1. Chapter 2 Measuring Business Transactions

2. 3 Measurement Issues Recognition – when should the transaction be recorded? Recognition – when should the transaction be recorded? Valuation – what value or dollar amount to place on the transaction? Valuation – what value or dollar amount to place on the transaction? Classification – how the components of the transaction should be catagorized Classification – how the components of the transaction should be catagorized

3. Cost Principle States the business transactions should be recognized at their original cost (historical cost) States the business transactions should be recognized at their original cost (historical cost) Cost refers to the transaction’s exchange price at the point of sale or purchase Cost refers to the transaction’s exchange price at the point of sale or purchase

4. General Ledger All of the company’s accounts are contained in the General Ledger All of the company’s accounts are contained in the General Ledger Chart of accounts - a ccounts are listed in the following order Chart of accounts - a ccounts are listed in the following order »Assets »Liabilities »Stockholders’ Equity »Revenues »Expenses

5. Double Entry Accounting System Requires that for each transaction that account(s) debited = account(s) credited Requires that for each transaction that account(s) debited = account(s) credited “T” Accounts “T” Accounts

6. Analyzing and Processing Transactions See page 123 graph

7. Rules for debiting and crediting Balance Sheet Accounts Assets Assets –increases are debited –Decreases are credited Liabilities Liabilities –Increases are credited –Decreases are debited Stockholders’ Equity Stockholders’ Equity –Increases are credited –Decreases are debited

8. Rules for debiting and crediting Income Statement Accounts Revenues Revenues –Increases are credited –Decreases are debited Expenses Expenses –Increase are debited –Decreases are credited

9. 5 steps in processing transactions 1. Transactions are generated from source documents such as an invoice or check 2. Decide what to debit and credit 3. Enter the transaction in a Journal Entry form recording debits and credits 4. Post the Journal entry ensuring “debits = credits” “debits = credits” Prepare a trial balance of all accounts

10. Stockholders’ Equity Accounts See page 121 graph

11. Postings from General Journal to the Ledger After transactions have been entered into the journal they must be transferred to the ledger—this process is known as “posting” See page 135 graph