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