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Infosys - 1 The Accounting Information Processing System.
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Transcript of Infosys - 1 The Accounting Information Processing System.
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Infosys - 1
The Accounting Information Processing
System
The Accounting Information Processing
System
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BASIC ACCOUNTING EQUATION[Corporation]
Assets = Liabilities + Stockholders’ Equity
Contributed(Paid-in)
Capital
Retained Earnings
Net Income (+)Net loss (-) Dividends (-)
Declared
Revenues & Gains (+) Expenses & Losses (-)
ParValue
ExcessOverPar
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Financial Accounting InformationFinancial Accounting Information
Permanent AccountsAssets
Liabilities
Owners’ Equity
Permanent AccountsAssets
Liabilities
Owners’ Equity
Temporary AccountsRevenues Dividends
Expenses
Gains & Losses
Temporary AccountsRevenues Dividends
Expenses
Gains & Losses
AccountsAccounts
Accounts and Transaction Recording
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Account Name
Debit Credit
Account Name
Debit Credit
Account Name
Debit Credit
A = L + OE
Application of Debits and Credits Application of Debits and Credits
PERMANENT ACCOUNTS
The balances in PERMANENT accounts
are carried over to future accounting periods.
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ASSETSASSETS
Debit for
Increase
Credit for Decrease
LIABILITIESLIABILITIES
Debit for
Decrease
Credit for Increase
EQUITIESEQUITIES
Debit for
Decrease
Credit for Increase
Application of Debits and Credits Application of Debits and Credits
A = L + OE
PERMANENT ACCOUNTS
The balances in PERMANENT accounts
are carried over to future accounting periods
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Application of debits and credits Application of debits and credits
REVENUES & GAINSREVENUES & GAINS
Debit for
Decrease
Credit for Increase
TEMPORARY ACCOUNTS(Subdivisions of Retained
Earnings)
EXPENSES, LOSSESEXPENSES, LOSSES
& DIVIDENDS & DIVIDENDS DECLAREDDECLARED
Debit for
Increase
Credit for Decrease
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Infosys - 7
The Accounting Cycle
During Accounting PeriodDuring Accounting Period
Identify transactions or events to be recorded.
ANALYSIS OF TRANSACTION IS THE KEY
Journalize transactions and events.
Posting from journals to ledger.
The Accounting Cycle is a series of sequential steps leading to the financial statements.
The Accounting Cycle is a series of sequential steps leading to the financial statements.
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At the end of the accounting period:At the end of the accounting period:
Prepare unadjusted trial balance. Journalize and post adjusting journal
entries.Prepare adjusted trial balance.Prepare financial statements. Journalize and post closing journal entries.Prepare post-closing trial balance.
The Accounting Cycle
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Infosys - 9
Source documents
Record in Journal
Financial Statements
Transaction Analysis
Post to Ledger
Unadjusted Trial Balance
Record & Post Adjusting
Entries
Adjusted Trial Balance
Close Temporary Accounts
Post-Closing Trial Balance
The Accounting Processing
Cycle
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UNADJUSTED TRIAL BALANCE
Consists of a listing of each general ledger account and its balance at the end of period.
– Debit balances in one column and credit balances in another
Serves as a convenient means for checking that the sum of debit account balances equals the sum of credit account balances.
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Trial Balance - ExampleTrial Balance - Example
The General Ledger is in
balance!DR = CR
The General Ledger is in
balance!DR = CR
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ADJUSTING JOURNAL ENTRIES
Accruals
Prepayments (Deferrals)
Corrections of errors
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ADJUSTING JOURNAL ENTRIESAccruals
Cash flows that occur AFTER expense and revenue recognition
Recorded when cash is to be paid or received in a future accounting period
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Your company pays its workers every Friday. Year-end ,12/31/X5, falls on
Wednesday. It is estimated that employees have earned salaries of $47,250 through Wednesday of the
week ended 1/2/X6.
AJEs Accrual Example
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ADJUSTING JOURNAL ENTRIES
Prepayments/Deferrals
Cash flows that occur BEFORE expense and revenue recognition
Portion that applies to future periods is deferred as a prepaid expense or unearned revenue
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PREPAYMENTS
Standard Recording Method
Records an asset upon payment of cash and liability upon receipt of cash before goods or services are provided
– Cash paid recorded as an asset (Prepaids)
– Cash received recorded as liability (Unearned revenue)
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Prepayment ExampleStandard Method
On 12/1/X5, your company paid $1,200 for a six-month insurance
policy. The $1,200 was recorded as Prepaid Insurance (an asset).
What AJE is needed on 12/31/X5?
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OTHER PREPAYMENTS
Jax, Inc. purchased equipment on June 30, 19X5, that cost $25,000 (recorded as “Equipment”). The equipment has an estimated useful life of 5 years and no salvage value. Jax uses straight-line
depreciation.
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Here comes something Here comes something that’s A LITTLE BIT that’s A LITTLE BIT
DIFFERENT!DIFFERENT!
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PREPAYMENTS
Expedient
Recording Method
Records an expense upon payment of cash before goods or services are consumed
Records revenue upon receipt of cash before goods or services are provided
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Prepayment ExampleExpedient Method
On 12/1/X5, your company paid $1,200 for a six-month insurance policy. The $1,200 was recorded as Insurance expense.
What AJE is needed on 12/31/X5?
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Prepare Adjusted Trial Balance
Includes all account balances after adjustments have been posted.
Used to produce the financial statements.
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Prepare Financial Statements
The income statement is always prepared first.
Includes the temporary account balances from the adjusted trial balance.
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Prepare Financial Statements The retained
earnings statement explains the changes in retained earnings during the year.
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Prepare Financial Statements
The Balance Sheet includes the permanent accounts.
Retained Earnings is taken from the Retained Earnings Statement.
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Closing Entries
Two purposes of closing journal entries:– Reduce to zero the balances of
temporary accounts related to earnings measurement and dividends
– Increase (or decrease) retained earnings by the net impact of
the temporary accounts for the period
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CLOSING ENTRIESFlow - Chart
Revenues
Expenses
Dividends Declared
Retained Earnings
11,200
11,115
50
11,200
11,115
8550 50
Note: Large type amounts are closing entries
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Prepare Post-Closing Trial Balance
Lists the balances of the permanent accounts after the closing process is finished.
Retained Earnings will show the end of period balance.
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WOW!