Transcript Document 7656744

Chapter 3
Chapter 3
The Accounting
Information System
After studying Chapter 3, you should
be able to:
Analyze the effect of business transactions on the
basic accounting equation.
Explain what an account is and how it helps in the
recording process.
Define debits and credits and explain how they are
used to record business transactions.
Identify the basic steps in the recording process.
2
Chapter 3
The Accounting
Information System
After studying Chapter 3, you should
be able to:
Explain what a journal is and how it helps in the
recording process.
Explain what a ledger is and how it helps in the
recording process.
Explain what posting is and how it helps in the
recording process.
Explain the purposes of a trial balance.
3
The Accounting
Information System
The system of:
•collecting and processing transaction
data and
•communicating financial information
to decision makers.
4
Accounting Transactions...
are economic events that
must be recorded in the
financial statements
because they affect
 assets,
liabilities
and/or stockholders’
equity.
5
Transaction Analysis
Transaction Analysis
determines the impact
of the tranaction on
the balance sheet.
6
Accounting Analysis...
analyze the effect of business
transactions on the basic accounting
equation:
Assets = Liabilities + Stockholders’ Equity
7
The Accounting Equation...
Must always balance.
8
Is the financial position (assets, liabilities, and
stockholders’ equity) of the company changed?
Let’s Practice
Transaction Analysis
(a)
Cash +
95,000
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
a) On July 1, Cash of $95,000 was invested in
the business in exchange for $95,000 worth of
common stock.
(a)
(b)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
b) Peoples, Inc., acquired land by paying
$60,000 cash to Nashtown, Inc.
(a)
(b)
(c)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Accoiunts Notes
Unearned
= Payable + Payable + Revenue
Stockholders' Equity
Type of Transaction
Common
Retained
Stock +
Earnings
95,000
60,000
600
600
c) Peoples, Inc., purchased an estimated three
month supply of office supplies on account. The
company will pay $600 for these supplies later.
(a)
(b)
(c)
(d)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
800
=
600
800 Service Revenue
d) Peoples, Inc., received $800 for services
performed.
(a)
(b)
(c)
(d)
(e)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
800
2,000
600
800 Service Revenue
2,000 Service Revenue
e) Peoples, Inc., performed services for $2,000.
The company will be paid later in the month.
(a)
(b)
(c)
(d)
(e)
(f)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
600
800
800 Service Revenue
2,000 Service Revenue
2,000
f) Peoples, Inc., received confirmation that a major
corporation has selected their corporation to
perform major consulting work. The work will
start January 1 of next year.
No Transaction
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
600
800
800 Service Revenue
2,000 Service Revenue
2,000
6,000
6,000
g) Peoples, Inc., purchased office equipment for
$6,000. The Company signed a 2-year note with
ACME Office Equipment Company.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
600
800
800 Service Revenue
2,000 Service Revenue
2,000
6,000
(1,800)
6,000
1,800
h) Peoples, Inc., paid $1,800 for a 1-year license
to operate as a business. The license expires
June 30th of next year.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(I)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
600
800
800 Service Revenue
2,000 Service Revenue
2,000
6,000
(1,800)
800
6,000
1,800
(800)
i) Peoples, Inc., collected $800 of the money
owed from (e).
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(I)
(j)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
600
800
800 Service Revenue
2,000 Service Revenue
2,000
6,000
(1,800)
800
(400)
j)
6,000
1,800
(800)
(400)
Peoples, Inc., paid $400 of the amount it owed
from (c).
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(I)
(j)
(k)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
600
800
800 Service Revenue
2,000 Service Revenue
2,000
6,000
(1,800)
800
(400)
(600)
6,000
1,800
(800)
(400)
(600) Salaries Expense
k) An employee has worked and earned $600
which was paid during the month.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(I)
(j)
(k)
(l)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
600
800
800 Service Revenue
2,000 Service Revenue
2,000
6,000
(1,800)
800
(400)
(600)
5,000
6,000
1,800
(800)
(400)
(600) Salaries Expense
5,000
l) Peoples, Inc., received a $5,000 retainer to
handle a tax audit that the company will start
next month.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(I)
(j)
(k)
(l)
(m)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
600
800
800 Service Revenue
2,000 Service Revenue
2,000
6,000
(1,800)
800
(400)
(600)
5,000
(500)
6,000
1,800
(800)
(400)
(600) Salaries Expense
5,000
(500) Rent Expense
m) Peoples, Inc., paid $500 for rent during the
month.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(I)
(j)
(k)
(l)
(m)
(n)
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
600
800
800 Service Revenue
2,000 Service Revenue
2,000
6,000
(1,800)
800
(400)
(600)
5,000
(500)
(700)
6,000
1,800
(800)
(400)
(600) Salaries Expense
5,000
(500) Rent Expense
(700) Dividends
n) Dividends of $700 were paid during the month.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(I)
(j)
(k)
(l)
(m)
(n)
Total
Cash +
95,000
(60,000)
Assets
Accounts
Receivable + Supplies + License + Equipment + Land
=
Liabilities
Stockholders' Equity
Type of Transaction
Accoiunts Notes
Unearned Common
Retained
= Payable + Payable + Revenue Stock +
Earnings
95,000
60,000
600
600
800
800 Service Revenue
2,000 Service Revenue
2,000
6,000
(1,800)
800
(400)
(600)
5,000
(500)
(700)
37,600
6,000
1,800
(800)
(400)
(600) Salaries Expense
5,000
1,200
600
1,800
107,200
6,000
60,000
200
6,000
5,000
95,000
(500) Rent Expense
(700) Dividends
1,000
107,200
This is a tabular summary.
