Chapter Two

1. Chapter Two Accounting Information Systems

2. When do we Recognize an external business transaction? • Accrual Basis • When it happens • Cash Basis • When paid • Mostly Service type business • Dentist, Doctor, Lawyers

3. Are these business transactions? • 1/10 Places an order • Record in purchase order file to track what has been requested and what has been ordered ( managerial) but not in financial accounting records. • 2/15Receives desk and bill • Record the exchange of assets --you now have the desk and the cost of the desk, exact amount of the bill. • 3/1 Pays the bill • Writes a check and sends it to the vendor.

4. What dollar value do we use? • COST • Original Cost- “Historical”

5. How do we classify • Classification: • Assets= Liabilities+Stk Equity+Revenue-Expense • Accounts: • Cash, A/R, Supplies, Inventory • A/P, Mortgage Payable, X Payable,Unearned X • Common Stock, Dividends, Retained Earnings • Sales, Services Performed • Rent X, Wages X,

6. Where do we get the account names? • Chart or List • of the Accounts • Chart of Accounts- • Lists accounts that can be used in recording a business transaction. CFO approval to open an account.

7. Net Income Revenue – Expenses = Net Income Who gets the net income? Stockholder Net Income goes to Retained Earnings Dividends reduces Retained Earnings and goes to Stockholders

8. Classification Review • A. A/P - • B.Supplies - • C. Dividend - • D. Fees Earned- • E. Supplies X - • F. A/R - • G. Unearned Revenue- • H. Equipment -

9. Double Entry • Double - TWO (2) • Every entry must have at least two entries or accounts

10. T-account • ____Debit_______________Credit_______ • | • | • | • Washington D.C. • AC/DC

11. All transactions must have • 1 Debit • 1 Credit

12. Accounting Equation • A=L+SE+R-E • Dr Cr Cr Cr Dr

13. Another way to look at it • A+E+Div = L+SE+R • Dr Cr • Normal Normal • Balance Balance

14. Classification Normal Balance (+) side CLASS NORM BAL • Cash • Wages Expense • A/R • Common Stock • Service Revenue • Prepaid Rent • A/P • Investments

15. CLASS NORM BAL Bonds Payable Income Taxes Exp Land Supplies Exp Prepaid Insurance Utilities Exp Fees Earned Dividends Wages Payable

16. CLASS NORM BAL Unearned Revenue Office Equipment Rent Payable Notes Receivable Interest Expense Notes Payable Supplies Interest Receivable Rent Expense

17. How to decide • What did you buy or receive • How did you or your customer pay for it. • What accounts do you use • What is it’s classification • What its normal balance. • Did you increase it - same as normal balance • Did you decrease it-opposite of normal balance

18. How do we record this transaction? • 4 steps: • General Journal • Post to General Ledger or T-accounts • From GL do a Trial Balance • From Trial Balance do Financial Statements

19. May 2 Cash Common Stock 5 Office Equipment Cash 7 Supplies Accounts Payable 19 Cash Program Service Rev (Earned 22 Cash Unearned Program Service Rev 25 Rent Expense Cash 31 Accounts Receivable Program Service Revenue

20. General Ledger /T-accounts • Cash A/R Supplies Office Equipment • 2000 | 300 800 | 150| 300 | • 3000 | 700 • 1000 • 5000 • A/P Common StockProg Svc RevRent Expense 150 | | 2000 |3000 700| | 800 Unearned Rev 3800 | 1000

21. Trial Balance • Report :Does the equation balance-- trial • Normal Balance must be maintained • Accounting equation vertically • A Dr • L Cr • SE Cr • R Cr • E Dr • XX XX

22. Comaque Shoe Repair Service, Inc. Trial Balance June 30, 20XX Cash $4,210 Repair Supplies 500 Repair Equipment 1,900 A/P $ 300 Common Stock 5,900 Dividends 600 Repair Fees Earned 1,860 Salaries Expense 450 Rent Expense 400_____ $8,060 $8,060

23. Common Errors • Transposition • 950 to 590 • Slides • 1000 to 100 • All divisable by 9 or numbers add to 9

24. Practice Transactions • E2-10 pg 93 • E2-13 pg 94 • HOMEWORK • P2A, P3A, P5A, P7A, P9A