ANALYZING TRANSACTIONS AND THEIR EFFECTS ON FINANCIAL STATEMENTS
After studying this chapter, you should be able to:
- Describe the basic accounting equation and each of its components.
- Analyze simple transactions to determine their effects on the basic accounting equation and the financial statements.
- Describe the difference between accrual-basis accounting and cash-basis accounting.
- Explain how inventory is accounted for when it is purchased and when it is sold.
- Identify operating activities and describe their effects on the financial statements.
- Explain the basic concepts of revenue recognition and expense matching.
- Prepare a simple set of financial statements, reflecting a series of business transactions.
- Explain the basic classification of items on a statement of financial position.
- Calculate three ratios for assessing a company's profitability.
- Begin to analyze the information provided by a statement of cash flows.
A Recipe for Success—The Evolution of a Business
Ever since high school, Chris Emery and Larry Finnson had known they wanted to go into business together. Sure enough, ...