New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Chapter 2 Notes (January 27-February 3)

by: Callisa Ruschmeyer

Chapter 2 Notes (January 27-February 3) ACCT 2110 - 002

Marketplace > Auburn University > Accounting > ACCT 2110 - 002 > Chapter 2 Notes January 27 February 3
Callisa Ruschmeyer
GPA 4.0

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Chapter 2 notes and worked out homework problem.
Principles of Financial Accounting
Elizabeth G Miller
Class Notes
Financial Accounting; Miller; Auburn; Test 1; Financial Statements; Accounts; Ledger; Journal
25 ?




Popular in Principles of Financial Accounting

Popular in Accounting

This 8 page Class Notes was uploaded by Callisa Ruschmeyer on Wednesday February 3, 2016. The Class Notes belongs to ACCT 2110 - 002 at Auburn University taught by Elizabeth G Miller in Fall 2015. Since its upload, it has received 63 views. For similar materials see Principles of Financial Accounting in Accounting at Auburn University.


Reviews for Chapter 2 Notes (January 27-February 3)


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 02/03/16
th rd January 27 – February 3 Essentially Chapter 2 Review Generally Accepted Accounting Principles (GAAP)  Qualitative Characteristics (subject to Cost Constraint) o Fundamental  Relevance- makes a difference in a decision  Materiality- large enough difference  Faithful representation- complete, neutral, and free from error o Enhancing  Comparability- consistency is key; allows for external and internal comparisons  Verifiability- when independent parties reach the same consensus  Timeliness- available to users before it loses its ability to make a difference on decisions  Understandability- average person with basic business knowledge can understand  Assumptions o Economic Entity- each company is accounted for apart from its owners o Continuity (Going-Concern)- the company will be in existence to carry out commitments o Time Period- companies can divide time into artificial periods to solve problems as they arise o Monetary Unit- record everything in the same monetary unit (no conversions)  Principles o Historical cost- we record what we had to give up to acquire the asset o Revenue recognition- revenue is recorded in the period in which it was earned o Expense recognition (matching)- expenses should be recorded when they are incurred o Conservatism- avoid overstating assets or income Accounting Cycle (Steps 1-4) 1. Analyze Transactions a. Write down the accounting equation b. Which elements are affected in the transaction c. Do the elements increase or decrease 2. Journalize Transactions 3. Post to the Ledger 4. Prepare a Trial Balance Expanded Accounting Equation  Assets = Liabilities + Stockholders' Equity  Assets = Liabilities + (Contributed Capital + Retained Earnings)  Assets = Liabilities + (Beginning Retained Earnings + [Revenues - Expenses] -Dividends Transactions Classified  Assets o Cash o Equipment (could be bought by cash or on account) o Prepaid Insurance o Supplies (could be bought by cash or on account)  Liabilities o Note payable (borrowing cash) o Account payable (charging an asset on account) o Received cash prior to completing the work  Stockholders' Equity o Contributed Capital  Common stock (sold stock to investors and received cash) o Retained Earnings  Revenue (sold and provided a service- produces increase in cash)  Expense (used cash to pay an expense) Accounts  An account is an individual record of increases and decreases of elements on a statement  Every company will have a different chart of accounts depending on the nature of its business activities T-account  DEAD CRLS o DEAD (Debits, Expenses, Assets, Dividends) o CRLS (Credits, Revenues, Liabilities, Stockholders' Equity)  Debit (dr)- left side  Credit (cr)- right side  Assets- normal debit because they are on the left side of the balance statement equation (A = L + SE) o Increase on the debit side and decrease on the credit side  Liabilities- normal credit balances because they are on the ride side of the accounting equation; increased on the credit side and decreased on the debit side o Remember, unearned service revenue is a liability  Stockholders' Equity = Contributed Capital + Retained Earnings o Normal credit: increased on the credit side and decreased on the debit side  Revenues- normal credit balances because they are contained in retained earnings (when they increase) o Increased on the credit side and decreased on the debit side  Expenses- normal debit balances because they are part of the retained earnings (when they decrease) o Increased on the debit side and decreased on the credit side o Same as assets because they have the same effect on retained earnings  Dividends- normal debit balance because they are contained in retained earnings (when they decrease) o Increased on the debit side and decreased on the credit Step 2: Journalize Transactions  Remember, step 1 of the transaction cycle was to analyze accounts  Even before making t-accounts, we must make journals  Journals are in chorological order and show the debit and credit effects of transactions  A journal entry shows the entire effect of one transaction o Debited account is always listed first o Indent the account you intend to credit o Record the brief explanation under the credited account o Then post the transaction into a t-account: a collection of t-accounts are called a ledger  A journal entry has three parts o The date of the transaction o The accounts and amounts to be increased or decreased o A brief explanation of the transaction  A simple journal entry only has two accounts  A compound journal entry has more than two accounts o In the example we completed in class, an entry dealt with the cash, accounts payable, and equipment accounts o Remember, all debits are listed first on the journal entry  In the example from class, Equipment was listed first, and then cash- followed by accounts payable  Journal Entry vs. Ledger o T-accounts sum up the balance (shows it clearly) o Journals show what is going on (they provide a brief statement) Trial Balance  List of all active accounts- contains all debit and credit balances  Order is important: 1. Assets 2. Liabilities 3. Stockholders' Equity 4. Revenues 5. Expenses  The trial balance is not a financial statement- it is used to see if the credits and debits are equal o Credits and debits coming out equal does not ensure that the analysis of accounts did not contain errors o What if a transaction was recorded twice? What is a transaction was not recorded at all?  Both of these would result in an credits and debits coming out equal- but the balance is still inaccurate Important Vocabulary  Double-entry accounting- two or more transactions are affected  Journalizing- recording something in the journal  Ledger- a collection of t-accounts  Posting- transferring info from the journal onto the ledger (this is Step 3 in the Accounting Cycle)


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Anthony Lee UC Santa Barbara

"I bought an awesome study guide, which helped me get an A in my Math 34B class this quarter!"

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.