Exam (elaborations)
HBS Business CORE - HBX CORe Accounting Module 2.2.1.1 Financial Statement Accounts
- Course
- HBS Business CORE - HBX CORe
- Institution
- Harvard University
HBS Business CORE - HBX CORe
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2.1.1 Financial Statement AccountsThe Recording Process
All accounting transactions, no matter how big or small they are, have an impact on the
financial position of a business. Each transaction is recorded in the company’s financial
records in what is known as the recording process, outlined in this diagram:
We already looked at the first two steps—identifying and understanding transactions and
how they impact the accounting equation. In this module, we will cover the next three
steps in the recording process—creating journal entries, posting to T-accounts, and
creating a trial balance. These steps will help us to gain a better understanding of how
transactions are ultimately used to create financial statements, covered in future
modules.
In module 1, we looked at
identifying and understanding
, accounting transactions and
how they impact the accounting
equation.
This is part of the overall
recording process that
shows how transactions
are ultimately used
to create financial statements.
In this module, we'll look in
more detail at how transactions
are actually recorded
in the financial records
of the business.
Even a small business can have
thousands of transactions--
larger businesses, millions.
It isn't practical to
analyze the business simply
in the context of the
accounting equations.
Instead, it makes
sense to create
accounts which are groupings
of similar transactions.
Assets, for example,
include accounts
such as cash, accounts
receivable, inventory,
and fixed assets.
Liability accounts
include accounts payable,
interest payable,
and notes payable.
,
Equity accounts include
common stock, paid-in capital,
and retained earnings.
The accounts and naming can
vary from business to business.
In fact, each business is free
to determine what accounts
would be needed to best
capture the activities
of their business.
The list of all
these accounts is
called their chart of accounts.
For instance, the
chart of accounts
for Cardullo's includes Deli
Inventory, Accrued Payroll,
and Bottle Deposit expense.
Too many accounts
for a given business
, can create information that
is too complicated, but too
few could overly summarize
important details.
When a transaction
occurs, it must
be determined which specific
accounts will be impacted
and by how much.
Identifying Accounts
Look at this list to familiarize yourself with some common accounts:
Owners'
Assets Liabilities Revenues Expenses
Equity
Common
Cash Accounts Payable Sales Cost of Goods Sold
Stock
Accounts Receivable
Interest Payable Capital Stock Sales Revenue Interest Expense
Additional
Notes Receivable Notes Payable Interest Revenue Rent expense
Paid-In Capital
Current Portion of Preferred Office Supplies
Interest Receivable Rent Revenue
Notes Payable Stock Expense
Miscellaneous
Inventory Wages Payable Treasury Stock Travel Expense
Revenue
Research &
Retained
Investments Taxes Payable Other Revenue Development (R&D)
Earnings
Expense
Fixed Assets Accrued Interest Depreciation Expense
Property, Plant, &
Accrued Wages Other Expenses
Equipment (P,P,&E)
Prepaid Insurance Accrued Taxes
Deferred
Prepaid Rent
Revenue
Other Prepaid
Short Term Debt
Expenses
Goodwill Long Term Debt
Other Intangible Deferred Tax
Assets Liability
Deferred Tax Asset Other Liabilities
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