Chapter 3-1 The Accounting Information System Information System Accounting, Third Edition.
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Transcript of Chapter 3-1 The Accounting Information System Information System Accounting, Third Edition.
Chapter 3-1
The AccountingThe Accounting
Information SystemInformation System
Accounting, Third Edition
Chapter 3-2
1. Analyze the effect of business transactions on the basic accounting equation.
2. Explain what an account is and how it helps in the recording process.
3. Define debits and credits and explain how they are used to record business transactions.
4. Identify the basic steps in the recording process.
5. Explain what a journal is and how it helps in the recording process.
6. Explain what a ledger is and how it helps in the recording process.
7. Explain what posting is and how it helps in the recording process.
8. Explain the purposes of a trial balance.
9. Classify cash activities as operating, investing, or financing.
Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives
Chapter 3-3
Debits and Debits and creditscredits
Debit and Debit and credit credit proceduresprocedures
Stockholders’ Stockholders’ equity equity relationshipsrelationships
Summary of Summary of debit/credit debit/credit rulesrules
Accounting Accounting TransactionsTransactionsAccounting Accounting
TransactionsTransactions The AccountThe AccountThe AccountThe AccountSteps in the Steps in the Recording Recording ProcessProcess
Steps in the Steps in the Recording Recording ProcessProcess
The Recording The Recording Process Process
IllustratedIllustrated
The Recording The Recording Process Process
IllustratedIllustrated
The Trial The Trial BalanceBalanceThe Trial The Trial BalanceBalance
Analyzing Analyzing transactionstransactions
Summary of Summary of transactionstransactions
The journalThe journal
The ledgerThe ledger
Chart of Chart of accountsaccounts
PostingPosting
Summary Summary illustration of illustration of journalizing and journalizing and postingposting
Limitations of Limitations of a trial balancea trial balance
The Accounting Information SystemThe Accounting Information SystemThe Accounting Information SystemThe Accounting Information System
Chapter 3-4
The Accounting Information SystemThe Accounting Information SystemThe Accounting Information SystemThe Accounting Information System
The system of collecting and processing transaction data and communicating financial information to decision makers is known as the accounting information system.
Chapter 3-5
Transactions are economic events that require recording in the financial statements.
May be external or internal.
Not all activities represent transactions.
Each transaction has a dual effect on the accounting equation.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
Chapter 3-6
Question:Question: Are the following events recorded in the accounting records?
Event
Purchased a
computer.
Criterion
Is the financial position (assets, liabilities, or stockholders’ equity) of the company
changed?
Pay rent.
Record/ Don’t Record
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
Discuss product
design with potential customer.
Chapter 3-7
AssetsAssetsAssetsAssets LiabilitiesLiabilitiesLiabilitiesLiabilitiesStockholdeStockholders’ Equityrs’ Equity
StockholdeStockholders’ Equityrs’ Equity
= +
Transaction Analysis
The process of identifying the specific effects of economic events on the accounting equation.
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Basic Accounting Equation
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
Chapter 3-8
Transaction Analysis
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
Illustration 3-2 Expanded accounting equation
Chapter 3-9
Illustration:Illustration: 1. On October 1, cash of $10,000 is invested in Sierra Corporation by investors in exchange for $10,000 of common stock.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
1.+10,000 +10,000
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Chapter 3-10
2. On October 1, Sierra borrowed $5,000 from Castle Bank by signing a 3-month, 12%, $5,000 note payable.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
1.+10,000 +10,000
2.+5,000 +5,000
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Chapter 3-11
3. On October 2, Sierra purchased office equipment by paying $5,000 cash to Superior Equipment Sales Co.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
3. -5,000 +5,000
1.+10,000 +10,000
2.+5,000 +5,000
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Chapter 3-12
4. On October 2, Sierra received a $1,200 cash advance from R. Knox, a client.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
4.+1,200 +1,200
3. -5,000 +5,000
1.+10,000 +10,000
2.+5,000 +5,000
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Chapter 3-13
5. On October 3, Sierra received $10,000 in cash from Copa Company for advertising services performed.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
4.+1,200 +1,200
5.+10,000 +10,000
3. -5,000 +5,000
1.+10,000 +10,000
2.+5,000 +5,000
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Chapter 3-14
6. On October 3, Sierra Corporation paid its office rent for the month of October in cash, $900.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
4.+1,200 +1,200
5.+10,000 +10,000
6. -900 -900
3. -5,000 +5,000
1.+10,000 +10,000
2.+5,000 +5,000
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Chapter 3-15
7. On October 4, Sierra paid $600 for a one-year insurance policy that will expire next year on September 30.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
4.+1,200 +1,200
5.+10,000 +10,000
6. -900 -900
7. -600 +600
3. -5,000 +5,000
1.+10,000 +10,000
2.+5,000 +5,000
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Chapter 3-16
8. On October 5, Sierra purchased a three-month supply of materials on account from Aero Supply for $2,500.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
