Textbook Notes (363,420)
Canada (158,366)
Management (802)
MGT120H5 (65)
Chapter 2

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University of Toronto Mississauga
Catherine Seguin

Chapter 2 : transaction analysis Transaction: any event that has financial impact on business  can be measured, provide objective info and assign $ amount to transaction The account: summarizes the changes that occur in the accounting equation • Assets: cash, a/r, inventory, notes receivable, prepaid expenses, land, buildings, equipment, furniture, and fixtures • Liabilities: bank loan, notes payable, a/p, accrued liabilities (for expenses incurred but not paid), long term liabilities : greater than 12 months (bonds and mortages) • Shareholder’s equity: contributed capital (common shares) & retained earnings (accumulation of net income minus net losses and dividends) Accounting Cycle: transaction occurs  analyze the transaction  record in journal  transfer to general ledger  trial balance Learning objective 1: analyze transactions Transaction affects financial position of business entity and can be reliably recorded *refer to falk consulting example on slides* Learning objective 2: understand how accounting works A= L + OE • Cash + accounts receivable + office supplies + land = accounts payable + common shares + retained earnings Double entry accounting: uses debits and credits to record the dual effects of each business transaction For every debit(left) there is a credit (right) Learning Objective 3: record transactions in the journal Step 1: identify transaction and specify each account affected Step 2: determine whether each amount is increased or decreased by transaction. Use rules of debits and credits Step 3: enter transaction in journal, including brief explanation for entry Journal: chronological record of all transactions listed by date  always indent credit Ledger: grouping of all accounts; shows their balances Posting: process of copying data to ledger data Flow ofAccounting data: transaction occurs  transaction analyzed  transaction entered in journal  amounts posted to the ledger Learning Objective 4: use trial balance Trial Balance: lists all accounts w/ their balances – assets first, followed by liabilities and then shareholder’s equity  tells if debits and credits balance Learning Objective 5: analyze transactions using only t-accounts Main income measures: Operating income, gross profit, net income How to tell if company can pay their debt: look at balance sheet How would net income affect accounting equation? Increase assets and increase shareholder’s equity During the year ABC co. had revenues of 75 and expenses of 40. Total liabilities at year end amounted to 105 a
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