Chapter 2 Overview

Ten Steps:

1.) Obtain information from source documents
2.) Analyze transactions
3.) Record transactions in a journal
4.) Post from journal to general ledger
5.) Prepare unadjusted trial balance
6.) Record adjusting entries and post to the general ledger
7.) Prepare adjusted trial balance
8.) Prepare financial statements
9.) Close temporary accounts
10.) Prepare post-closing trial balance

General-purpose financial statements:

-Income Statement
-Statement of changes in shareholder's equity
-Balnace Sheet
-Statement of Cash Flows

Accrued revenues: An organization provides service to its customers before collecting cash
Accrued expenses: An organization receives services before cash
Deferred Revenues: An organization receives cash before providing services to clients
Prepaid expenses: An organization uses up assetsthat have previously been paid for
Uncollectible accounts: Estimates ofa mounts clients will be unable or unwilling to pay
Depreciation: Periodic allocation of an asset's cost to the periods that benefit from its use

Sequential:

Ex: Purchase order numbers

Format:
101, 102, 103

Block

Ex: Uniform system of accounts for restaurants

Format:
Current Assets- 101, 102, 103
Plan Assets- 202, 206, 208
Currnet Liabilities: 301, 303, 305

Mnemonic

Ex: Inventory items

Format:

DVR: digital video recorder
FSTV: Flat-screened TV

Hierarchical

Ex: State University

Format:
101-11-08-81
101: Big CityCampus
11: Academic affairs division
08: College of Business
81: Accounting Department

-Designing sourcedocuments
-Recognizing recordable transactions
-Estimating amounts and interpretting account rules

Human judgement very important in analyzing financial statements