Session 2
The Recording Process
and Mechanics
FINANCIAL ACTG. - BUS 020 - Spring 2015
Competencies by
Session 3











What are the primary financial statements in the F/S Package?
What are their uses?
What are the other key components of the F/S Package?
What are their uses?
Describe the Financial Accounting Model.
What is the accounting equation?
Relate it to the Balance Sheet.
Relate it to the Income Statement.
What is Statement of Financial Accounting Concepts #1 (SFAC #1)?
What are the financial accounting assumptions?
What are the financial accounting principles?
FINANCIAL ACTG. - BUS 020 - Spring 2015
Historical Cost versus
Relevant Information

What is NOT on the balance sheet.





Land at current value.
Intellectual property.
Off-balance sheet liabilities
Measurement bias
Management bias
FINANCIAL ACTG. - BUS 020 - Spring 2015
Two Other Factors

Materiality

Conservatism
FINANCIAL ACTG. - BUS 020 - Spring 2015
Transactions

External events

Internal events

“...a measurable exchange or change
in value, generally recorded AFTER
the fact.”
FINANCIAL ACTG. - BUS 020 - Spring 2015
Key Accounts





Assets
Liabilities
Equity
Revenues
Expenses
FINANCIAL ACTG. - BUS 020 - Spring 2015
Measuring TransactionsThe Basics



At least two account
The integrity of the accounting
equation
Debits (left-side entries) =
Credits (right-side entries
FINANCIAL ACTG. - BUS 020 - Spring 2015
Measuring TransactionsMethodology




Determine the accounts
Determine the direction of the
exchange
Determine the amounts
Note pages 54- 71 very carefully
FINANCIAL ACTG. - BUS 020 - Spring 2015
The “T-Account”
ASSETS & EXPENSES
Debit
Credit
FINANCIAL ACTG. - BUS 020 - Spring 2015
LIABILITIES, EQUITY & REVENUES
Debit
Credit










Accounting
(Bookkeeping) Cyclemodified
Analyze Transaction
Record and Post
Summarize Accounts
Unadjusted Trial Balance
Adjusting Journal Entries (AJE’s)
Adjusted Trial Balance
Prepare Income Statement
Closing Entries
Final Trial Balance
Prepare Balance Sheet, SCF and SSE
FINANCIAL ACTG. - BUS 020 - Spring 2015
Close Worksheet
Account Title
Unadjusted T/B
Dr.
Cr.
Adjusting Entries
Dr.
Cr.
FINANCIAL ACTG. - BUS 020 - Spring 2015
Adjusted T/B
Dr.
Cr.
Closing Entries
Dr.
Cr.
Final T/B
Dr.
Cr.
Financial Statement
Preparation

Headings are IMPORTANT


Company, Title and Date
Note how the T-Account balances
track to the actual financial
statements
FINANCIAL ACTG. - BUS 020 - Spring 2015
Financial Statement
Relationships
Balance Sheet
Current
Assets
Noncurrent
Assets
Current
Liabilities
Longterm
Debt
Income Statement
Revenue
Cost of Goods
Sold (COGS)
Gross Margin
Operating Exps.
Statement of Cash Flows
Operating Cash
FINANCIAL ACTG. - BUS 020 - Spring 2015
Beginning S/E
Investing Cash
Financing Cash
Change in Cash
Net Income
Less: Dividends
Beginning Cash
Equity
Net Income
Stmt of Sharehldrs Eq.
Ending Cash
Ending S/E
Adjusting Journal
Entries

Accruals



Prepayments
Deferrrals
Cost Expirations
FINANCIAL ACTG. - BUS 020 - Spring 2015