Accounting Chapter 2

In: Business and Management

Submitted By abah
Words 6192
Pages 25
| | | |
| | | |
|CHAPTER | |Financial Statements and |
|2 | |Accounting Concepts/Principles |
| | | |
| | | |


I. Financial Statements

A. From Transactions to Financial Statements B. Financial Statements Illustrated 1. Explanations and Definitions a. Balance Sheet b. Income Statement c. Statement of Changes in Owners' Equity d. Statement of Cash Flows 2. Comparative Statements in Subsequent Years 3. Illustration of Financial Statement Relationships

II. Accounting Concepts and Principles A. Schematic Model of Concepts and Principles B. Concepts/Principles Related to the Entire Model C. Concepts/Principles Related to Transactions D. Concepts/Principles Related to Bookkeeping Procedures and the Accounting Process E. Concepts/Principles Related to Financial Statements F. Limitations of Financial Statements

III. The Corporation’s Annual Report



1. To illustrate the four principal financial statements and their basic form.

2. To introduce students to the terminology of financial statements.

3. To present the accounting equation.

4. To explain several of the concepts of financial accounting and…...

Similar Documents

Chapter 2 Managerial Accounting and Cost Concepts

...Chapter 2 Managerial Accounting and Cost Concepts Solutions to Questions 2-1 Managers carry out three major activities in an organization: planning, directing and motivating, and controlling. Planning involves establishing a basic strategy, selecting a course of action, and specifying how the action will be implemented. Directing and motivating involves mobilizing people to carry out plans and run routine operations. Controlling involves ensuring that the plan is actually carried out and is appropriately modified as circumstances change. 2-2 The planning and control cycle involves formulating plans, implementing plans, measuring performance, and evaluating differences between planned and actual performance. 2-3 In contrast to financial accounting, managerial accounting: (1) focuses on the needs of managers rather than outsiders; (2) emphasizes decisions affecting the future rather than the financial consequences of past actions; (3) emphasizes relevance rather than objectivity and verifiability; (4) emphasizes timeliness rather than precision; (5) emphasizes the segments of an organization rather than summary data concerning the entire organization; (6) is not governed by GAAP; and (7) is not mandatory. 2-4 The three major elements of product costs in a manufacturing company are direct materials, direct labor, and manufacturing overhead. 2-5 a. Direct materials are an integral part of a finished product and their costs can be conveniently traced to it...

Words: 9984 - Pages: 40

Accounting Harrison Chapter 2 Solutions

...Chapter 2 Transaction Analysis Short Exercises (5 min.) S 2-1 The transaction had a financial impact on the business and should be recorded. The payment for the computer was not an expense. The payment related to the purchase of an asset, “Equipment,” because the computer is an economic resource of the business. The computer will provide benefit over more than one fiscal period. (5 min.) S 2-2 a. $12,000 (Cash $10,000–$5,000; Supplies $2,000, Computer $5,000) b. $2,000 Accounts Payable Chapter 2 Transaction Analysis Copyright © 2012 Pearson Canada Inc. 65 (5-10 min.) Cash 25,000 2,000 23,000 Supplies 9,000 S 2-3 4,000 Accounts Receivable 6,000 Bal. Accounts Payable 9,000 Rent 4,000 Service Revenue 8,000 Common Shares 25,000 (5 min.) S 2-4 Increased total assets: May 1 (Cash) May 1 (Medical supplies) May 3 (Cash, Accounts receivable) Decreased total assets: May 2 (Cash) 66 Financial Accounting Fourth Canadian Edition Instructor’s Solutions Manual Copyright © 2012 Pearson Canada Inc. (10 min.) S 2-5 CREDIT Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT June 15 Cash ................................................. Note Payable ............................... Borrowed money from the bank. 25,000 25,000 22 Accounts Receivable ...................... 9,000 Service Revenue ......................... Delivered portrait to be paid on account. 28 Cash .................................................

