Chapter 2 Concept Map

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Chapter 2 Overview

Human Judgement

Human judgement very important in analyzing financial statements

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

Coding

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

Mnemonic Ex: Inventory items Format: DVR: digital video recorder FSTV: Flat-screened TV

Block Ex: Uniform system of accounts for restaurants Format: Current Assets- 101, 102, 103 Plan Assets- 202, 206, 208 Currnet Liabilities: 301, 303, 305

Sequential: Ex: Purchase order numbers Format: 101, 102, 103

Adjusting Entries

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

Accounting Cycle

General-purpose financial statements: -Income Statement -Statement of changes in shareholder's equity -Balnace Sheet -Statement of Cash Flows

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