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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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learning objectives
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
functions of financial accounting
Functions of Financial Accounting
  • Measure business activities of the company
  • Communicate measurements to external parties for decision making
part a

2-4

Part A

Measuring Business Activities

learning objective 1

2-5

Learning Objective 1

Identify the Basic Steps in Measuring External Transactions.

external transactions
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
capturing transactions in accounts
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
learning objective 2

2-9

Learning Objective 2

Analyze the impact of external transactions on the accounting equation.

effects on the basic accounting equation
Effects on the Basic Accounting Equation
  • Each transaction will have a dual effect
    • An increase on one side will increase the other side
understanding effects of transaction
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?
part b

2-13

Part B

Debits and Credits

learning objective 3

2-14

Learning Objective 3

Assess Whether the Impact of External Transactions Results in a Debit or Credit to an Account Balance.

learning objective 4

2-18

Learning Objective 4

Record transactions using debits and credits.

recording transactions
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
learning objective 5

2-20

Learning Objective 5

Post transactions to T-accounts in the general ledger.

posting
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
learning objective 31

2-22

Learning Objective 3

Prepare a Trial Balance.

trial balance
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
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