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Session 2 The Recording Process and Mechanics

Session 2 The Recording Process and Mechanics. Competencies by Session 3. What are the primary financial statements in the F/S Package? What are their uses? What are the other key components of the F/S Package? What are their uses? Describe the Financial Accounting Model.

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Session 2 The Recording Process and Mechanics

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  1. Session 2The Recording Process and Mechanics FINANCIAL ACTG. - BUS 020 - FALL 2014

  2. Competencies by Session 3 • What are the primary financial statements in the F/S Package? • What are their uses? • What are the other key components of the F/S Package? • What are their uses? • Describe the Financial Accounting Model. • What is the accounting equation? • Relate it to the Balance Sheet. • Relate it to the Income Statement. • What is Statement of Financial Accounting Concepts #1 (SFAC #1)? • What are the financial accounting assumptions? • What are the financial accounting principles? FINANCIAL ACTG. - BUS 020 - FALL 2014

  3. Historical Cost versus Relevant Information • What is NOT on the balance sheet. • Land at current value. • Intellectual property. • Off-balance sheet liabilities • Measurement bias • Management bias FINANCIAL ACTG. - BUS 020 - FALL 2014

  4. Two Other Factors • Materiality • Conservatism FINANCIAL ACTG. - BUS 020 - FALL 2014

  5. Transactions • External events • Internal events • “...a measurable exchange or change in value, generally recorded AFTER the fact.” FINANCIAL ACTG. - BUS 020 - FALL 2014

  6. Key Accounts • Assets • Liabilities • Equity • Revenues • Expenses FINANCIAL ACTG. - BUS 020 - FALL 2014

  7. Measuring Transactions-The Basics • At least two account • The integrity of the accounting equation • Debits (left-side entries) = Credits (right-side entries FINANCIAL ACTG. - BUS 020 - FALL 2014

  8. Measuring Transactions-Methodology • Determine the accounts • Determine the direction of the exchange • Determine the amounts • Note pages 54- 71 very carefully FINANCIAL ACTG. - BUS 020 - FALL 2014

  9. The “T-Account” ASSETS & EXPENSES LIABILITIES, EQUITY & REVENUES Debit Credit Debit Credit FINANCIAL ACTG. - BUS 020 - FALL 2014

  10. Accounting (Bookkeeping) Cycle-modified • Analyze Transaction • Record and Post • Summarize Accounts • Unadjusted Trial Balance • Adjusting Journal Entries (AJE’s) • Adjusted Trial Balance • Prepare Income Statement • Closing Entries • Final Trial Balance • Prepare Balance Sheet, SCF and SSE FINANCIAL ACTG. - BUS 020 - FALL 2014

  11. Close Worksheet FINANCIAL ACTG. - BUS 020 - FALL 2014

  12. Financial Statement Preparation • Headings are IMPORTANT • Company, Title and Date • Note how the T-Account balances track to the actual financial statements FINANCIAL ACTG. - BUS 020 - FALL 2014

  13. Financial Statement Relationships Stmt of Sharehldrs Eq. Balance Sheet Income Statement Statement of Cash Flows Current Assets Non- current Assets Current Liabilities Long- term Debt Equity Revenue Cost of Goods Sold (COGS) Gross Margin Operating Exps. Net Income Operating Cash Investing Cash Financing Cash Change in Cash Beginning Cash Ending Cash Beginning S/E Net Income Less: Dividends Ending S/E FINANCIAL ACTG. - BUS 020 - FALL 2014

  14. Adjusting Journal Entries • Accruals • Prepayments • Deferrrals • Cost Expirations FINANCIAL ACTG. - BUS 020 - FALL 2014

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