Most accounting frauds and mistakes violate basic accounting con-
cepts. They may involve recording a transaction at the wrong
time, placing the wrong value on it, or calling it by the wrong name. What
you learn in this chapter will help you avoid making such mistakes. It will
also help you recognize correct accounting practices.
LO1 Explain how the concepts of recognition, valuation, and classification apply to
business transactions and why they are important factors in ethical financial
LO2 Explain the double-entry system and the usefulness of T accounts in analyzing
LO3 Demonstrate how the double-entry system is applied to common business
LO4 Prepare a trial balance, and describe its value and limitations.
LO5 Show how the timing of transactions affects cash flows and liquidity.
L E A R N I N G O B J E C T I V E S
Mak ing a Statement
Business transactions can affect all the
C H A P T E R
SO6 Define the chart of accounts, record transactions in the general journal, and
post transactions to the ledger.
S U P P L E M E N T A L O B J E C T I V E
SINGAPORE AIRLINES AND THE BOEING COMPANY
D E C I S I O N P O I N T
A U S E R ’ S F O C U S
In August 2004, Singapore Airlines announced that it had ordered 18 long-
range Boeing 777-300ERs to replace its aging Boeing 747s. The order, valued
at about $4 billion, was an important endorsement of The Boeing Com-
pany’s newest long-range aircraft. It enabled Boeing to continue developing
the plane, which is to carry 365 passengers more than 9,000 miles nonstop.
Delivery of the planes was scheduled to begin in about four years.1
● An order for airplanes is
obviously an important
economic event to both the
purchaser and the seller. Is
there a difference between
an economic event and a
business transaction that
should be recorded in the