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Define the realization principle and matching concept1.
Differentiate between cash and accrual accounting2.
Identify the normal balance and transaction effect for each account type (debit vs. credit)3.
Recognize the process of recording and posting economic events4.
Summarize double-entry accounting5.
Record journal entries and identify effects of each transaction on financial statement elements6.
Define gains and losses7.
Describe the accounting cycle8.
Explain the purpose and use of financial statement analysis and calculate ratios
When goods are sold or services are performeda.
Not necessary to receive cash to record revenue (pay later)b.
Receipt of cash doesn't always indicate earned revenue (service later)c.
Record revenue independent of exchange of cashd.
Required that receipt of cash be relatively assured to record revenuee.
Realization principle states to record revenue when 1) earnings process is (virtually) complete
and 2) reasonable certainty to collectability of asset
Accrual Accounting - based on GAAPi.
Cash vs Accrual Accountinga.
Record when incurred if not easily traceable to a revenue
Matching concept states to record expenses in the same accounting period that the related
revenue is earned,
not payment of cash
Record revenues when cash is received1.
Record expenses when cash is paid2.
Cash Accounting does NOT follow GAAP
Accrual Accounting must be used by companies who sell stock to the publicii.
Cash Accounting can be used by private companies and often by individualsiii.
Bank loans may require accrual accounting due to cash accounting statements being more easily
Side with greater balance = "x balance"1.
Our class uses T-accounti.
Account - place where all increases and decreases in financial statement items are recordedb.
Account Type Increase Decrease Normal Balance
Asset Debit Credit Debit
IMPORTANT CHART KNOW THIS YESTERDAY
2. Transaction Analysis
Saturday, January 21, 2017 11:55 AM
Unit 1 Page 1