财务会计课件 from Professor CarterChapter02.docx

财务会计课件 from Professor CarterChapter02.docx

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财务会计课件fromProfessorCarterChapter02

Chapter2

TAccounts,Debits,andCredits

Inthischapteryouwillcontinuelearningabouttheprocessofaccounting.Youwillseehowtheaccountingsystemmaintainstheequalityoftheaccountingequation.

TheAccountingEquation

AsdiscussedinChapter1,resourcesandwheretheycomefromareattheheartofmodernfinancialaccountingsystems.Inbusinessterminology,resourcesarecalledassets.Sourcesofborrowedresourcesarecalledliabilities.Sourcesofresourcesinvestedbyownersandgeneratedbymanagementandretainedinthecompanyarecalledstockholders'equity.Therelationshipbetweenresourcesandtheirsourcesisrepresentedbytheaccountingequation:

Assets

=

Liabilities

+

Stockholders'Equity

Remember,stockholders'equityincludesboththedollaramountofresourcesinvestedbyownersandthedollaramountofresourcesgeneratedthroughmanagementoperationsandretainedinthecompanybecauseownershavearighttotheamountofresourcestheyinvestandtheamountofresourcesgeneratedbymanagement.

Thecorrectuseoftheaccountingequationguaranteesmathematicallylogicalfinancialstatementsevenifeventsareincorrectlyanalyzed.Thatis,aslongastheequalityofassetstoliabilitiesplusstockholders'equityismaintained,theincomestatementwillproperlyrelatetothestatementofretainedearnings,thestatementofretainedearningswillproperlyrelatetothebalancesheet,andthebalancesheetwillbalance.Iftheaccountingequationdoesnotbalance,thebalancesheetwillnotbalance.Ifthefinancialstatementsarenotmathematicallylogical,theycannotberelieduponforinformationaboutacompany'sresources.

Mathematicallylogicalfinancialstatementsdonotautomaticallycontainusefulinformation,however.Maintainingtheequalityoftheaccountingequationisnecessaryforusefulfinancialstatements,butitisnottheonlyrequirement.Thischapterandthefollowingchapterswillexaminetherequirementsofaccountingsystemsthatproduceusefulinformation.

**Younowhavethebackgroundtodoexercise2.1.

MaintainingtheEquality

oftheAccountingEquation

Inorderfortheaccountingsystemtoprovideusefulinformation,oneimportantrequirementisthattheaccountingequationmustalwaysbalance.Thus,itisimperativewehaveasystemthatwillconstantlymaintaintheaccountingequation'sequality.

RememberthesystemexaminedinChapter1.InthatsystemweanalyzedeventsoftheParksComputerServiceCorporation,determinedtheeffectsoftheeventsonspecificresources,suchascashandsupplies,andsourcesofresources,suchasaccountspayableandretainedearnings.Weusedaplus（+）signtoshowanincreaseinanaccountoraminus（-）signtoshowadecrease.Inordertodetermineiftheaccountingequationwasinbalancewehadtotakethefollowingtwosteps.

Step1:

Firstwehadtodeterminethebalanceineachaccount.Forexample,todeterminethecashbalancewehadtoaddalloftheplusdollaramountsandsubtractalloftheminusdollaramountsinthecashaccount.

Step2:

Oncewedeterminedthebalanceineachaccount,wehadtoaddalltheassetaccountbalancestodeterminethetotalassetsdollaramount,andthenaddalltheliabilitiesandstockholders'equityaccountbalancestodeterminethetotalliabilitiesandstockholders'equitydollaramount.

Aftertakingthesetwostepswecoulddetermineiftotalassetsequaledtotalliabilitiesandstockholders'equity.Untilwecompletedbothsteps,wecouldnotbesuretheaccountingequationwasinbalance.

Whatweneedisamoreefficientwaytomakesuretheaccountingequationisalwaysinbalance.Weneedasystemthatwillmaintainthebalanceoftheaccountingequationwithoutrequiringeachaccountbalancetobedeterminedandwithoutrequiringtotalassetsandtotalliabilitiesandstockholders'equitytobecalculatedaftereachevent.

Amoreefficientwayofmaintainingtheequalityoftheaccountingequationwasdevelopedhundredsofyearsagoandisknownasthedouble-entrysystem.Itwasfirstpresentedinabookwrittenin1494byaFranciscanmonk,FraLucaPacioli.

Thedouble-entrysystemwasdevelopedinresponsetothemathematicalproblem:

howcanindividualitemsintheaccountingequationchangewhilealwaysmaintainingtheassets=liabilities+stockholders'equityequation?

Todaythesolutionappearstobequitesimple.Iftheleftsideoftheequation（assets）increases,thentherightside（liabilitiesandstockholders'equity）mustalsoincreasebythesamedollaramount.Similarly,iftheleftsideoftheequationdecreases,therightsidemustalsodecreasebythesamedollaramount.Fromthisreasoning,thefollowingsimpleguidelinesevolved.

