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The Balance Sheet

Financing
Key activity of starting up a company; 2 sources are available: equity (through owners contributions and reinvestments of profit) and debt (loans)
Cost
Dollar amount that represents the value of items given and received
Cost principle
Financial effects of exchange
Chart of accounts
A list that designates a name and reference number that the company will use when accounting for each item it exchanges
Notes payable are like accounts payable except that they
1. charge interest
2. can be outstanding for large periods of time
3. are documented using formal documents called notes
Accounting cycle
repeated day after day, month after month, year after year
Who has claim to a business’s assets should the company go out of business?
Creditors
Financing activities
Issuing a note payable, and issuing stock
Key activities necessary to starting a business
Purchase assets, obtain financing
Investing activities
Purchasing land, purchasing equipment
The cost principle requires what
Assets be recorded at the amount paid for them at the time of purchase
Business’s typically buy goods and services from others
On account
Business documents
Bills, invoices, stock certificates
A chart of accounts is a
List of account titles with corresponding reference numbers used by companies so that the transaction items are consistently named
A company typically receives this when it issues stock to its owners (an asset)
Cash
Account titles that may be used to record borrowing cash in exchange for a promissory note
Note payable, loan payable
When a company pays its suppliers for accounts owed, its cash and accounts ________ accounts are decreased
Payable
An accounting system provides
Fiancial information needed to manage a company and financial information needed to report results to outsiders
Transactions are first entered into the
Journal
The effect of journal entries on each account is summarized in the
Ledger
Accounts payable is in increased with an entry on the _______ side of the account
Right
The contributed capital account is increased with an entry on the _______ side of the T-account
Right
Debit must always equal what in each journal entry
Credit
Steps for ledger accounts
Dollar amounts from journal entries are copied (posted) the appropriate accounts in the ledger, so that the account balances can be posted
The balance sheet at year end shows
the ending balance in each T-account
On the balance sheet, equipment is reported at its
original cost
The current ratio measures a companys
ability to pay and short-term liquidity
List the steps in the accounting order in chronological order
1. record journal entry 2. summarize in the ledger (t-accounts) 3. prepare an unajusted trial balance 4. adjust the accounts 5. prepare financial statements 6. close the books

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