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Describe the basic elements of a financial accounting system

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					SURVEY OF ACCOUNTING
CHAPTER 2

CARL S. WARREN
COPYRIGHT © 2009 South-Western/Cengage Learning

Learning Objectives LEARNING OBJECTIVES
After studying this chapter, you should be able to…

1. Describe the basic elements of a financial accounting system. 2. Analyze, record, and summarize transactions for a corporation’s first period of operations.
Continued…

Learning Objectives
3. Prepare financial statements for a corporation’s first period of operations. 4. Analyze, record, and summarize transactions for a corporation’s second period of operations. 5. Prepare financial statements for a corporation’s second period of operations.

Learning Objective 1
Describe the basic elements of a financial accounting system.

Basic Elements of a Financial Accounting System
Set of rules to record economic events. Framework to prepare financial statements. Controls to detect errors.

Rules
Derived from the eight concepts discussed in Chapter 1. Generally Accepted Accounting Principles are described and illustrated throughout the text.

Framework
 An integrated financial statement approach is used for analyzing, recording, and summarizing transactions by expanding the accounting equation.  Integrates the accounting equation with the Income Statement and Statement of Cash Flows.

Controls
The integrated financial statement approach has built-in controls to make sure that transactions are recorded correctly.

Learning Objective 2
Analyze, record, and summarize transactions for a corporation’s first period of operations.

Integrated Financial Statement Framework: Starting Family Health Care, P.C.

Dr. Landry invests $6,000 to start a practice.

Integrated Financial Statement Framework: Borrowing Money

Family Health Care, P.C. borrows money.

Integrated Financial Statement Framework: Buying Land

Family Health Care, P.C. buys land.

Integrated Financial Statement Framework: Earning of Fees

Family Health Care, P.C. earns fees.

Integrated Financial Statement Framework: Paying of Expenses

Family Health Care, P.C. pays expenses.

Integrated Financial Statement Framework: Paying of Dividends

Family Health Care, P.C. pays dividends.

Learning Objective 3
Prepare financial statements for a corporation’s first period of operations.

Financial Statements
Family Health Care, P.C. prepares financial statements to summarize the financial activity for September.
• • • • Income Statement Retained Earnings Statement Balance Sheet Statement of Cash Flows

Income Statement

Retained Earnings Statement

Balance Sheet

Statement of Cash Flows

Integrated Financial Statements
Statement of cash flows linked to cash on balance sheet. Net income from income statement linked to retained earnings statement. Retained earnings linked to balance sheet in stockholders’ equity.

Learning Objective 4
Analyze, record, and summarize transactions for a corporation's second period of operations.

Family Health Care’s October Transactions
Received fees of $6,400 in cash. Paid expenses in cash:
• • • • • Wages, $1,370 Rent, $950 Utilities, $540 Interest, $100 Miscellaneous, $220

Paid $1,000 of dividends in cash.

Summary of October Transactions

Learning Objective 5
Prepare financial statements for a corporation’s second period of operations.

End of Chapter 2


				
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posted:11/18/2009
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