Terms
Probable benefit obtained or controlled by a particular entity as a result of past transactions or events
What is an Asset?
Shareholders are issued $100,000 of Common Stock in Exchange for Cash.
Increase cash for 100,000, increase common stock for 100,000
Purchased $45,000 of inventory on account
Debit inventory 45,000
credit accounts payable 45,000
2 fundamental characteristics of the conceptual framework
Two investors invest $100,000 each into a company. In return, the company issues each investor 50,000 shares of common stock.
Debit cash 200,000
Credit common stock 200,000
Inflow of assets from ongoing or major activities
What is revenue?
A company purchases $5,000 of inventory with cash.
Decrease cash for 5,000, increase inventory for 5,000
Purchased $1,800 of supplies using cash
Credit cash 1,800
Three components of faithful representation
What is completeness, neutrality, and free from error?
Part 1: A company completes a service and bills a customer $200.
Part 2: The customer pays the $200 bill.
1. Debit A/R 200
Credit Service Revenue 200
2. Debit Cash 200
Credit A/R 200
Accounts increased with a debit:
What are assets, expenses, and dividends?
A company borrows $25,000 by issuing a bank note
increase cash 25,000, increase notes payable for 25,000
Sold $5,000 of inventory for $12,500 on account to Triangle Company
Debit Cost of Goods Sold 5,000
Credit Inventory 5,000
Debit Accounts Receivable 12,500
Credit Sales Revenue 12,500
Three components of relevance
A company owes 200,000 to it's employees in salaries on December 31st. The employees will not get paid until January 14th.
Debit Salaries expense 200,000
Credit Salaries Payable (or accounts payable) 200,000
Increases in equity (net assets) of a particular
business enterprise resulting from transfers to it of something valuable from other entities in order to obtain or increase ownership interests (or equity) in the enterprise
The company sells $1,500 of inventory for $2,200 and bills the customer
Sold $22,000 of inventory for $48,400 for cash
Debit Cost of Goods Sold 22,000
Credit inventory 22,000
Debit cash 48,400
Credit sales revenue 48,400
This assumption says the economic activity can be identified with a particular unit of accountability
What is the economic entity assumption?
A company owes it's shareholders $10,000 in dividends on December 31st. They will not pay their shareholders until January 14th.
Debit Dividends 10,000
Credit Dividends payable (or accounts payable) 10,000
Decrease in equity from peripheral or incidental
transactions.
What is a loss?
A company pays its employees $1,200 in salaries.
Decrease cash for 1,200, Increase salary expense for 1,200
Paid $600 in cash dividends to shareholders
Debit dividends 600
Credit cash 600
This assumption says a company can divide its economic activities into artificial time periods
What is the periodicity assumption?
A company paid $20,000 for insurance for the year, in cash.
Debit Prepaid Insurance 20,000
Credit Cash 20,000