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The Accounting Information System

The Accounting Information System. Accounting Transactions. Question: Are the following events recorded in the accounting records?. Discuss product design with potential customer. Purchased a computer. Event. Pay rent.

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The Accounting Information System

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  1. The Accounting Information System

  2. Accounting Transactions Question:Are the following events recorded in the accounting records? Discuss product design with potential customer. Purchased a computer. Event Pay rent. Is the financial position (assets, liabilities, or stockholders’ equity) of the company changed? Criterion Record/ Don’t Record

  3. Inputs to the AIS: Transaction Analysis Explain transactions with common examples. Identify the account changes created by the purchase of inventory, the payment of a salary, and the borrowing of money. Understand that accounting systems can be programmed to automatically record expenses, such as salary as it accrues.

  4. Accounting Transactions Transaction Analysis The process of identifying the specific effects of economic events on the accounting equation. Basic Accounting Equation Assets Liabilities Stockholders’ Equity + =

  5. Accounting Transactions Transaction Analysis Illustration 3-2 Expanded accounting equation

  6. Accounting Transactions Illustration:1.On October 1, cash of $10,000 is invested in Sierra Corporation by investors in exchange for $10,000 of common stock. 1. +10,000 +10,000

  7. Accounting Transactions 2. On October 1, Sierra borrowed $5,000 from Castle Bank by signing a 3-month, 12%, $5,000 note payable. 1. +10,000 +10,000 2. +5,000 +5,000

  8. Accounting Transactions 3. On October 2, Sierra purchased office equipment by paying $5,000 cash to Superior Equipment Sales Co. 1. +10,000 +10,000 2. +5,000 +5,000 3. -5,000 +5,000

  9. Accounting Transactions 4. On October 2, Sierra received a $1,200 cash advance from R. Knox, a client. 1. +10,000 +10,000 2. +5,000 +5,000 3. -5,000 +5,000 4. +1,200 +1,200

  10. Accounting Transactions 5. On October 3, Sierra received $10,000 in cash from Copa Company for advertising services performed. 1. +10,000 +10,000 2. +5,000 +5,000 3. -5,000 +5,000 4. +1,200 +1,200 5. +10,000 +10,000

  11. Accounting Transactions 6. On October 3, Sierra Corporation paid its office rent for the month of October in cash, $900. 1. +10,000 +10,000 2. +5,000 +5,000 3. -5,000 +5,000 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900

  12. Accounting Transactions 7. On October 4, Sierra paid $600 for a one-year insurance policy that will expire next year on September 30. 1. +10,000 +10,000 2. +5,000 +5,000 3. -5,000 +5,000 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600

  13. Accounting Transactions 8. On October 5, Sierra purchased a three-month supply of advertising materials on account from Aero Supply for $2,500. 1. +10,000 +10,000 2. +5,000 +5,000 3. -5,000 +5,000 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 8. +2,500 +2,500

  14. Accounting Transactions 10. On October 20, Sierra paid a $500 dividend. 1. +10,000 +10,000 2. +5,000 +5,000 3. -5,000 +5,000 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 8. +2,500 +2,500 10. -500 -500

  15. Accounting Transactions 11. Employees have worked two weeks, earning $4,000 in salaries, which were paid on October 26. 1. +10,000 +10,000 2. +5,000 +5,000 3. -5,000 +5,000 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 8. +2,500 +2,500 10. -500 -500 11. -4,000 -4,000

  16. Bookkeeping List the four steps followed in the accounting process. Indicate the purpose of a “T-account”. Understand why debits always = credits.

  17. The Account • Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. • Debit = “Left” • Credit = “Right” Account An Account can be illustrated in a T-Account form.

  18. Debit and Credit Procedures • Double-entry accounting system • Each transaction must affect two or more accounts to keep the basic accounting equation in balance. • Recording done by debiting at least one account and crediting another. • DEBITSmust equalCREDITS.

  19. Debit and Credit Procedures If Debits are greater than Credits, the account will have a debit balance. Transaction #1 $10,000 $3,000 Transaction #2 Transaction #3 8,000 Balance $15,000

  20. Debit and Credit Procedures If Credits are greater than Debits, the account will have a credit balance. Transaction #1 $10,000 $3,000 Transaction #2 8,000 Transaction #3 Balance $1,000

  21. Dr./Cr. Procedures for Assets and Liabilities • Assets - Debits should exceed credits. • Liabilities – Credits should exceed debits. • The normal balance is on the increase side.

