Accounting & Financial Reporting BUSG 503 Michael Dimond

Michael Dimond School of Business Administration External and Internal Events Event: a happening of consequence to an entity External event: interaction between an entity and its environment Internal event: occurs entirely within an entity Transaction: any event, external or internal, that is recognized in a set of financial statements LO 1

Michael Dimond School of Business Administration Source Documents in an Accounting System Source document: used as evidence to record a transaction Different Forms: Purchase Invoice Sales Invoice Cash register tape Time cards LO 2

Michael Dimond School of Business Administration Analyze the Effects of Transactions Accounting equation: Assets = Liabilities + Stockholders’ Equity

Michael Dimond School of Business Administration Issuance of Capital Stock Glengarry Health Club is started when Karen Bradley and Kathy Drake file articles of incorporation with the state to obtain a charter. Each invests $50,000 in the business. In return, each receives 5,000 shares of capital stock

Michael Dimond School of Business Administration Acquisition of Property in Exchange for a Note Company buys a piece of property for $200,000. The seller agrees to accept a five-year promissory note. The property consists of land valued at $50,000 and a newly constructed building valued at $150,000

Michael Dimond School of Business Administration Acquisition of Equipment on an Open Account Karen and Kathy contact an equipment supplier and buy $20,000 of exercise equipment: treadmills, barbells, and stationary bicycles. The supplier agrees to accept payment in full in 30 days

Michael Dimond School of Business Administration Sale of Monthly Memberships on Account During January, the owners sell 300 monthly club memberships for $50 each, or a total of $15,000. The members have until the 10th of the following month to pay

Michael Dimond School of Business Administration Sale of Court Time for Cash In addition to memberships, Glengarry sells court time. Court fees are paid at the time of use and amount to $5,000 for the first month

Michael Dimond School of Business Administration Payment of Wages and Salaries Wages and salaries for the first month amount to $10,000

Michael Dimond School of Business Administration Payment of Utilities Cost of utilities for the first month is $3,000. Glengarry pays this amount in cash

Michael Dimond School of Business Administration Collection of Accounts Receivable Amount received from members in payment of their accounts is $4,000

Michael Dimond School of Business Administration Payment of Dividends Karen and Kathy, acting on behalf of Glengarry Health Club, decide to pay a dividend of $1,000 on the shares of stock that each of them owns, or $2,000 in total

Michael Dimond School of Business Administration Cost Principle Requires assets such as equipment to be recorded at cost to acquire and continue to report this amount on all balance sheets until the asset is disposed These assets are not carried at market value, but at original cost (with few exceptions)

Michael Dimond School of Business Administration Accounts Account: record used to accumulate monetary amounts for each asset, liability, revenue, expense, and component of stockholders’ equity Chart of Accounts: numerical list of all of the accounts an entity uses LO 4

Michael Dimond School of Business Administration The General Ledger A book, a file, a hard drive, or another device containing all of the accounts

Michael Dimond School of Business Administration Identify and Analyze The accounting equation is the basis for financial statements For every transaction, three questions must be answered: 1.What type of activity did the transaction reflect? 2.What accounts are affected by the transaction, and are they increased or decreased? 3.Which financial statements are affected by the transaction?

Michael Dimond School of Business Administration Identify and Analyze Wages and salaries for the first month amount to $10,000 for Glengarry

Michael Dimond School of Business Administration Journal Chronological record of a company’s transactions "Book of original entry" Transactions are periodically posted from the journal to ledger accounts Journalizing: act of recording journal entries

Michael Dimond School of Business Administration Posting Process of transferring amounts from a journal to the ledger accounts

Michael Dimond School of Business Administration Posting from the Journal to the Ledger

Michael Dimond School of Business Administration Trial Balance List of each account and its balance at a specific point in time Used to prove the equality of debits and credits Basis for preparation of financial statements