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Week 2 Accounting


Accrual Accounting Based on (GAAP) Realization Principle Matching Conept
Realization Principle Earning Process is Consider complete when Goods/Services are sold " the exchange of cash is not necessary to record revenue" Good/Services administered is enough to record revenue
Matching Concept Record Expense the same period that it helps generate revenue
Accrual Accounting must be used by Who? Any company that sells Securities(stock) to the Public *Most often need to receive a loan from a bank if you are a company "
Cash Accounting Record when: Received Cash (Revenues) Paid Cash (Expenses)
Account Place where all increases and decreases are recorded
T account Left and Right Side? Left Debt , Right Credit Debt>Credit = record on Debt side
Asset: Increase, Decrease, Normal Balance Debt,Credit,Debt
Liability: Increase, Decrease, Normal Balance Credit,Debit,Credit
Equity: Increase, Decrease, Normal Balance Credit,Debit,Credit
Revenue: Increase, Decrease, Normal Balance Credit,Debit,Credit
Expense: Increase, Decrease, Normal Balance Debt,Credit,Debt
Accounting Transactions Economic events that require recording in financial statements "Note: Because they result in a change in ALE"
Ledger All accounts of the company taken together "Note: think of ledger as all the T-Accounts of the Company"
Journal The Place where all the accounting transactions are initially recorded
Journal Entry The means used to record transitions of the journal
Double Entry Accounting Every entry must have a Debt and a Credit "Note: Debts MUST = Credits"
Posting Process of transferring Debt to Credit amounts from Journal to ledger "Note: Entries to T-Accounts
Gains Sell an Asset other then Inventory Selling price>Cost
Losses Sell an Asset other than Inventory Selling price<Cost
Contra Equity Dividends It Reduces Retained Earnings
Trail Balance Primary Purpose of the trail balance is to Prove debts=credits after posting "Note: List of accounts and their balances are the given time"
Accounting Cycle: Start to Finish 1) Journal, Record Transaction in journal 2) Ledger, Post debt and credit amounts from journal to the ledger 3) Trail Balance, Prepare trail balance 4) Financial Statements
Financial Statement Analysis Examination of Both the relationships among financial statement numbers and the trends in those numbers over time.
Purpose of Financial statement analysis 1) Use the past performance of the company to predict how it will do in the future 2)Evaluate the performance of a company with a eye toward identifying problem areas
Financial Ratios Used by investors and creditors to help them make decisions.
Typical Benchmarks or Comparison Points: Other Company Industry Averages Past years (Trend Analysis)
Liquidity Ratios 1) Working Capital 2) Current Ratio "Note: Short-term ability to pay debts as they come due"
Working Capital Assets (Current) - Liabilities (Current) "Form of Dollar Amount"
Current Ratio Assets (Current) / Liabilities (Current) "Form of Pay short-term debts X-times using current assets"
Created by: Elzbane