4.+1,200 +1,200
5.+10,000 +10,000
6. -900 -900
7. -600 +600
8. +2,500 +2,500
3. -5,000 +5,000
1.+10,000 +10,000
2.+5,000 +5,000
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Chapter 3-17
10. On October 20, Sierra paid a $500 dividend.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
4.+1,200 +1,200
5.+10,000 +10,000
6. -900 -900
7. -600 +600
8. +2,500 +2,500
10. -500 -500
3. -5,000 +5,000
1.+10,000 +10,000
2.+5,000 +5,000
SO 1 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Chapter 3-18
11. Employees have worked two weeks, earning $4,000 in salaries, which were paid on October 26.
Accounting TransactionsAccounting TransactionsAccounting TransactionsAccounting Transactions
4.+1,200 +1,200
5.+10,000 +10,000
6. -900 -900
7. -600 +600
8. +2,500 +2,500
10. -500 -500
11.-4,000 -4,000
3. -5,000 +5,000
1.+10,000 +10,000
2.+5,000 +5,000
Chapter 3-19
Account Name
Debit / Dr. Credit / Cr.
Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.
Debit = “Left”
Credit = “Right”
AccounAccountt
An Account can An Account can be illustrated be illustrated
in a T-Account in a T-Account form.form.
SO 2 Explain what an account is and how it helps in the recording process.SO 2 Explain what an account is and how it helps in the recording process.
The AccountThe AccountThe AccountThe Account
Chapter 3-20
Double-entry Double-entry accounting system
Each transaction must affect two or more accounts to keep the basic accounting equation in balance.
Recording done by debiting at least one account and crediting another.
DEBITS must equalmust equal CREDITS.
SO 3 Define debits and credits and explain their use in recording business SO 3 Define debits and credits and explain their use in recording business transactions.transactions.
Debit and Credit ProceduresDebit and Credit ProceduresDebit and Credit ProceduresDebit and Credit Procedures
Chapter 3-21
Account Name
Debit / Dr. Credit / Cr.
If Debits are greater thangreater than Credits, the account will have a debit balance.
$10,000 Transaction #2$3,000
$15,000$15,000
8,000Transaction #3
Balance
Transaction #1
SO 3 Define debits and credits and explain their use in recording business SO 3 Define debits and credits and explain their use in recording business transactions.transactions.
Debit and Credit ProceduresDebit and Credit ProceduresDebit and Credit ProceduresDebit and Credit Procedures
Chapter 3-22
Account Name
Debit / Dr. Credit / Cr.
If Credits are greater thangreater than Debits, the account will have a credit balance.
$10,000 Transaction #2$3,000
Balance
Transaction #1
$1,000$1,000
8,000 Transaction #3
SO 3 Define debits and credits and explain their use in recording business SO 3 Define debits and credits and explain their use in recording business transactions.transactions.
Debit and Credit ProceduresDebit and Credit ProceduresDebit and Credit ProceduresDebit and Credit Procedures
Chapter 3-23
Assets - Debits should exceed credits.
Liabilities – Credits should exceed debits.
The normal balance is on the increase side.
Dr./Cr. Procedures for Assets and LiabilitiesDr./Cr. Procedures for Assets and LiabilitiesDr./Cr. Procedures for Assets and LiabilitiesDr./Cr. Procedures for Assets and Liabilities
Chapter 3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
SO 3 Define debits and credits and explain their use in recording business SO 3 Define debits and credits and explain their use in recording business transactions.transactions.
Chapter 3-24
Owner’s investments and revenues increase stockholder’s equity (credit).
Dividends and expenses decrease stockholder’s equity (debit).
Dr./Cr. Procedures for Stockholders’ EquityDr./Cr. Procedures for Stockholders’ EquityDr./Cr. Procedures for Stockholders’ EquityDr./Cr. Procedures for Stockholders’ Equity
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Common StockCommon Stock
Chapter 3-23
DividendsDividends
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
StockholdersStockholders’’ EquityEquity
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Retained EarningsRetained Earnings
SO 3 Define debits and credits and explain their use in recording business SO 3 Define debits and credits and explain their use in recording business transactions.transactions.