Words: 5295 - Pages: 22

Excel and Access for Accounting Chapter 2

...Excel Chapter 2 1. Entering data into an excel worksheet is very simple. The user just has to click on the desired cell where information is to be entered, and then type what they want in the box. Whatever the user types, whether it be labels such as text entries or values such as numbers and formulas, will be automatically entered into the formula bar as well. 2. Labels and values both refer to data entered into cells in an Excel worksheet. However, they differ in that labels are texts entries whereas values are number or formula entries. 3. A series of # signs means that the number entered into the cell was wider than the column permitted. This can be resolved by resizing the column with to show the entire number and removing the # signs. 4. Changing column width or row height is a very easy task in Excel. The user can place the mouse pointer between the gray area of the columns containing letter headings, click, and drag the column left or right to expand or reduce its size. The same can be done for rows, but the user must drag up or down to resize the row height. Another neat feature is that if the user double clicks in the gray area between letters, the column size will automatically adjust to fit the largest data entry. Furthermore, the user can automatically adjust all the rows and columns of a worksheet by clicking on the arrow in the gray box in the upper left corner and then double clicking the gray at the top between any column or row. 5. The appearance of......

Words: 940 - Pages: 4

Ebook - Intermediate Accounting - Chapter 2

...C H A P T E R 2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING LEARNING OBJECTIVES After studying this chapter, you should be able to: •1 •2 •3 •4 Describe the usefulness of a conceptual framework. Describe efforts to construct a conceptual framework. Understand the objective of financial reporting. Identify the qualitative characteristics of accounting information. Define the basic elements of financial statements. •6 •7 Describe the basic assumptions of accounting. Explain the application of the basic principles of accounting. Describe the impact that constraints have on reporting accounting information. •8 •5 What Is It? Everyone agrees that accounting needs a framework—a conceptual framework, so to speak—that will help guide the development of standards. To understand the importance of developing this framework, let’s see how you would respond in the following two situations. SITUATION 1: “Taking a Long Shot . . . ” To supplement donations collected from its general community solicitation, Tri-Cities United Charities holds an Annual Lottery Sweepstakes. In this year’s sweepstakes, United Charities is offering a grand prize of $1,000,000 to a single winning ticket holder. A total of 10,000 tickets have been printed, and United Charities plans to sell all the tickets at a price of $150 each. Since its inception, the Sweepstakes has attracted area-wide interest, and United Charities has always been able to meet its sales target. However, in......

Words: 22128 - Pages: 89

Chapter 2 Answers to Questions - Financial Accounting

...* Chapter 2 ANSWERS TO QUESTIONS 1. A conceptual framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function, and limits of financial accounting and financial statements. A conceptual framework is necessary in financial accounting for the following reasons: (1) It will enable the FASB to issue more useful and consistent standards in the future. (2) New issues will be more quickly solvable by reference to an existing framework of basic theory. (3) It will increase financial statement users’ understanding of and confidence in financial reporting. (4) It will enhance comparability among companies’ financial statements. 2. The primary objectives of financial reporting are as follows: (1) Provide information useful in investment and credit decisions for individuals who have a reasonable understanding of business. (2) Provide information useful in assessing future cash flows. (3) Provide information about enterprise resources, claims to these resources, and changes in them. 3. “Qualitative characteristics of accounting information” are those characteristics which contribute to the quality or value of the information. The overriding qualitative characteristic of accounting information is usefulness for decision making. 4. Relevance and reliability are the two primary qualities of useful accounting information. For informa-tion to be relevant, it should......

