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Chapter 2-3

COMMERCE 1AA3 Chapter Notes - Chapter 2-3: Accrual, Canadian Dollar, Deferred Income


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Aadil Merali Juma
Chapter
2-3

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Characteristics of Accounting Info
Fundamental: Relevance, faithful representation
Enhancing: Comparability, verifiability, timeliness, understandability
Assumptions
Unit of Measurement: Canadian Dollar
Separate Entity: Business is a separate entity
Periodicity
Going Concern: Entity will exist forever
Principles
Historical Cost: Record at original price
Full Disclosure
Revenue Recognition: Service performed
Matching: Record expense in period in which it was incurred to generate revenue
Constraints
Cost-Benefit
Materiality: Immaterial assets recorded as expense, supersedes other principles
Accounting Cycle - Daily Activities
Not all business activities are accounting activities
Accounting activities must change financial position
Journalizing > Ledger > Trial Balance > Adjusting Entries > Adjusted Trial Balance >
Financial Statements > Closing Entries > Post-Closing Trial Balance
Assets + Expenses + Losses + Dividends (Left hand side, debit)
=
Liabilities + Revenues + Gains + Common Shares (Right hand side, credit)
Normal Balance: Which side an account is on
Assets, liabilities, and common shares can swap sides when reduced
Example Journal Entry
Cash 2000
A/R 1000
Service
Revenue
3000
Revenue Recognition
Revenue recognized when:
oService performed/good delivered
oAmount is known
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