Account...
an individual accounting record of
increases and decreases in a
specific Asset, Liability, or
Stockholders’ Equity item.
26
Chart of Accounts...
Is a list of a company’s accounts.
ASSETS
Cash
Accounts Receivable
Advertising Supplies
Prepaid Insurance
Office Equipment
Accumulated Depreciation Office Equipment
27
Account
Three parts :
1) the Title of the account
2) a left or Debit side
3) a right or Credit side
28
The T Account
TITLE
DEBIT CREDIT
29
Total the Entries to
Each Side
TITLE
Debit
Credit
Total Debits Total Credits
30
Tabular Summary
Account Form
Balancing an Account
Normal Balances
Illustration 3-8
Illustration 3-6
Illustration 3-10
NEW ART
32
Normal Balances
Illustration 3-11
Illustration 3-13
NEW ART
33
Illustration 3-14
STOCKHOLDERS’ EQUITY
INVESTED EQUITY
EARNED EQUITY
CAPITAL
CAPITAL
COMMON STOCK
RETAINED EARNINGS
34
Total the Entries to
Each Side
TITLE
Debit
Credit
Total Debits Total Credits
If the greater sum is on the left,
the account has a Debit Balance.
35
Total the Entries to
Each Side
TITLE
Debit
Credit
Total Debits Total Credits
If the greater sum is on the right,
the account has a Credit Balance.
36
Whichever side you
increase is the
normal balance!
Debits
Increase assets
and expenses
Decrease
liabilities,
common stock
and revenues
38
Credits
Decrease assets
and expenses
Increase liabilities,
common stock and
revenues
39
Illustration 3-16
Analyze each
transaction
Enter each
transaction in a
journal
Transfer journal
information to
ledger accounts40
The Recording Process
Analyze each transaction
Enter information in a journal
Transfer the information to the
appropriate accounts
41
The Journal...
is an accounting record where the
transactions are recorded in chronological
order.
42
Journals
Types of Journals
Cash receipts
Cash disbursements
Sales
Purchases
General
43
Journals
Journals aid the recording process by:
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.
44
GENERAL JOURNAL
Date
Account Titles and Explanations
2004
Oct. 1 Cash
Common Stock
(Invested cash in business)
1 Cash
Notes Payable
(Issued 3-month, 12% note payable for cash)
2 Office Equipment
Cash
(Purchased office equipment for cash)
Debit Credit
10,000
10,000
5,000
5,000
5,000
5,000
The General Ledger
•the entire group of accounts maintained
by a company
•contains all the asset, liability, and
stockholders’ equity accounts
46
The General Ledger
47
The Ledger
The entries from the journal are posted
to the ledger,usually in summary form,
except for the general journal.
48
Posting
Transferring information from
the journals to the general ledger
accounts
49
Posting Entries
GENERAL JOURNAL
Account Titles and Explanations
2004
Oct. 1 Cash
Common Stock
10,000
10,000
Account CASH
Date
ref
debit
Account COMMON STOCK
Date
ref
debit
credit
Acct 1010
Balance
debit
credit
credit
Acct 3010
Balance
debit
credit
Posting Entries
GENERAL JOURNAL
Account Titles and Explanations
2004
Oct. 1 Cash
Common Stock
10,000
10,000
Account CASH
Date
Oct 1
ref
gj 1
debit credit
10,000
Account COMMON STOCK
Date
ref
debit
Oct 1
gj 1
Acct 1010
Balance
debit
credit
10,000
Acct 3010
Balance
credit debit
credit
10,000
10,000
Posting Entries
GENERAL JOURNAL
Account Titles and Explanations
2004
Oct. 1 Cash
Common Stock
10,000
10,000
Account CASH
Date
Oct 1
ref
gj 1
debit credit
10,000
Account COMMON STOCK
Date
ref
debit
Oct 1
gj 1
Acct 1010
Balance
debit
credit
10,000
Acct 3010
Balance
credit debit
credit
10,000
10,000
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.
53
Sierra Corporation
Trial Balance
October 31, 2004
Cash
Advertising Supplies
Prepaid Insurance
Office Equipment
Notes Payable
Accounts Payable
Unearned Service Revenue
Common Stock
Dividends
Service Revenue
Salaries Expense
Rent Expense
Debit Credit
$15,200
2,500
600
5,000
$ 5,000
2,500
1,200
10,000
500
10,000
4,000
900
$28,700 $28,700