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The Accounting Cycle: During the Period

The Accounting Cycle: During the Period. Chapter 2. Learning Objectives. Identify the basic steps in measuring external transactions Analyze the impact of external transactions on the accounting equation

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The Accounting Cycle: During the Period

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  1. The Accounting Cycle: During the Period Chapter 2

  2. Learning Objectives • Identify the basic steps in measuring external transactions • Analyze the impact of external transactions on the accounting equation • Assess whether the impact of external transactions results in a debit or credit to an account balance • Record transactions using debits and credits • Post transactions to T-accounts in the general ledger • Prepare a trial balance

  3. Functions of Financial Accounting • Measure business activities of the company • Communicate measurements to external parties for decision making

  4. 2-4 Part A Measuring Business Activities

  5. 2-5 Learning Objective 1 Identify the Basic Steps in Measuring External Transactions.

  6. External Transactions • Transactions conducted with a separate economic entity • Internal transaction: events that affect the financial position of the company but do not include an exchange with a separate economic entity

  7. Capturing Transactions in Accounts • Account: Summary of all transactions related to a particular item over a period of time. • Asset accounts: Cash, Supplies, and Equipment • Liability accounts: Accounts Payable, Salaries Payable, Utilities Payable, and Taxes Payable • Stockholders’ equity accounts: Common Stock and Retained Earnings • Chart of accounts: A list of all account names used to record transactions

  8. 2-8 Measuring External Transactions

  9. 2-9 Learning Objective 2 Analyze the impact of external transactions on the accounting equation.

  10. Effects on the Basic Accounting Equation • Each transaction will have a dual effect • An increase on one side will increase the other side

  11. Understanding Effects of Transaction • Ask these questions: • What is one account affected by the transaction? • Does it increase or decrease? • What is a second account affected by the transaction? • Does it increase or decrease? • Do assets still equal liabilities plus stockholders’ equity?

  12. 2-12 The Expanded Accounting Equation

  13. 2-13 Part B Debits and Credits

  14. 2-14 Learning Objective 3 Assess Whether the Impact of External Transactions Results in a Debit or Credit to an Account Balance.

  15. 2-15 Effects on Account Balances

  16. 2-16 Debit and Credit Effects on Accounts in the Expanded Accounting Equation

  17. Debit and Credit Effects on Each Account Type • A simpler memory way

  18. 2-18 Learning Objective 4 Record transactions using debits and credits.

  19. Recording Transactions • Journal: provides a chronological record of all transactions • Journal entry: format used for recording transactions • Debits in a transaction must equal its credits

  20. 2-20 Learning Objective 5 Post transactions to T-accounts in the general ledger.

  21. Posting • Posting: process of transferring the debit and credit information from the journal to individual accounts in the general ledger • General ledger: includes all accounts used to record the company’s transactions • Useful to calculate the account balances • T-account: a simplified form of a general ledger account

  22. 2-22 Learning Objective 3 Prepare a Trial Balance.

  23. Trial Balance • A list of all accounts and their balances at a particular date • Shows that total debits equal total credits • Assists in preparing adjusting entries • Used for internal purposes only • Not published to external parties • Not required to follow an order of listing

  24. 2-24 End of Chapter 2

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