ACCT 201

Accounting
2
Chapter

Information
System
ACCT 201

UAA – ACCT 201

ACCT 201

Principles of Financial
Accounting
Dr. Fred Barbee
 Chapter 2 - Day 1 - Agenda

Topic LO Read HW
Generally Accepted
C1, C2 38-41 QS1, E1
Accounting Principles
Transactions,
C3, QS2,
Documents, and the 41-46
C4, C5 QS3
Accounting Equation
Transaction Analysis
and the Accounting A1 46-52 E3
Equation
derstanding
tastic
ancial
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Learning Accounting

If you want to learn

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accounting, you learn it one

concept at a time, one
principle at a time.
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ACCT 201

Accounting
2
Chapter

Information
System
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Text Section:
Generally Accepted
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Accounting Principles (p. 38)

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C1 Learning
Objective
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Explain the financial

reporting environment
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Conceptual
 The Accounting System:
A Conceptual Overview

Operating Environment
Entity B Entity C

Business Entity A
System Inputs: System Outputs:
Measurable Process and Financial
Transactions Summarize Statements
and Events and Reports

Entity D Entity E
Financial Reporting Environment

FASB GAAP

Financial
Statements
Preparers

Audit
Report Decision makers
Auditors

ASB
GAAS
Independent Management Management
Auditor Prepares
1
A
3 A
P Income Statement
Balance Sheet
Auditors G
S Statement of
Cash Flows
G
A
A
Lends Basic
Credibility Mistrust
Users
4 2
International Accounting Principles
Despite our growing global economy,
countries continue to maintain their
unique set of acceptable accounting
practices.
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C2 Learning
Objective
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Identify, explain, and apply

accounting principles.
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Conceptual
 A business
continues operation
instead of being
closed or sold.

Financial Statement
A business is information is
accounted for supported by
separately from its independent,
owner(s). unbiased evidence.
 Express
transactions and
events in monetary
units.

Financial statements are based on

actual costs incurred in business
transactions.
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Accounting
2
Chapter

Information
System
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Text Section:
Transactions,
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Documents, and Accounts (p.

41)
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C3 Learning
Objective
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Identify, explain, and apply

accounting principles.
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Conceptual
 Exh.
2.2

The Accounting Process

Source
Transaction documents Analysis
or event

Reporting
Trial balance Recording &
posting
 Transactions and Events
Exchanges of economic consideration
between two parties.
External Transactions
occur between the
organization and an
outside party.

Internal Transactions
occur within the
organization.
Accounting Information System

Ongoing Boundary
events in
world
Data
Recording
Bank

Information Classifying
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C4 Learning
Objective
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Describe source documents

and their purpose.
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Conceptual
Source Documents

Other
Invoices
Bank Statement

Journal
Check
Stubs
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C5 Learning
Objective
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Describe an account and

its uses in recording
transactions.
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Conceptual
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Account
A storage unit used to classify and
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summarize money measurements of

business activity of a similar nature.
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The Account
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Detailed record of increases

and decreases in specific
assets, liabilities, equities,
revenues, or expenses.
=======================
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Separate accounts are maintained for

each item of importance.
The General
Ledger
Accts Rec.
Inventory
General
Cash
Ledger

Notes Pay. Revenue

Mortgage Expenses
Accts Pay. Retained
Earnings
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 Account Title

Left Side Right Side

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The Formal
Account
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The Balance Column

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Ledger
Account Title Account No. ###

Post Balance
Date Item Ref Debit Credit Debit Credit
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Accounting
2
Chapter

Information
System
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Text Section:
Transactional Analysis
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and the Accounting Equation

(p. 46)
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A1 Learning
Objective
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Analyze business
transactions using the
accounting equation.
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Analytical
 Owners’
Assets = Liabilities + Equity

Capital Retained
Stock Earnings

The
Revenue -Expenses
Accounting
Equation = Net
Income
A = L + OE
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Analyzing Transactions

• Analyze the transaction and its

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source.
• Identify the impact of the
transaction on account balances.
3. Identify the financial
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statements that are impacted

by the transaction.
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Transaction Analysis –
Part 1 (Text p. 47)
On December 1, Chuck Taylor forms
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an athletic shoe consulting business.

He sets it up as a corporation. Taylor
owns and manages the business. The
marketing plan for the business is to
focus primarily on consulting with
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sports clubs, amateur athletes and

others who place orders for athletic
shoes with manufacturers.
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Transaction Analysis –
Part 1 (Text p. 47)
Taylor personally invests $30,000
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cash in the new company in exchange

for common stock, and deposits the
cash in a bank account opened under
the name of FastForward, Inc.
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Transaction Analysis –
Part II (Text p. 50)
To illustrate how revenue recognition
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works, let’s return to FastForward’s

transactions.
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ACCT 201 Chuck Taylor invests $30,000 in the
1 company in exchange for common
stock.
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ACCT 201 FastForward purchases $2,500 of
2 supplies for cash.
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ACCT 201 FastForward spends $26,000 to
3 acquire equipment for testing
athletic shoes.
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4 FastForward purchased $7,100 of

supplies on credit.
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ACCT 201 FastForward provides consulting
5 services to an athletic club and
collects $4,200 in cash.
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ACCT 201 FastForward pays $1,000 rent to the
6 landlord of the building where its
store is located.
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ACCT 201 FastForward pays the biweekly
7 $700 salary of the company’s only
employee.
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Revenue Recognition Principle

• Revenue is recognized when earned.

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• Assets received from selling

products and services need not be in
cash.
• Revenue recognized is measured by
the cash received plus the cash
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equivalent (market) value of any

other assets received.
 FastForward provides consulting
8 services of $1,600 and rents its test
facilities for $300.
 The client in transaction 8 pays $1,900
9 to FastForward 10 days after it is
billed for consulting services.
 FastForward pays $900 to CalTech
10 Supply as partial payment for its
earlier $7,100 purchase of supplies.
 FastForward declares and pays a
11 $600 cash dividend to its owner.
 Cash
(1) 30,000 (2) 2,500
(5) 4,200 (3) 26,000
(9) 1,900 (6) 1,000
(7) 700
Increases 36,100 (10) 900
Decreases -31,700 (11) 600
Balance 4,400 Decreases 31,700
Cash Account No. 101
Balance
Date Item PR Debit Credit Debit Credit
(1) 30,000 30,000
(2) 2,500 27,500
(3) 26,000 1,500
(5) 4,200 5,700
(6) 1,000 4,700
(7) 700 4,000
(9) 1,900 5,900
(10) 900 5,000
(11) 600 4,400
“One must learn by
doing the thing;
though you think
you know it, you
have no certainty
until you try it.”
Publilius Syrus,
Moral Sayings