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Chapter 3

ACC 100 Chapter Notes - Chapter 3: Source Document, Accounting Equation, Retained Earnings

Course Code
ACC 100
Else Grech

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Chapter 3 – Processing accounting information
Economic events: the basis for recording transactions
Event is a happening of consequence to a company
External and internal events
2 types of events affect entity
oExternal event – involves interaction between the company and its environment,
for example, payment of wages to employee, hiring of a new sales manager
oInternal event – happens entire within the company, for example use of a
Transaction is any event that is recognized in a set of financial statements
The role of source documents in recording transactions
First step in accounting is identification
Source document is a piece of paper that provides the evidence to record a transaction
For example, invoice received from a supplier is the source document for a purchase of
inventory on credit
Analyzing the effects of transactions on the accounting equation
Transactions of Glengarry Health Club
Issuance of capital stock
o2 owner invests $50,000 and receives 5,000 shares in return
oEach owner now owns 50% of the outstanding shares of the company and has a
claim to 50% of its assets
oEffect of this transaction on the accounting equation would be to increase assets
by $100,000 and shareholders’ equity by $100,000
Acquisition of equipment
o2 owners contact equipment supplier and buys $150,000 of equipments
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