ACC 221 1st Edition Lecture 4 Outline of Previous Lecture Chapters 1 2 Additional Facts About Accounting System Accounting System o Traditional accounting system routine o Asset Liability Owner s Equity Accounts Additional Facts o Entries don t have to affect different sides to stay in balance o No set accounting periods Outline of Current Lecture Chapter 3 Accounting System o Shareholders o Accounting Periods Differences in Assets o Inventory v Equipment Basic Transactions Current Lecture Chapter3 Accounting System o Shareholders Claims to Assets Gaining money is done through selling shares of stock General Ledger Trial Balance Balance Sheet o Accounting Periods Must know accounting period so you know when to complete financial statement New accounting period transfer ending balances to beginning balances for new period Differences in assets o Inventory V Equipment Inventory what you are selling to customers Equipment what companies use within the business These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Basic transactions o Sale of inventory to a customer 2 parts Sale selling product to customer in exchange for cash o Debit asset cash Adding money from sale to your cash o Credit retained earnings Adding money from sale to your total earnings Transaction giving the product to the customer o Debit retained earnings Price you paid for the car o Credit inventory Taking price you paid for car out of inventory o Paying Rent Debit retained earnings Subtract from total earnings Credit Cash Subtract from total cash o Paying Wages Debit Retained Earnings Credit cash o Making a sale on credit affects accounts receivable Do not count this as a liability even though you have not actually been paid in cash for the inventory This is because cash is coming and must keep transaction within the accounting period Sale o Debit accounts receivable o Credit retained earnings Transaction o Debit retained earnings o Credit inventory o Collect cash from accounts receivable Debit Cash Credit Accounts Reviewable o Pay interest to bank Owe Money to bank o Even if don t pay until following month still write down into account o Accrual Accounting record everything that should occur to the company within the accounting period regardless of when it is actually paid Increases claims to assets for bank non owners so liability Total assets do not change o Account summary Summary of the increase in owner s claim to assets Given to stockholders so they are able to readily see where the net gain or loss is coming from in an accounting period o Sale of inventory minus The cost of inventory Rent Wages Bank s claim to interest
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