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INTRO to Financial Accounting ACCY2001 Chapter 2 NOTES

by: Anika Mian

INTRO to Financial Accounting ACCY2001 Chapter 2 NOTES ACCY 2001

Marketplace > George Washington University > Accounting > ACCY 2001 > INTRO to Financial Accounting ACCY2001 Chapter 2 NOTES
Anika Mian
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About this Document

These notes cover main material discussed for Chapter 2. Notes include worked out examples.
Intro to Financial Accounting
James T Wood
Class Notes
Financial Accounting ACCY 2001




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This 5 page Class Notes was uploaded by Anika Mian on Saturday February 6, 2016. The Class Notes belongs to ACCY 2001 at George Washington University taught by James T Wood in Spring 2016. Since its upload, it has received 66 views. For similar materials see Intro to Financial Accounting in Accounting at George Washington University.


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Date Created: 02/06/16
Chapter 2 Tuesday, January 12, 2016 Main Points • Qualitative Characteristics of Accounting Information • Debits/Credits • Journal Entries • T-Accounts GAAP • Generally accepted accounting principles • Conceptual Framework Fundamental Qualitative Characteristics • Relevance ○ Predictive  What's going to happen in the future ○ Confirming  Stability; if the transactions took place ○ Material  Has to matter to prove to sway an investor • Faithful Representation (Correct) ○ Complete ○ Neutral  Hire fancy auditors and check the info/ NEUTRAL PARTY ○ Free from Error Enhancing Qualitative Characteristics • Comparability • Verifiability • Timeliness • Understandability Accounting Assumption • Economic Entity ○ A person or a business are two separate things • Continuity (Going Concern) ○ A business is expected to operate in the foreseeable future (at least a year) • Time-Period ○ Pick a business' transactions and separate them in specific time periods • Monetary Unit ○ Asset can be expressed as a dollar figure, and we can add additional assets to the same dollars  Buy a piece of land in 1957, and buy a piece of land in 2008, I can have them together. • Historical Cost ○ Transaction cost of an asset  When a company buys land in 1956 (cost 20,000),even though today it costs a lot more-- if they were a business, the asset house would still be listed for whatever they paid for. Other Important Items • External Transactions ○ Outside Entity ○ Sales, Purchasing, etc. • Internal Transactions ○ Depreciation ○ Using up Prepaid amounts • Common Stock and APIC (Additional Paid-In Capital) ○ When a company sells shares of common stock, on the books of a company, it'll have a weird value--- The common stock will show that value per share.  TOTAL: Issuing 100 shares of stock at 15$ per share = $1500  C/S (1 cent): $1.00  APIC: 1,499.00 THE ACCOUNTINGCYCLE Chapter 2 Page 1 Journal vs. Ledger • Journal Entries ○ Special Journals and General Journal  Special journal- specific journal CELLS journal- separate out chunks of transactions ○ Double Entry Transactions (Bookkeeping)  Idea of maintaining an EQUAL accounting equation (A = L + E)  Two transactions entered for one transaction bc equation should be equal ○ May affect multiple accounts ○ Chronological (Daily) as they happen • General Ledger ○ Summary of Account Transactions and Balances by Account ○ Transfers from Journals are "Posted" here General Ledger Trial Balance •Posted Transactions by Account •Account Balances only ○ T-Accounts ○ Always add up debits and credits and they must be equal •Account Balance (T or Column) •Shows us a summary/ precursor to the financial statements •We record and create it to make sure that our debits and credits are equal transactions Categories of Accounts • Assets • Liabilities • Equity • Revenue • Expenses • Dividend Debits and Credits Debits are: Credits are the: Debits INCREASE • If we get land, that asset is DEBITED. Chapter 2 Page 2 Debits are: Credits are the: Debits INCREASE • If we get land, that asset is DEBITED. Credits Expenses Increase Assets Dividends Liabilities Equity Revenue Accounting Equation Theorem Assets = Liabilities + Equity Assets + Expenses + Dividends = Liabilities + Capital + Retained Earnings + Revenues Journal Entry Steps Analysis 1. What Accounts are Involved? 2. What Type of Accounts 3. Are the Accounts Increasing or Decreasing? WRITE THE JOURNAL ENTRY 1. Debits on TOP and LEFT 2. Credit on RIGHT and BOTTOM DR. Debit Account $ Amount CR. Credit Account $ Amount _____________________________________________________________________________ Chapter 2 Page 3 Chapter 2 Page 4 CURRENT RATIO-- DON’T MEMORIZE; JUST KNOW Current ratio: current assets/ current liabililtes Chapter 2 Page 5


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