ch2 Transaction Analysis.ppt

Chapter 2 Transaction Analysis Analyze business transactions Record business transactions (Double-Entry Accounting) Trial balance The Account Transactions A transaction is any event that has a financial impact on the business and can be measured reliably. Not all activities in a company should be record as a transaction. Example: On Sep. 6th, XXX company earns $50000 of revenue by selling computers. On Sep. 13th, it signs a purchase contract. It is involved in certain claims and litigation related to the infringing upon the patent of others. The Account The account An account is the record of all the changes in a particular asset, liability, or stockholders’ equity during a period. Accounting equation: Assets = Liabilities + Stockholders’ Equity Net income = Total Revenues – Total Expenses The Account Assets A probable future economic benefit obtained or controlled by an entity as a result of a past transaction or event; 1.It is a kind of resources and generates a probable economic benefit for the entity. 2.It is owned or controlled by the entity. 3.It arose from a past transaction or event. 4.It can be measured by money Classified into current and non-current assets on the B/S; The Account Current assets: Economic benefits are expected to be realized within a short period of time, usually within one year of the B/S date. Current assets are listed in order of liquidity; Cash Short-term investments (marketable securities) Receivables Inventories Prepaid expenses The Account Current assets: Cash - coins, currency, and bank deposits. petty cash, cash equivalents Short-term investments - Investment in other entities’ stocks or bonds. Sometimes referred to as “Marketable Securities” ? Intend to hold for less than a year; The Account Current assets: Accounts Receivable - The amounts due from customers for goods or services they purchased on credit. Because some customers do not pay their bills, the balance is reduced by