 
At the end of the accounting period: 
5. Unadjusted trial balance 
6.Adjusting entries 
7. Adjusted trial balance 
8. Financial statements 
 
At the end of the year: 
9. Closing process 
10. Post-closing trial balance 
 
Adjusting entries:
 ​Record the effect of internal events on the accounting equation  -recorded at the end of any period when financial statements are prepared 
Purpose: to ensure all revenues are recognized in the period goods or services are transferred 
to customers and that all expenses are recognized in the period incurred. 
 
 
background image Prepayments:  ​Occur when the cash flow precedes either expense or revenue recognition EX.  A company may pay for supplies in one period, but use them in another 
 
prepaid expenses
​: the cost of the asset acquired in one period and expensed in a future period.  EX. a payment made by a company for insurance for future periods is an asset to the company, 
prepaid insurance. Asset is expensed in the future period when the asset expires 
-Adjusting journal entry is a debit to an expense and a credit to an asset 
-Financial statements: Income statement-decrease in income , Balance sheet: decrease in 
assets 
-EX. Unadjusted trial balance of the D Corporation lists supplies of 2,000 that were purchased in 
July. Assume D determines that at the end of July 1,200 supplies remain 
Journal:  
Debit Supplies expense for 800 
Credit supplies for 800 
 
EX 2. At the beginning of July D paid 24,000 to its landlord representing one year’s rent paid in 
advance 
Journal Entry: 
Debit rent expense (2400/12) 2,000 
Credit prepaid rent for 2000 
 
EX 3. Furniture of 12,000 was purchased during the month of July. Assume the useful life is 5 
years (60 months) and will be worthless at the end of that period 
Journal entry: 
Debit Depreciation expense 200 (12,000/60) 
Credit accumulated depreciation furniture 200 
 
Deferred revenues: 
​ cash received in advance of providing a good or service  A company's obligation to provide goods or services in the future 
-Adjusting entries: debit to liabilities and a credit to revenues 
-Financial statement: Income increases on the income statement, and liabilities decrease on the 
balance sheet 
EX. D corporation subleased a portion of its building to a jewelry store for $500 per month. On 
July 16, the jewelry store paid d 1,000 in advance for the first two month’s rent 
Journal Entry: 
Debit deferred revenue 250 
Credit rent revenue 250 
-more practice problems in powerpoints 
 
Accruals:
​ Involve cash flows that occur after either expense or revenue recognition  :Accrued liabilities-represent liabilities recorded when an expense has been incurred prior to 
cash payment- debit expense and credit liability-- Income statement decrease and liabilities 
increase 
 

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School: University of Alabama - Tuscaloosa
Department: Accounting
Course: Intermediate Accounting
Professor: Jill Datema
Term: Spring 2019
Tags:
Name: AC 310 Chapter 2 notes
Description: These are the powerpoint notes for chapter 2
Uploaded: 02/10/2019
5 Pages 34 Views 27 Unlocks
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