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
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?
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
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?
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?