Chapter 3a

Wednesday, April 19, 2017 11:20 PM

Cash Vs Accrual Method

• Cash basis accounting
○ Revenues recognized when cash is received
○ Expenses are not recognized until cash if paid by business
• Accrual basis method
○ Record transactions when done
○ Revenue recognized when earned regardless if paid or not
○ Matching principle
§ Expense recognized when money owed

Accounting information system

• Collects and processes transaction data
• Communicates financial information to decision makers

Transactions
• Events that must be recorded in financial statements
• Transaction analysis
○ Identifying transaction or event and analyzing impact of the accounting equation

Question to ask yourself to know If the event will be recorded:

• Is the financial position (assets, liabilities, stockholders' equity) changed?
• Yes: record
• No: don’t record

Example:
On october 1, cash of $10,000 is invested in the business by investors in exchange for
$10,000 of common stock