Accounting and Financial Analysis

1
Chapter 3
2
Accounting and Financial Analysis
Class 5 Chapter 3 Contd The Accounting
Information System
3
Real Life

• Your questions

4
Review

•   Homework BYP 3-6
• Auditing Assurance
• Tax Legal
• Management Consulting

5
Review
Artificial information system Inertia of
history Push vs. pull (mining with FXML)
6
AIS word Account
an individual record of increases and decreases
in a specific Asset, Liability, or Owners Equity
item
7
The AIS Equation
Assets Liabilities Owners Equity
8
The T Account
9
Review

• Why double entry? p. 104
• Lefts rights p. 105
• Unearned Revenue p. 99
• The Accounting Equation p. 103 

10
Review

• Expanded Accounting Equation
• p. 109

11
The AIS Equation
Owners Equity Owners Capital
Retained Income
Retained Income Income Withdrawls
Income Revenues Expenses
12
Review

• BYP 3-1
• (b) 1. Cash is increased.
• 2. Cash is decreased.
• 3. Cash is decreased. 

13
Assets Liabilities Owners Equity
Double entry always balances
Lefting increases lefts
Increase Cash Debit
14
Debits
Increase assets and expenses Decrease
liabilities, common stock and revenues
15
Credits
Decrease assets and expenses Increase
liabilities, common stock and revenues
16
The AIS Cycle
Event
Record chronologically in a diary a journal
Both a left and a right, each time double entry
Group by like kinds the ledger
Summarize into financial statements -- periodic
17
Illustration 3-15
Illustration 3-16
Analyze each transaction
Enter each transaction in a journal
Transfer journal information to ledger accounts
Page 109 in book
18
The Recording Process

• Analyze each transaction
• Enter information in a journal
• Transfer the information to the appropriate
  accounts

19
The Journal...
is an accounting record where the transactions
are recorded in chronological order.
20
Types of Journals

• Cash receipts
• Cash disbursements
• Sales
• Purchases
• General

21
Journals
Journals aid the recording process by

• Disclosing in one place the complete effect of a
  transaction
• Providing a chronological record
• Helping prevent or locate errors because debit
  and credits easily compared

22
Illustration 3-17
Date
Debit Credit
1 Cash

5,000
Notes Payable

5,000 (Issued
3-month, 12 note payable for cash)



2 Office Equipment

5,000
Cash

5,000 (Purchased
office equipment for cash)



23
The General Ledger

• the entire group of accounts
• contains all the asset, liability, owners
  equity accounts
• Plus revenues expenses

24
The General Ledger
Illustration 3-18
25
The Ledger
The entries from the journal are posted to the
ledger,usually in summary form, except for the
general journal.
26
Posting
Transferring information from the journals to the
general ledger accounts
27
Posting Entries
Balance
debit
credit
debit
credit
ref
Account COMMON STOCK
Acct 3010
Date
Balance
debit
credit
debit
credit
ref
28
Posting Entries
Balance
debit
credit
debit
credit
ref
gj 1
Oct 1
10,000
10,000
Account COMMON STOCK
Acct 3010
Date
Balance
debit
credit
debit
credit
ref
Oct 1
gj 1
10,000
10,000
29
Posting Entries
Balance
debit
credit
debit
credit
ref
gj 1
Oct 1
10,000
10,000
Account COMMON STOCK
Acct 3010
Date
Balance
debit
credit
debit
credit
ref
Oct 1
gj 1
10,000
10,000
30
Trial Balance
A list of all the accounts and their balances at
a given time.
It serves to prove the mathematical
equality of debits and credits after posting. It
aids in the preparation of financial statements.
31
Sierra Corporation Trial Balance October 31, 2001
Illustration 3-33
Debit Credit
Cash
15,200 Advertising
Supplies
2,500 Prepaid Insurance

600 Office Equipment
5,000 Notes Payable

5,000 Accounts
Payable
2,500 Unearned
Service Revenue
1,200 Common Stock

10,000 Dividends

500 Service Revenue

10,000 Salaries Expense
4,000 Rent
Expense
900

28,700 28,700
32
Homework P 3-7A (DRs)

• Cash (2,840 180) 3,020
• Accounts Receivable (3,231 180) 3,050
• Supplies (800 340) 460
• Equipment (3,000 340) 3,340
• Dividends (800 400) 1,200
• Salaries Exp. (3,400 600 400) 3,600
• Office Expense 910
• Total 15,510

33
Homework BYP 3-1
34
Homework BYP 3-4

• Room for growth financial risk greatly reduced.
  Profitability enhanced when no interest expense
• New opportunities may be seized
  cash earns less
• Accounts payable are interest-free loans, mostly
  for 30 days

35
Homework BYP 3-5
U.S. capital markets are largest U.S. GAAP
respected

•  

Many US/CANADA similarities some differences
May apply same rules differently judgment