chapter 2

ANALYZING TRANSACTIONS AND THEIR EFFECTS ON FINANCIAL STATEMENTS

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

  1. Describe the basic accounting equation and each of its components.
  2. Analyze simple transactions to determine their effects on the basic accounting equation and the financial statements.
  3. Describe the difference between accrual-basis accounting and cash-basis accounting.
  4. Explain how inventory is accounted for when it is purchased and when it is sold.
  5. Identify operating activities and describe their effects on the financial statements.
  6. Explain the basic concepts of revenue recognition and expense matching.
  7. Prepare a simple set of financial statements, reflecting a series of business transactions.
  8. Explain the basic classification of items on a statement of financial position.
  9. Calculate three ratios for assessing a company's profitability.
  10. Begin to analyze the information provided by a statement of cash flows.

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