Directory UMM :wiley:Public:college:accounting:kimmel:

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Tools for Business Decision Making

Kimmel, Weygandt, Kieso

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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.

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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.

Chapter 3

The Accounting

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Information System

The system of:

•

collecting and processing transaction

data and

•

communicating financial information

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The Accounting

Information System

Analyze the effect of business

transactions on the basic accounting

equation:

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Information System

The Accounting Equation must

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The Accounting

Information System



Accounting transactions

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Information System



Transactions

are

events that must be

recorded in the

Financial Statements



Transaction Analysis

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Is the financial position (assets, liabilities, and

stockholders’ equity) of the company changed?

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c) Peoples, Inc., purchased an estimated three

month supply of office supplies on account.

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(c) 600 600

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(c) 600 600

(d) 800 800 Service Revenue

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(c) 600 600

(d) 800 800 Service Revenue (e) 2,000 2,000 Service Revenue

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f) Peoples, Inc., received confirmation that a major

corporation has selected their corporation to

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(c) 600 600

(d) 800 800 Service Revenue (e) 2,000 2,000 Service Revenue (f)

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.

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(c) 600 600

(g) 6,000 6,000

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(c) 600 600

(g) 6,000 6,000 (h) (1,800) 1,800

h) Peoples, Inc., paid $1,800 for a 1-year license

to operate as a business. The license expires

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(c) 600 600

(g) 6,000 6,000 (h) (1,800) 1,800

(I) 800 (800)

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j

) Peoples, Inc., paid $400 of the amount it owed

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(c) 600 600

(g) 6,000 6,000 (h) (1,800) 1,800

(I) 800 (800)

(j) (400) (400)

j

) Peoples, Inc., paid $400 of the amount it owed

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(c) 600 600

(g) 6,000 6,000 (h) (1,800) 1,800

(I) 800 (800)

(j) (400) (400)

(k) (600) (600)Salaries Expense

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(c) 600 600

(g) 6,000 6,000 (h) (1,800) 1,800

(I) 800 (800)

(j) (400) (400)

(k) (600) (600)Salaries Expense (l) 5,000 5,000

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(c) 600 600

(g) 6,000 6,000 (h) (1,800) 1,800

(I) 800 (800)

(j) (400) (400)

(m) (500) (500)Rent Expense

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(c) 600 600

(g) 6,000 6,000 (h) (1,800) 1,800

(I) 800 (800)

(j) (400) (400)

(m) (500) (500)Rent Expense (n) (700) (700)Dividends

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Assets = Liabilities Stockholders' Equity Type of Transaction Accounts Accoiunts Notes Unearned Common Retained

Cash + Receivable + Supplies + License + Equipment + Land = Payable + Payable + Revenue Stock + Earnings (a) 95,000 95,000

(b) (60,000) 60,000

(c) 600 600

(g) 6,000 6,000 (h) (1,800) 1,800

(I) 800 (800)

(j) (400) (400)

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(c) 600 600

(g) 6,000 6,000 (h) (1,800) 1,800

(I) 800 (800)

(j) (400) (400)

(m) (500) (500)Rent Expense (n) (700) (700)Dividends Total 37,600 1,200 600 1,800 6,000 60,000 200 6,000 5,000 95,000 1,000

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an individual accounting record of

increases and decreases in a

specific Asset, Liability, or

Stockholders’ Equity item.

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Three parts :

1) the Title of the account

2) a left or

Debit

side

3) a right or

Credit

side

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TITLE

DEBIT CREDIT

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Side

Total Debits Total Credits

TITLE

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Balancing an Account

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Side

If the greater sum is on the left,

the account has a

Debit Balance

TITLE

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Total the Entries to Each

Side

If the greater sum is on the right,

the account has a

Credit Balance

TITLE

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Debits

Increase assets

and expenses

Decrease

liabilities,

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Decrease assets

and expenses

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Analyze each

transaction

Enter each

transaction in a

journal

Transfer journal

information to

ledger accounts

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Analyze each transaction



Enter information in a journal



Transfer the information to the

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The Journal...

is an accounting record where the

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

Cash receipts



Cash disbursements



Sales



Purchases



General

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Journals

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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.

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Date

Account Titles and Explanations

Debit Credit

1998

Oct. 1 Cash

10,000 Common Stock

10,000

(Invested cash in business)

1 Cash 5,000

Notes Payable

5,000

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

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The General Ledger

•

the entire group of accounts maintained

by a company

•

contains all the asset, liability, and

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The Ledger

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Transferring information from the

journals to the general ledger

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GENERAL JOURNAL

1998

Oct. 1 Cash

10,000 Common Stock

10,000

Balance

Acct 1010

Account

CASH

Date

Acct 3010

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GENERAL JOURNAL

1998

Oct. 1 Cash

10,000 Common Stock

10,000

Balance

Acct 1010

Account

CASH

Date

Acct 3010

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Posting Entries

GENERAL JOURNAL

1998

Oct. 1 Cash

10,000 Common Stock

10,000

Balance

Acct 1010

Account

CASH

Date

Acct 3010

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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

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Sierra Corporation

Trial Balance

October 31, 1998

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

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Reproduction or translation of this work beyond that permitted in

Section 117 of the 1976 United States Copyright Act without the

express written permission of the copyright owner is unlawful.

Request for further information should be addressed to the

Permissions Department, John Wiley & Sons, Inc. The purchaser

may make back-up copies for his/her own use only and not for

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= Stockholders' Equity Type of Transaction Cash +

Accounts

Receivable + Supplies +

Prepaid License +

Office

Equipment + Land =

Accounts Payable + Notes Payable + Unearned Revenue Common Stock +

Retained Earnings (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) Total

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(b)

Peoples, Inc. acquired land by paying $60,000 cash to Nashtown, Inc.

(c)

Peoples, Inc. purchased an estimated three-month supply of office supplies on account.

The company will pay $600 for these supplies later.

(d)

Peoples, Inc. received $800 for accounting services performed.

(e)

Peoples, Inc. performed consulting services for $2,000. The company will be paid later in

the month.

(f)

Peoples, Inc. received confirmation that a major corporation has selected their corporation

to perform major consulting work. The work will start January 1

st

of next year.

(g)

Peoples, Inc. purchased office equipment for $6000. The company signed a 2-year note

with ACME Office Equipment Company.

(h)

Peoples, Inc. paid $1800 for a 1-year license to operate as a business. The license

expires June 30

th

of next year.

(i)

Peoples, Inc. collected $800 of the money owed from (e).

(j)

Peoples, Inc. paid $400 of the amount it owed from (c).

(k)

An employee has worked and earned $600 which was paid during the month.

(l)

Peoples, Inc. received a $5000 retainer to handle a tax audit that the company will start to

work on next month.