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Management

Management. Chapter 6: Accounting Procedures—Part I. Accounting. Process of recording, measuring, summarizing, analyzing, and interpreting financial information and communicating it for decision-making purposes

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Management

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  1. Management Chapter 6: Accounting Procedures—Part I

  2. Accounting • Process of recording, measuring, summarizing, analyzing, and interpreting financial information and communicating it for decision-making purposes • An accounting entity is any business, individual, or not-for-profit organization whose financial information is separate from any other • Business entities can be a sole proprietorship, partnership, or a corporation

  3. Financial Information • Financial information is recorded when the transaction takes place • Common monetary unit is used • Historical cost • Stable dollar concept • Financial information is classified relative to the areas that are affected • Financial information is summarized into reports • Accounting information is used by internal and external users

  4. Reporting Accounting Information • General purpose external reports are known as financial statements; include balance sheet, income statement, statement of retained earnings, and statement of cash flows • Generally accepted accounting principles set by the Financial Accounting Standards Board • Audits by CPAs judge fairness of reports • Internal reports are used by managers, do not have to follow generally accepted accounting principles

  5. Going concern Relevance Periodicity Estimation Consistency Conservatism Full Disclosure Materiality Basic Concepts and Principles

  6. Accounts • Recording information in accounts, computerized or manual systems • Using T-accounts as teaching tools • Recording debits (left side) and credits (right side), adding and subtracting • Recording entries to summarize transactions • Calculating account balances, difference between debits and credits • The ledger is a record of accounts

  7. Permanent Accounts—Balance Sheet Accounts • Assets are economic resources • Increases are debits, decreases are credits • Recorded at cost • Liabilities are obligations or debts • Increases are credits, decreases are debits • Owner’s equity represents the resources invested by the owners • Owner’s equity = Total Assets – Total Liabilities • Increases from investment or retained earnings • Decreases from distribution of assets or losses • Increases are credits; decreases are debits

  8. The Accounting EquationAssets = Liabilities + Owner’s Equity • Equality represented between assets and associated rights/claims • Sources of assets, another way to look at liabilities • Continual changes in composition of assets, liabilities, and capital • Residual aspect of owner’s equity • Double-entry accounting, debits must equal credits

  9. Temporary Accounts • Revenues are earnings • Increases are credits, decreases are debits • Expenses are costs of goods and services used as a result of earning revenue • Increases are debits, decreases are credits • Net Income = Revenue - Expenses • Reported periodically (when earned), matched with associated expenses, increases owner’s equity, closed to income summary • Investment by owners is not revenue • Withdrawals and dividends

  10. The Accounting Cycle • Analyze and record transactions • Post journal entries to ledger accounts • Prepare a trial balance to check debits/credits • Complete worksheet, adjusting entries • Prepare financial statements using worksheet information • Prepare a post-closing trial balance • The next accounting cycle begins

  11. Recording Accounting Transactions • Journalizing is done chronologically • Source documents provide information • General journal most common • Posting transfers journal entries to the ledger • Post debit entry first, then follow with the credit • Ledger account number is the reference recorded in the journal

  12. Adjusting Entries • Estimates • Depreciation expense • Allowance for uncollectible accounts • Prepaid/Unearned Accounts • Insurance expense • Supplies expense • Revenues • Rental revenue • Accruals • Salaries • Interest (expense and income)

  13. Closing Entries • Close revenue and gain accounts to income summary • Close expense and loss accounts to income summary • Close the income summary account • Close withdrawal and dividend accounts • Journalize and post closing entries • Prepare the post-closing trial balance

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