Words: 5662 - Pages: 23

Chapter 2

...Management Accounting | 15 Management Accounting and Decision-Making Management accounting writers tend to present management accounting as a loosely connected set of decision‑making tools. Although the various textbooks on management accounting make no attempt to develop an integrated theory, there is a high degree of consistency and standardization in methodology of presentation. In this chapter, the concepts and assumptions which form the basis of management accounting will be formulated in a comprehensive management accounting decision model. The formulation of theory in terms of conceptual models is a common practice. Virtually all textbooks in business administration use some type of conceptual framework or model to integrate the fundamentals being presented. In economic theory, there are conceptual models of the firm, markets, and the economy. In management courses, there are models of organizational structure and managerial functions. In marketing, there are models of marketing decision‑making and channels of distribution. Even in financial accounting, models of financial statements are used as a framework for teaching the fundamentals of basic financial accounting. The model, A = L + C, is very effective in conveying an understanding of accounting. Management accounting texts are based on a very specific model of the business enterprise. For example, all texts assume that the business which is likely to use management accounting is a manufacturing business. Also,...

Words: 4659 - Pages: 19

Intermediate Accounting Chapter 2

...CHAPTER 2 Conceptual Framework for Financial Reporting ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics 1. 2. 3. 4. 5. 6. Conceptual framework–general. Objectives of financial reporting. Qualitative characteristics of accounting. Elements of financial statements. Basic assumptions. Basic principles: a. Measurement. b. Revenue recognition. c. Expense recognition. d. Full disclosure. Accounting principles–comprehensive. Constraints. Assumptions, principles, and constraints. 28, 29, 30 10 11 Questions 1, 7 2 3, 4, 5, 6, 8 9, 10, 11 12, 13, 14 15, 16, 17, 18 19, 20, 21, 22, 23 24 25, 26, 27 1, 2, 3, 4 6, 11, 13 5, 7 8, 9, 12 8 8, 12, 8, 12 1, 2 2, 3, 4 5 6, 7 6, 7 7 6, 7 6, 7, 8 9, 10 3, 6, 7 6, 7 12 5, 6 5, 6 5, 6, 7, 8, 9, 11 11 Brief Exercises Exercises Concepts for Analysis 1, 2 3 4, 10 7. 8. 9. Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only) 2-1 ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE) Learning Objectives 1. 2. 3. 4. 5. 6. 7. 8. Describe the usefulness of a conceptual framework. Describe the FASB’s efforts to construct a conceptual framework. Understand the objectives of financial reporting. Identify the qualitative characteristics of accounting information. Define the basic elements of financial statements. Describe the basic assumptions of accounting. Explain the application of the basic principles of accounting. Describe the impact that constraints have on......

Words: 18492 - Pages: 74

Accounting 101 Chapter 2 Homework

...eral ledger.   b.  Assess whether the impact of the transaction results in a debit or credit to the account balance.   c.  Use source documents to identify accounts affected by external transactions.   d.  Analyze the impact of the transaction on the accounting equation.   e.  Prepare a trial balance.   f.   Record transactions using debits and credits. Learning Objective: 02­01 Identify the basic steps in measuring external transactions.   5  3  1  2  6  4                    Worksheet     Below are the steps in the measurement process of external transactions. Rank them from first (1) to last (6) by choosing the appropriate numbers in the dropdown box.     a.  Post the transaction to the T­accounts in the general ledger.   b.  Assess whether the impact of the transaction results in a debit or credit to the account balance.   c.  Use source documents to identify accounts affected by external transactions.   d.  Analyze the impact of the transaction on the accounting equation.   e.  Prepare a trial balance.   f.   Record transactions using debits and credits.   5   3   1   2   6   4 1/8 9/4/2014 Assignment Print View award:  2. 1.42 out of 1.42 points The following transactions occur for the Panther Detective Agency during the month of July: a. Purchase a truck and sign a note payable, $14,000. b. Purchase office supplies for cash, $500.......

