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Accounting (533)
ACC 100 (214)
Chapter 1

Accounting Chapter 1 Notes.docx

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ACC 100
Julie Mc Donald

10/28/2013 11:26:00 AM Accounting Chapter 1 Notes Income Statement Revenue  Revenue Recognition, revenue should be recorded when earned (services performed and goods sold) Expense  Expenses should be matched to the revenue they helped earn Statement of Retained Earnings  All the net income from the years prior less all the dividends paid out in prior years Chapter 2 Notes Qualitative Characteristic  Understandability o To those willing to take the time to get their  Relevance o Has capacity to make a difference  Reliability o Represents what it is suppose to Economic Entity Principle  Each entity has its own books, records and financial statements that are separate from owners  No mingling of personal and business assets and liabilities and expense Cost Principle  Record Assets at cost paid to acquire them  Continue to value assets at historical cost until sold  More objective than market value Going Concern  Assume business will continue indefinitely into the forseeable future  Justifies use of historical cost Monetary Unit  How we measure  Assumes economic measure is relatively stable no adjustment for inflation made in financial statements Time Period Assumption  assume it is possible to break up an entity’s earning in discrete time periods (a month, quarter, a year)  Necessary to provide users with financial results on a timely basis requires use of estimates External vs Internal Events  External Events: interaction between entity and outside environment  Internal Events: interaction within entity  If an event is measurable and realized then it’s a transaction o Only transactions are recorded Chapter 4: Recognition and Measurement  Recognition: formally recording an item in the financial statements of an entity  Measurement: Quantification of the effects of the item on the entity  Economic Events o Like the purchase of land, or payment of an invoice  Recognized o Using words (account names and numbers) (dollar amounts)  Measured o With characteristics and attributes Cash Vs Accrual Basis  Records revenue when cash is received ( cheques, credit card or cash)  Records expenses when cash is paid ( usually by cheque in a business) Accrual- Basis Accounting  Record revenue when earned  Records expenses when incurred used or consumed to generate revenue  Under accrual accounting we record the economic activity that the company is engaged in Example to demonstrate the difference between cash and accrual accounting  A contractor is hired to paint a house and to install a music system  In October the contractor buys the paint, paints the ho
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