Chapter 2Chapter 2

Basic Accounting ConceptsBasic Accounting ConceptsBasic Accounting ConceptsBasic Accounting Concepts

Learning ObjectivesLearning ObjectivesAfter studying this chapter, you should be able to… Describe the basic elements of a financial accounting

system. Analyze, record, and summarize transactions for a

corporation’s first period of operations. Prepare financial statements for a corporation’s first

period of operations. Analyze, record, and summarize transactions for a

corporation’s second period of operations. Prepare financial statements for a corporation’s

second period of operations.

Learning Objective 1Learning Objective 1

Describe the basic elements of a financial accounting system

Basic Rules of an Accounting System

• A transaction is an economic event that can affect one, two or more items in the financial statements.

Rules determine:

WHATtransactions

are to be recorded

WHENtransactions

are to be recorded

HOWtransactions

are to be recorded

AMOUNTof the

transaction to be

recorded

Framework of an Accounting System

Assets = Liabilities + EquityAssets = Liabilities + Equity

The Accounting EquationThe Accounting Equation

• By expanding the accounting equation, transactions can be analyzed, summarized, and recorded within the integrated financial statement framework.

Integrated Financial Statement Framework: Template