Words: 1731 - Pages: 7

Accounting Chapter 2

...Chapter 2 The CPA Profession ← Review Questions 2-1 The four major services that CPAs provide are: 1. Audit and assurance services Assurance services are independent professional services that improve the quality of information for decision makers. Assurance services include attestation services, which are any services in which the CPA firm issues a report that expresses a conclusion about the reliability of an assertion that is the responsibility of another party. The four categories of attestation services are audits of historical financial statements, attestation on the effectiveness of internal control over financial reporting, reviews of historical financial statements, and other attestation services. 2. Accounting and bookkeeping services Accounting services involve preparing the client's financial statements from the client's records. Bookkeeping services include the preparation of the client's journals and ledgers as well as financial statements. 3. Tax services Tax services include preparation of corporate, individual, and estate returns as well as tax planning assistance. 4. Management consulting services These services range from suggestions to improve the client's accounting system to computer installations. 2-2 The major characteristics of CPA firms that permit them to fulfill their social function competently and independently are: 1. Organizational form A CPA firm exists as a separate entity to......

Words: 3093 - Pages: 13

Financial Accounting Chapter 2 Assignment

...CHAPTER 2: Recording Process ( SWD: Lecture Review) What is an account? An account is an accounting record of increases and decreases in a specific asset, liability, or owner’s equity item. For example, Softbyte (the company discussed in Chapter 1) would have separate accounts for Cash, Accounts Receivable, Accounts Payable, Service Revenue, and Salaries Expense. In its simplest form, an account consists of three parts: (1) a title, (2) a left or debit side, and (3) a right or credit side. Because the format of an account resembles the letter T, we refer to it as a T account. Debits and Credits The terms debit and credit are directional signals: Debit indicates left, and credit indicates right.They indicate which side of a T account a number will be recorded on. Entering an amount on the left side of an account is called debiting the account. Making an entry on the right side is crediting the account.We commonly abbreviate debit as Dr. and credit as Cr. Double-entry accounting system • Each transaction must affect two or more accounts to keep the basic accounting equation in balance. • Recording done by debiting at least one account and crediting another. • DEBITS must equal CREDITS. If Debits are greater than Credits, the account will have a debit balance. If Credits are greater than Debits, the account will have a credit balance. The normal balance of an account is on the side where an increase in the account is recorded. The Journal Companies initially record......

Words: 1276 - Pages: 6

Accounting Chapter 2 Questions

...conceptual framework? Why is a conceptual framework necessary in financial accounting? .A conceptual framework establishes the concepts that underlie financial reporting. A conceptual framework is a coherent system of interrelated objectives and fundamentals that are expect to lead to consistent standards'. A coherent system of concepts that flow from an objective. The objective identifies the purpose of financial reporting. The other concepts provide guidance on (1) identifying the boundaries of financial reporting; (2) selecting the transactions, other events, and circumstances to be represented; (3) how they should be recognized and measured; and (4) how they should be summarized and reported. What is the primary objective of financial reporting? The objective of general-purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling, or holding equity and debt instruments, and providing or settling loans and other forms of credit. Information that is decision-useful to capital providers may also be useful to other users of financial reporting, who are not capital providers What is meant by the term “qualitative characteristics of accounting information”? Qualitative characteristics of accounting information that distinguish better or (more useful)......

Words: 662 - Pages: 3

Financial Accounting Chapters 1 and 2 Complete Outline

...(1) Uses of Accounting Information and the Financial Statements a. Accounting as an Information System i. Accounting is an information system that measures, processes, and communicates financial information about an economic entity. Accountants focus on the needs of decision makers. ii. External decision makers use financial accounting reports to evaluate how well a business has achieved its goals. These reports are called financial statements. iii. The primary external users of accounting information are investors and creditors. Users with indirect financial interests include, among others, tax authorities (IRS) and regulatory agencies (SEC). b. The Corporate Form of Business i. There are three basic forms of business: 1. Sole Proprietorship: One person is the owner, takes all the profits or losses of the business, and is liable for all of its obligations. 2. Partnership: Two or more owners (“partners”) share the profits and losses of the business according to a prearranged formula. Legally, there is no economic separation between the owners and the business. This unlimited liability of its partners is a key disadvantage of a partnership. 3. Corporation: A business unit chartered by the state that is legally separate from its owners (“stockholders”). Stockholders enjoy limited liability. 4. Limited Liability Company (MM addition): c. The Financial Statements and their Elements i. Income Statement 1. Many people consider the income statement (aka the......

