Introduction to Financial Accounting Chapter 2.pptVIP

Chapter 02 The Accounting Cycle: During the Period Roles of Financial Accounting Measure business activities of the company. Communicate those measurements to external parties for decision-making purposes. 2-2 Part A Measuring Business Activities 2-3 LO1 Identify the Basic Steps in Measuring External Transactions Most business enterprises use a computerized accounting system due to the sheer volume of data they must process. Computerized data processing is fast, accurate, and affordable. Knowledge of manual accounting information system will provide an essential understanding of the basic model that underlies the computerized programs. 2-4 Classification of Business Activities EXTERNAL TRANSACTIONS TRANSACTIONS With a separate economic entity With in the company INTERNAL TRANSACTIONS Do not include a separate economic entity 2-5 Measuring External Transactions 2-6 LO2 Analyze the Impact of External Transactions on the Accounting Equation Each transaction will have a dual effect. If an economic event increases one side of the equation, then it also increases the other side of the equation by the same amount. 2-7 Ask yourself these questions… “What is one account in the accounting equation affected by the transaction? Does that account increase or decrease?” “What is a second account in the accounting equation affected by the transaction? Did that account increase or decrease?” ”Do assets still equal liabilities plus stockholders’ equity?” 2-8 External Transactions of Eagle Golf Academy 2-9 Financing Financing Investing Operating Operating Type of Activity? External Transactions of Eagle Golf Academy (Contd.) 2-10 Operating Operating Operating Operating Financing Type of Activity? Transaction(1): Issue Common Stock Eagle Golf Academy Investors Stock certificate It’s time to ask the three questions we asked earlier: What is one account in the accounting equation affected by the transaction? Does that account increase or decrease? Answer: Cash. Cash is a res