Chapter 3

1. Chapter 3 Accounting Information System and the Accounting Cycle

2. The recording process • General ledger - track business transactions, organize, summarize • ERP - enterprise resource planning systems - single, A single, integrated information system whereby data is entered once and used by the entire enterprise • T - account, accounting equation • Debit or credit = left or right • Double-entry accounting • Increase or decrease • Asset - increase - debit, decrease - credit • Assets = Liabs + Equity + Rev - Exp

3. T-Accounts • T-Accounts • Represent a single general ledger account Account Debit (Dr.) Credit (Cr.)

4. T-accounts and the Accounting Equation Liabilities Assets Equity = + + Assets Liabilities Ret Earn Contr Cap + = Dr. Dr. Dr. Cr. Cr. Cr. Dr. Cr. +- - + - + - + Since assets increase with debits, why does the bank credit your account when you make a deposit into your bank account?

5. Journals • Parts of a journal entry • Credit accounts written below debit accounts and indented • Amount written in the right column • Brief explanation of the transaction

6. Expanded Accounting Equationwith T-Accounts Liabilities Assets Equity = + Common Stock Retained Earnings Assets Liabilities + Dividends = + - Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. -+ - + + - +- - + Revenues Expenses - + Dr. Cr. Dr. Cr. -+ + - Why do expenses and dividends increase with debits instead of credits? Hint: what effect to dividends and expenses have on retained earnings?

7. The recording process • Liability - increase - credit, decrease - debit • Equity - increase - credit, decrease - debit • Journal - journal entry • General ledger, posting - primary record • Chart of accounts • Recording revenue • Recording expenses • Accounting cycle - timeline • Posting transactions • Trial balance

8. Recording Transactions • Stockholders invested $40,000 cash to start Bull Riders, a rodeo training school • Paid $2,000 for advertising expenses • Paid $2,400 for a 1-year insurance policy • Performed $9,000 or rodeo training on account • Received the electric bill for March. Bill is due on April 12 • Paid $1,350 for Miscellaneous expenses • Received $6,500 from customers for services provided in transaction 4 • Purchased a mechanical bull machine for $3,500 by signing a note payable due on December 31

9. The recording process • Income statement and balance sheet • Financial statement analysis • Working capital = current assets - current liabilities • Current ratio = current assets / current liabilities • Quick ratio, acid test ratio = (current assets - inventories) / current liabilities

10. Business risk, control and ethics • Errors - recording and updating the general ledger • Input and processing controls • Ensure only authorized transactions are entered into the system • Assure the accuracy of the input and processing of the data that are recorded • Reconciliation and control reports • Catch errors in data input and processing • Documentation to provide supporting evidence for the recorded transactions • Keep errors from occurring and catch errors that have occurred • Unauthorized access to general ledger • Loss or destruction of general ledger data • Loss of data can cripple an organization • Need disaster recovery plan • Data backup in off-site facility

11. Assign #5 - pg. 131-132 - E3-2A, E3-4A, E3-7A (due 1/24); • Assign #6 - pg. 138-140 - P3-1A, P3-5A (due 1/29).