Words: 1535 - Pages: 7

Solution Manual Chapter 2 Cost Accounting

...Solutions Manual COST ACCOUNTING © 2012 Pearson Education, Inc. Publishing as Prentice Hall. SM Cost Accounting 14/e by Horngren © 2012 Pearson Education, Inc. Publishing as Prentice Hall. SM Cost Accounting 14/e by Horngren Solutions Manual COST ACCOUNTING Fourteenth Edition Charles T. Horngren Srikant M. Datar Madhav Rajan Upper Saddle River, NJ 07458 © 2012 Pearson Education, Inc. Publishing as Prentice Hall © 2012 Pearson Education, Inc. Publishing as Prentice Hall. SM Cost Accounting 14/e by Horngren This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. Acquisition Editor: Stephanie Wall Editorial Project Manager: Christina Rumbaugh Editorial Assistant: Brian Reilly Project Manager, Production: Lynne Breitfeller Operations Specialist: Natacha Moore Printer/Binder: OPM Digital Print Services Cover Printer: OPM Digital Print Services Credits and......

Words: 289926 - Pages: 1160

Managerial Accounting Chapter 2

...Veronica B.--Week 2 – Homework Chapter 3 # 13 Required: a. Calculate the cost per equivalent unit for materials & conversion costs. Materials = $446,970 / (45,000 + 2,550)= $9.40 Conversion Cost = $407,880 / (45,000 + 1,350) = $8.80 b. Calculate the cost of items completed during November. 45,000 x $18.20 = $ 819,000… $18.20 came by adding $9.40 + 8.80 c. Calculate the cost of ending Work in Process Material Cost: (2,550 x $9.40) = $23,970 Conversion: (1,350 x $8.80) = $ 11,880 $35,850 Total cost of ending work in process #14 Quantity Schedule Required: Prepare a reconciliation of units and a computation of equivalent units for June for the cleaning department. Unit Reconciliation Units in begininning Work in Process 40,000 Units started in June 500,000 540,000 (Units to account for) Units in ending Work in Process -- 540,000 – 30,000 = 510,000 Units Completed 510,000 Problem # 11 Unit Reconciliation Units in Beginning WIP 7,000 Units started during WIP 97,000 Units to account for 104,000 Units completed and transferred to bottling 91,000 Units in ending WIP 13,000 Units accounted for ...

Words: 255 - Pages: 2

Applied Accounting Chapter 2

...Chapter -2 Discussion Questions Page-41 1. What is the fundamental accounting equation? Fundamental accounting equation is the relationship between assets and liabilities plus owner’s equity i.e. Assets = Liabilities + Owner’s Equity 2. What are expenses? An expense is an outflow of cash, use of other assets, or the incurring of a liability. Expenses cause a decrease in owner’s equity. 3. What is revenue? Revenue is the inflow of money or other assets that results from the sales of goods or services or from the use of money or property. 4. Describe the effects of each of the following business transactions on assets, liabilities, and owner’s equity. a. Sold services on credit It means revenue account on owner’s equity increases and account receivable on assets increases. b. Bought furniture for cash It means furniture account on assets increases and the cash account on assets decreases. c. Paid cash to a creditor It means cash account on asset decreases and account payable on liabilities decreases. d. Sold services for cash It means cash account on assets increases and revenue account on owner’s equity increases. e. Paid salaries to employees. It means cash account on assets decreases and expenses account on owner’s equity increases. f. Bought equipment on credit. It means equipment account on assets increases and account payable on liabilities increases. 5. What information does the income......

Words: 622 - Pages: 3