Accounting : Chapter 2

(A) economic benefit - things = (L) debts + (SE) investment and reinvestment of shareholders

equity - issues stock and debt - obtain loan

can be obtain by cash or on account - require to operate the business

events or activities that have a direct and measurable financial effect on the asset/liability/shareholder equity of a business involve

assets/liabilities/shareholders between the company and someone else

• occur within the company
• for example, using assets to create an inventory product

analyze -> record -> summarize

duality of effects - transaction has at least 2 effects on the basic accounting equation

summary of all account used to record financial results

• exchange of only promises is not a transaction
• does not affect the accounting equation

record the effect of each day's transactions; organized by date

summarize the effects of journal entries on each account; organized by account

(+Dr) assets (-Cr) = (-Dr) liabilities (+Cr) + (-Dr) Shareholders (+Cr)

record transaction and indicate the effects in a debits-equal-credit format

simplified version of a ledger account used for summarizing the effects of journal entries

internal report that lists all accounts and their balance, and provides a check on debits = credits

shows subtotal for current assets and current liabilities

used up or converted into cash within 12 months

obligation that will be paid/settle/fulfilled within 12 months

asset/liabilities that do not meet the definition of current

• show whether current assets are sufficient to pay current liabilities
• higher ratio mean better ability to pay
• = current assets/current liabilities

• report what a company own and owes
• does not show the company is worth
• recorded at cost

lead to recording decreases in assets value, but generally not increases