Ifanassetincreases,oneofthefollowingmustoccur:

（1）anotherassetmustdecreasebythesameamount.Asaresult,totalassetsremainconstantandassets=liabilities+stockholders'equity.Forexample,ifsuppliesincreaseby$50andcashdecreasesby$50,totalassetsremainunchanged.Theaccountingequationisstillinbalance.

（2）aliabilitymustincreasebythesameamount.Asaresult,totalassetsandtotalliabilitiesincreasebythesameamountandassets=liabilities+stockholders'equity.Forexample,ifsuppliesincreaseby$125andaccountspayableincreaseby$125,totalassetsincreaseby$125andtotalliabilitiesandstockholders'equityincreaseby$125.Theaccountingequationisstillinbalance.

（3）stockholders'equitymustincreasebythesameamount.Asaresult,totalassetsandtotalstockholders'equityincreasebythesameamountandassets=liabilities+stockholders'equity.Forexample,ifcashincreasesby$1,000andcommonstockincreasesby$1,000,totalassetsincreaseby$1,000andtotalliabilitiesandstockholders'equityincreaseby$1,000.Theaccountingequationisstillinbalance.

Fromthisbasicmathematicalprocess,itcanbeconcludedthateacheventaffectingabusinesshastwoparts.Onepartresultsinachangeinoneasset,liability,orstockholders'equityaccountandtheotherpartresultsinanequalchangeinanotherasset,liability,orstockholders'equityaccount.Itisimpossibleforaneventtoresultinonlyanincreaseordecreaseinoneaccount,becausetheresultwouldbeanunbalancedaccountingequation.Forexample,ifcashincreasedby$100andeverythingelseremainedunchanged,assetswouldnolongerequalliabilitiesplusstockholders'equity.Assetswouldbe$100largerthanliabilitiesplusstockholders'equity.RememberfromChapter1,anunbalancedaccountingequationresultsinunreliableinformation.

TheTAccount

Thebasicelementofthedouble-entrysystemistheTaccount.Taccountsareusedtorecordeachevent'stwopartsdiscussedinthepreviousparagraphs.Asyoucanseefromtheillustrationbelow,itisfairlyobviouswherethenameTaccountcamefrom:

theaccountstronglyresemblestheletterT.TheleftsideofaTaccountiscalledthedebitside（fromtheLatindebere）andtherightsideisthecreditside（fromtheLatincredere）.Remember,thissystemanditsterminologyhavebeeninexistenceforhundredsofyears!

AccountName

Debit

（Leftside）

Credit

（Rightside）

Thedouble-entrysystemmakesuseoftheTaccounttomakesurebothpartsofeacheventareaccountedfor.Remember,whenbothpartsofeacheventareaccountedfor,theaccountingequationmustbalance,asthefollowingsectionillustrates.

UsingTAccounts

Toseehowthedouble-entrysystemmakesuseofTaccounts,letusagainconsidertheJulyeventsoftheParksComputerServiceCorporationdiscussedinChapter1.Wewillseehowthedouble-entrysystemguaranteestheaccountingequationisalwaysinbalance.

GettingresourcesfromtheownerOnJuly1,NickParksinvests$5,000cashinhisnewcompany,ParksComputerServiceCorporation.Nickinvestshiscashbyopeningacheckingaccountinthecompany'snameattheSomervilleNationalBank.AsyourememberfromChapter1,anowner's$5,000cashinvestmentinacompanyresultsina$5,000increaseinthecompany'sresourcesanda$5,000increaseinitssourcesofresources.Theresourcethatincreasesiscash.Sincetheresourcecomesfromtheowner,thesourceofresourcesthatincreasesisstockholders'equity,inthiscasecommonstock.

TotalResources

=

SourcesofBorrowedResources

+

SourcesofOwnerInvestedResources

+

SourcesofManagementGeneratedResources

Assets

=

Liabilities

+

Stockholders'Equity

+$5,000

=

+$5,000

Thecompany'scashandcommonstockbothincreaseby$5,000.Thiseventwillhavethefollowingeffectsonthecompany'sTaccounts.

Assets

=

Liabilities

+

Stockholders'Equity

Event

Cash

=

CommonStock

Owner'scashinvestment

5,000

5,000

Balances

5,000

5,000

[-$5,000-]

=

[----------$5,000---------]

Noticethe$5,000increaseincashwasenteredontheleft,ordebit,sideofthecashTaccount.Inotherwords,the$5,000wasenteredasadebittocash.Sincethisisthefirsteventweanalyzed,wecouldhaveentereditaseitheradebitoracredit.Sinceweentereditasadebit,wehavedevelopedanaccountingrule:

assetsincreasethroughdebits.Notice,however,theincreaseincommonstockwasenteredasacredit（rightside）tothecommonstockaccount.Wehavejustdevelopedanotheraccountingrule:

stockholders'equityincreasesthroughcredits.Thetworuleswedevelopedagreewiththeaccountingprocessusedinmodernfinancialaccountingsystems.

Whydidweentertheincreaseinassetsasadebitandtheincreaseinstockholders'equityasacredit?

Rem