  22. Dr./Cr. Procedures for Stockholders’ Equity • Owner’s investments and revenues increase stockholder’s equity (credit). • Dividends and expenses decrease stockholder’s equity (debit).

  23. Dr./Cr. Procedures for Revenue and Expense • The purpose of earning revenues is to benefit the stockholders. • The effect of debits and credits on revenue accounts is the same as their effect on stockholders’ equity. • Expenses have the opposite effect: expenses decrease stockholders’ equity.

  24. Debits and Credits Summary Normal Balance Debit Normal Balance Credit

  25. Debits and Credits Summary Balance Sheet Income Statement - + Asset Liability Equity Revenue Expense = = Debit Credit

  26. Stockholders’ Equity Relationships

  27. Summary of Debit/Credit Rules Relationship among the assets, liabilities and stockholders’ equity of a business: Basic Equation Assets = Liabilities + Stockholders’ Equity Expanded Basic Equation The equation must be in balance after every transaction. For every Debitthere must be a Credit.

  28. Steps in the Recording Process Illustration 3-17 Transfer journal information to ledger accounts Analyze each transaction Enter transaction in a journal Business documents, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction.

  29. The Journal • Book of original entry. • Transactions recorded in chronological order. • Contributions to the recording process: • Discloses the complete effects of a transaction. • Provides a chronological record of transactions. • Helps to prevent or locate errors because the debit and credit amounts can be easily compared.

  30. The Journal Journalizing - Entering transaction data in the journal. Illustration: Presented below is information related to Sierra Corporation. Oct. 1 Sierra issued common stock in exchange for $10,000 cash. 1 Sierra borrowed $5,000 by signing a note. 2 Sierra purchased office equipment for $5,000. Instructions - Journalize these transactions.

  31. Journalizing Oct. 1 Sierra issued common stock in exchange for $10,000 cash. General Journal Cash 10,000 Common stock 10,000

  32. Journalizing Oct. 1 Sierra borrowed $5,000 by signing a note. General Journal Cash 5,000 Notes payable 5,000

  33. Journalizing Oct. 2 Sierra purchased office equipment for $5,000. General Journal Office equipment 5,000 Cash 5,000

  34. The Ledger Ledger contains the entire group of accounts maintained by a company.

  35. Chart of Accounts Accounts arranged in sequence in which they are presented in the financial statements.

  36. Posting Posting – the process of transferring amounts from the journal to the ledger accounts. General Journal J1 101 General Ledger Oct. 1 Owner investment J1 10,000 10,000

  37. The Recording Process Illustrated Follow these steps: 1. Determine what type of account is involved. 2. Determine what items increased or decreased and by how much. 3. Translate the increases and decreases into debits and credits.

  38. The Recording Process Illustrated Follow these steps: 1. Determine what type of account is involved. 2. Determine what items increased or decreased and by how much. 3. Translate the increases and decreases into debits and credits.

  39. The Recording Process Illustrated Follow these steps: 1. Determine what type of account is involved. 2. Determine what items increased or decreased and by how much. 3. Translate the increases and decreases into debits and credits.

  40. The Recording Process Illustrated Additional Transactions Illustration 3-24 SO 7 Explain what posting is and how it helps in the recording process.

  41. The Recording Process Illustrated Additional Transactions Illustration 3-25 SO 7 Explain what posting is and how it helps in the recording process.

  42. The Recording Process Illustrated Additional Transactions Illustration 3-26 SO 7 Explain what posting is and how it helps in the recording process.

  43. The Recording Process Illustrated , Additional Transactions Illustration 3-27 SO 7 Explain what posting is and how it helps in the recording process.

  44. The Recording Process Illustrated Additional Transactions Illustration 3-28 SO 7 Explain what posting is and how it helps in the recording process.

  45. The Recording Process Illustrated Additional Transactions Illustration 3-29 SO 7 Explain what posting is and how it helps in the recording process.

  46. The Recording Process Illustrated Additional Transactions Illustration 3-30 SO 7 Explain what posting is and how it helps in the recording process.

  47. The Recording Process Illustrated Additional Transactions Illustration 3-31 SO 7 Explain what posting is and how it helps in the recording process.

  48. Summary Illustration of Journalizing Illustration 3-32 SO 7 Explain what posting is and how it helps in the recording process.

  49. Summary Illustration of Journalizing Illustration 3-32 SO 7 Explain what posting is and how it helps in the recording process.

  50. Summary Illustration of Posting Illustration 3-33

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