The Accounting Information System

1
Chapter 3

• The Accounting Information System

2
The Accounting Information System
The system of collecting and processing
transaction data and communicating financial
information to interested parties.
3
The Accounting Information System
Analyze the effect of business transactions on
the basic accounting equation
Assets Liabilities Stockholders Equity The
accounting equation must always balance.
4
The Accounting Information System

• Accounting transactions are events that must be
  recorded in the Financial Statements.
• Transaction Analysis determines the impact on the
  Balance Sheet.
• An account is an individual accounting record of
  increases and decreases in a specific Asset,
  Liability, or Stockholders Equity item.

5
Account
An account consists of three parts 1) the
Title of the account 2) a left or Debit side 3)
a right or Credit side
6
Debits and Credits

• Debiting an account means entering an amount on
  the left side of the account
• Crediting an account means entering an amount on
  the right side of the account
• An account has a debit balance if the left side
  total is greater than the right side total
• An account has a credit balance if the right side
  total is greater than the left side total
• For every debit, there must be an equal credit
• The accounting equation must be kept in balance

7
(No Transcript)
8
(No Transcript)
9
The Recording Process

• Analyze each transaction
• Enter information in a journal
• A journal is an accounting record where the
  transactions are recorded in chronological order

10
Journal

• Journalizing helps in
• Disclosing in one place the complete effect of a
  transaction
• Providing a chronological record of transactions
• Helping prevent or locate errors because debit
  and credit amounts can be easily compared

11
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)



12
The General Ledger

• It is the entire group of accounts maintained by
  a company
• It contains all the asset, liability, and
  stockholders equity accounts

13
The General Ledger
Illustration 3-18
14
Posting to the ledger
The entries from the journal are posted to the
ledger Posting is the process of transferring
information from the journals to the general
ledger accounts
15
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.
16
Trial Balance

• A trial balance has its limitations. It cannot
  uncover errors when
• a transaction is not journalized (not recorded)
• a journal entry does not get posted in the
  ledger
• a journal entry is posted twice in the ledger
• a journal entry and posting contains incorrect
  amounts
• a journal entry contains offsetting errors in
  recording the amount of transaction

17
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
18
(No Transcript)