Chapter 3-25
The purpose of earning revenues is to benefit the stockholders.
The effect of debits and credits on revenue accounts is the same as their effect on stockholders’ equity.
Expenses have the opposite effect: expenses decrease stockholders’ equity.
Chapter 3-27
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
ExpenseExpense
Chapter 3-26
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
RevenueRevenue
SO 3 Define debits and credits and explain their use in recording business SO 3 Define debits and credits and explain their use in recording business transactions.transactions.
Dr./Cr. Procedures for Revenue and ExpenseDr./Cr. Procedures for Revenue and ExpenseDr./Cr. Procedures for Revenue and ExpenseDr./Cr. Procedures for Revenue and Expense
Chapter 3-26
Chapter 3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-27
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
ExpenseExpense
Chapter 3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
StockholdersStockholders’’ EquityEquity
Chapter 3-26
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
RevenueRevenue
Normal Balance Credit
Normal Balance Credit
Normal Balance Debit
Normal Balance Debit
Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary
SO 3 Define debits and credits and explain their use in recording business SO 3 Define debits and credits and explain their use in recording business transactions.transactions.
Chapter 3-27
Balance Sheet Balance Sheet Income StatementIncome Statement
= + =-Asset Liability
Equity Revenue
Expense
Debit
Credit
Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary
SO 3 Define debits and credits and explain their use in recording business SO 3 Define debits and credits and explain their use in recording business transactions.transactions.
Chapter 3-28
Stockholders’ Equity RelationshipsStockholders’ Equity RelationshipsStockholders’ Equity RelationshipsStockholders’ Equity Relationships
Illustration 3-15
SO 3 Define debits and credits and explain their use in recording business SO 3 Define debits and credits and explain their use in recording business transactions.transactions.
Chapter 3-29
Summary of Debit/Credit RulesSummary of Debit/Credit RulesSummary of Debit/Credit RulesSummary of Debit/Credit Rules
Relationship among the assets, liabilities and Relationship among the assets, liabilities and stockholders’ equity of a business: stockholders’ equity of a business:
The equation must be in balance after every The equation must be in balance after every transaction. For every transaction. For every DebitDebit there must be a there must be a CreditCredit..
Illustration 3-16
Assets Liabilities= Stockholders’ EquityBasic Equation
Expanded Basic Equation
+
SO 3 Define debits and credits and explain their use in recording business SO 3 Define debits and credits and explain their use in recording business transactions.transactions.
Chapter 3-30
Business documents, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction.
Steps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording Process
SO 4 Identify the basic steps in the recording process.SO 4 Identify the basic steps in the recording process.
Illustration 3-17
Analyze each transaction
Enter transaction in a journal
Transfer journal information to ledger
accounts
Chapter 3-31
Book of original entry.
Transactions recorded in chronological order.
Contributions to the recording process:
1. Discloses the complete effects of a transaction.
2. Provides a chronological record of transactions.
3. Helps to prevent or locate errors because the debit and credit amounts can be easily compared.
The JournalThe JournalThe JournalThe Journal
SO 5 Explain what a journal is and how it helps in the recording SO 5 Explain what a journal is and how it helps in the recording process.process.
Chapter 3-32
Journalizing - Entering transaction data in the journal.Illustration: Presented below is information related to Sierra Corporation.
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Sierra issued common stock in exchange for $10,000 cash.
Oct. 1
Sierra borrowed $5,000 by signing a note.1
Sierra purchased office equipment for $5,000.2
Instructions - Journalize these transactions.
The JournalThe JournalThe JournalThe Journal
Chapter 3-33
Account Title Ref. Debit Credit
Oct. 1
Date
JournalizingJournalizingJournalizingJournalizing
General Journal
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Sierra issued common stock in exchange for $10,000 cash.
Oct. 1
CashCommon stock
10,00010,000
Chapter 3-34
Account Title Ref. Debit Credit
Oct. 1
Date
JournalizingJournalizingJournalizingJournalizing
General Journal
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Sierra borrowed $5,000 by signing a note.
Oct. 1
CashNotes payable
5,0005,000
Chapter 3-35
Account Title Ref. Debit Credit
Oct. 2
Date
JournalizingJournalizingJournalizingJournalizing
General Journal
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Sierra purchased office equipment for $5,000.
Oct. 2
Office equipmentCash
5,0005,000
Chapter 3-36
Ledger contains the entire group of accounts maintained by a company.
