Slide 1-1 Chapter 2 Principles of Accounting Analyzing Business Transactions

Slide 1-2 Measurement Issues

Slide 1-3 Question: Question: Are the following events recorded in the accounting records? Event Purchased a computer. Criterion Is the financial position (assets, liabilities, or stockholders’ equity) of the company changed? Pay rent. Record/ Don’t Record Discuss product design with potential customer. Measurement Issues

Slide 1-4 Measurement Issues Note 1 - Summary of Significant Accounting Policies: “We recognize sales for commercial airplane deliveries as each unit is completed and accepted by the customer.” Once Boeing reaches final agreements with customers, it receives deposits from them for the airplanes they have ordered. Question: Is this event recorded in the accounting records of Boeing? Recognition

Slide 1-5 Measurement Issues Ethics and Measurement Issues

Slide 1-6 Transaction Analysis Accounting Transactions AssetsLiabilities =+ Owners’ Equity Capital ExpenseRevenue Withdrawal

Slide 1-7 Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. Debit = “Left” Credit = “Right” Account An Account can be illustrated in a T-Account form. The Account

Slide 1-8 Double-entry Double-entry accounting system Each transaction must affect two or more accounts to keep the basic accounting equation in balance. Recording done by debiting at least one account and crediting another. must equal DEBITS must equal CREDITS. Debit and Credit Procedures

Slide 1-9 greater than If Debits are greater than Credits, the account will have a debit balance. $10,000Transaction #2$3,000 $15,000 8,000Transaction #3 Balance Transaction #1 Debit and Credit Procedures

Slide 1-10 greater than If Credits are greater than Debits, the account will have a credit balance. $10,000Transaction #2$3,000 Balance Transaction #1 $1,000 8,000Transaction #3 Debit and Credit Procedures

Slide 1-11 Assets - Debits should exceed credits. Liabilities – Credits should exceed debits. The normal balance is on the increase side. Dr./Cr. Procedures for Assets and Liabilities

Slide 1-12 Owner’s investments and revenues increase owners’ equity (credit). Withdrawals and expenses decrease owners’ equity (debit). Dr./Cr. Procedures for Stockholders’ Equity

Slide 1-13 The purpose of earning revenues is to benefit the owners. The effect of debits and credits on revenue accounts is the same as their effect on owners’ equity. Expenses have the opposite effect: expenses decrease owners’ equity. Dr./Cr. Procedures for Revenue and Expense

Slide 1-14 Normal Balance Credit Normal Balance Debit Debits and Credits Summary

Slide 1-15 Balance Sheet Income Statement Balance Sheet Income Statement = + = - AssetLiabilityEquityRevenueExpense Debit Credit Debits and Credits Summary

Slide 1-16 Debits: a. a. increase both assets and liabilities. b. b. decrease both assets and liabilities. c. c. increase assets and decrease liabilities. d. d. decrease assets and increase liabilities. Review Question Debits and Credits Summary

Slide 1-17 Accounts that normally have debit balances are: a. a. assets, expenses, and revenues. b. b. assets, expenses, and equity. c. c. assets, liabilities, and withdrawals. d. d. assets, withdrawals, and expenses. Review Question Debits and Credits Summary

Slide 1-18

Slide 1-19 Summary of the Accounting Cycle 1. Analyze business transactions 2. Journalize the transactions Prepare financial statements Prepare a trial balance 3. Post to ledger accounts 5.

Slide 1-20 Accounting Cycle

Slide 1-21 Accounting Cycle

Slide 1-22 Accounting Cycle

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