Category Archive for: The Accounting Cycle Capturing Economic Events

CLOSING THE TEMPORARY EQUITY ACCOUNTS

As previously stated, revenues increase owner’s equity, and expenses and withdrawals by the owner decrease owner’s equity. Ifthe only financial statement that we needed . was a balance sheet, these changes in owner’s’ equity could be recorded directly in the owner’s capital account. However, owners, managers, investors, and others need to know amounts of specific revenues .and expenses,…

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ADJUSTING ENTRIES THE NEXT STEP IN THE ACCOUNTING CYCLE

We will now see that there is more to the measurement of business income than merely recording transactions. Many transactions affect the revenue or expenses of two or more accounting periods. For example, a business may purchase equipment that will last for many years, an insurance policy that’ covers 12 months, or-as Overnight has done enough supplies to last…

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RECORDING DECEMBER’S REVENUE AND EXPENSE TRANSACTIONS AN ILLUSTRATION

In Chapter 2, we introduced Overnight AutoService, a small auto repair shop formed on November I, 200 I. Early in jhis chapter, we journalized and posted all of Overnight’s balance sheet transactions through November 26. We intentionally chose not to illustrate how revenue’ and expense transactions were journalized and posted. However, we may safely assume that the November 30…

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Income Must Be Related to a Specified Period of Time

Notice that our sample income statement covers a period of time-namely, the month of December. A balance sheet shows the financial position of a business at a particular date. An income statement. on the other hand, shows the results of business operations over a span of time. We cannot evaluate net income unless it is associated with a specific…

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The Accounting Cycle Capturing Economic Events

1. Discuss the role of accounting records in an organization. 2. Descritie a ledger account and a ledger. 3. State the rules of debit and credit for balance sheet accounts .: 4. Explain the double-entry system of accounting. 5. Explain the purpose of a journal and its relationship to the ledger. 6. Explail1the nature of net income, revenue, and expenses. 7. Apply the…

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