The LedgerThe LedgerThe LedgerThe Ledger
SO 6 Explain what a ledger is and how it helps in the recording SO 6 Explain what a ledger is and how it helps in the recording process.process.
Illustration 3-19
Chapter 3-37
Accounts arranged in sequence in which they are presented in the financial statements.
Chart of AccountsChart of AccountsChart of AccountsChart of Accounts
SO 6 Explain what a ledger is and how it helps in the recording SO 6 Explain what a ledger is and how it helps in the recording process.process.
Chapter 3-38
Posting Posting – the process of transferring amounts from the journal to the ledger accounts.
Cash Acct. No. 101
Date Explanation Ref. Debit Credit Balance
General Ledger
Date Account Title Ref. Debit Credit
Oct. 1 Cash 10,000
Common stock 10,000
General Journal
Oct. 1 Owner investment
J1 10,000 10,000
101
J1
PostingPostingPostingPosting
SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording process.process.
Chapter 3-39
The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated
SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording process.process.
Follow these steps:
1. Determine what type of account is involved.
2. Determine what items increased or decreased and by how much.
3. Translate the increases and decreases into debits and credits.
Illustration 3-21
Chapter 3-40
The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated
SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording process.process.
Follow these steps:
1. Determine what type of account is involved.
2. Determine what items increased or decreased and by how much.
3. Translate the increases and decreases into debits and credits.
Illustration 3-22
Chapter 3-41
The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated
SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording process.process.
Follow these steps:
1. Determine what type of account is involved.
2. Determine what items increased or decreased and by how much.
3. Translate the increases and decreases into debits and credits.
Illustration 3-23
Chapter 3-42 SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording
process.process.
Illustration 3-24
Additional Transactions
The The Recording Recording Process Process IllustratedIllustrated
The The Recording Recording Process Process IllustratedIllustrated
Chapter 3-43 SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording
process.process.
Illustration 3-25
Additional Transactions
The The Recording Recording Process Process IllustratedIllustrated
The The Recording Recording Process Process IllustratedIllustrated
Chapter 3-44 SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording
process.process.
Illustration 3-26
Additional Transactions
The The Recording Recording Process Process IllustratedIllustrated
The The Recording Recording Process Process IllustratedIllustrated
Chapter 3-45 SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording
process.process.
Illustration 3-27
Additional Transactions
The The Recording Recording Process Process IllustratedIllustrated
The The Recording Recording Process Process IllustratedIllustrated
,
Chapter 3-46 SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording
process.process.
Illustration 3-28
Additional Transactions
The The Recording Recording Process Process IllustratedIllustrated
The The Recording Recording Process Process IllustratedIllustrated
Chapter 3-47 SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording
process.process.
The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated
Additional Transactions Illustration 3-29
Chapter 3-48 SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording
process.process.
Illustration 3-30
Additional Transactions
The The Recording Recording Process Process IllustratedIllustrated
The The Recording Recording Process Process IllustratedIllustrated
Chapter 3-49 SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording
process.process.
Illustration 3-31
Additional Transactions
The The Recording Recording Process Process IllustratedIllustrated
The The Recording Recording Process Process IllustratedIllustrated
Chapter 3-50
Summary Illustration of JournalizingSummary Illustration of JournalizingSummary Illustration of JournalizingSummary Illustration of Journalizing
SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording process.process.
Illustration 3-32
Chapter 3-51
Summary Illustration of JournalizingSummary Illustration of JournalizingSummary Illustration of JournalizingSummary Illustration of Journalizing
SO 7 Explain what posting is and how it helps in the recording SO 7 Explain what posting is and how it helps in the recording process.process.
Illustration 3-32
Chapter 3-52
Summary Summary Illustration Illustration of Postingof Posting
Summary Summary Illustration Illustration of Postingof Posting
Illustration 3-33
Chapter 3-53
A list of accounts and their balances at a given time.
Purpose is to prove that debits equal credits.
The Trial BalanceThe Trial BalanceThe Trial BalanceThe Trial Balance
Illustration 3-34
Chapter 3-54
The trial balance may balance even when
1. a transaction is not journalized,
2. a correct journal entry is not posted,
3. a journal entry is posted twice,
4. incorrect accounts are used in journalizing or posting, or
5. offsetting errors are made in recording the amount of a transaction.
The Trial BalanceThe Trial BalanceThe Trial BalanceThe Trial Balance
SO 8 Explain the purposes of a trial balance.SO 8 Explain the purposes of a trial balance.
Limitations of a Trial Balance