Presentation on theme: "The Accounting Information System"— Presentation transcript:
1 The Accounting Information System Chapter3Intermediate Accounting12th EditionKieso, Weygandt, and WarfieldPrepared by Coby Harmon, University of California, Santa Barbara
2 Learning Objectives Understand basic accounting terminology. Explain double-entry rules.Identify steps in the accounting cycle.Record transactions in journals, post to ledger accounts, and prepare a trial balance.Explain the reasons for preparing adjusting entries.Prepare financial statement from the adjusted trial balance.Prepare closing entries.1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements?Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases).Forward-looking InformationSoft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image).Timeliness (no real time financial information)
3 Accounting Information System The Accounting CycleBasic terminologyDebits and creditsBasic equationFinancial statements and ownership structureIdentification and recordingJournalizingPostingTrial balanceAdjusting entriesAdjusted trial balancePreparing financial statementsClosingService Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation.Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt.Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets.Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees.Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss:difference between the actual return and the expected return on plan assets and,amortization of the unrecognized net gain or loss from previous periods
4 Accounting Information System An Accounting Information System (AIS)collects and processes transaction data andPublish the information to interested parties.
5 Accounting Information System Helps management answer such questions as:Were sales higher this period than last?What assets do we have?What were our cash inflows and outflows?Did we make a profit last period?LO 1 Identify the major financial statements and other means of financial reporting..
7 Debits and CreditsAn Account shows the effect of transactions on a given asset, liability, equity, revenue, or expense account.Double-entry accounting system (two-sided effect).Recording done by debiting at least one account and crediting another.DEBITS must equal CREDITS.LO 2 Explain double-entry rules.
8 An Account can be illustrated in a T-Account form. Debits and CreditsAn arrangement that shows the effect of transactions on an account.Debit = “Left”Credit = “Right”AccountAn Account can be illustrated in a T-Account form.LO 2 Explain double-entry rules.
9 Debits and CreditsIf Debit entries are greater than Credit entries, the account will have a debit balance.Account NameDebit / Dr.Credit / Cr.Transaction #1$10,000$3,000Transaction #2Transaction #38,000Balance$15,000LO 2 Explain double-entry rules.
10 Debits and CreditsIf Credit entries are greater than Debit entries, the account will have a credit balance.Transaction #1$10,000$3,000Transaction #28,000Transaction #3Balance$1,000LO 2 Explain double-entry rules.
11 Debits and Credits Summary Normal Balance DebitNormal Balance CreditLO 2 Explain double-entry rules.
12 Debits and Credits Summary Balance Sheet Income StatementAsset=Liability+EquityRevenue-Expense=DebitCreditLO 2 Explain double-entry rules.
13 Basic Accounting Equation Relationship among the assets, liabilities and stockholders’ equity of a business:Illustration 3-3The equation must be in balance after every transaction. For every Debit there must be a Credit.LO 2 Explain double-entry rules.
14 Double-Entry System Exercise 1. Owner Invest $32,000 cash and equipment valued at $14,000 in the business.AssetsLiabilitiesStockholders’ Equity=++ 32,000+ 46,000+ 14,000LO 2 Explain double-entry rules.
15 Double-Entry System Exercise 2. Paid office rent of $600 for the month.AssetsLiabilitiesStockholders’ Equity=+- 600- 600 (expense)LO 2 Explain double-entry rules.
16 Double-Entry System Exercise 3. Received $3,200 advance on a management consulting engagement.AssetsLiabilitiesStockholders’ Equity=++ 3,200+ 3,200LO 2 Explain double-entry rules.
17 Double-Entry System Exercise 4. Received cash of $2,300 for services completed for Shuler Co.AssetsLiabilitiesStockholders’ Equity=++ 2,300+ 2,300 (revenue)LO 2 Explain double-entry rules.
18 Double-Entry System Exercise 5. Purchased a computer for $6,100. (cash)AssetsLiabilitiesStockholders’ Equity=++ 6,100- 6,100LO 2 Explain double-entry rules.
19 Double-Entry System Exercise 6. Paid off liabilities of $7,000.AssetsLiabilitiesStockholders’ Equity=+- 7,000- 7,000LO 2 Explain double-entry rules.
20 Double-Entry System Exercise 7. Declared a cash dividend of $10,000.AssetsLiabilitiesStockholders’ Equity=++ 10,000- 10,000Note that the accounting equation equality is maintained after recording each transaction.LO 2 Explain double-entry rules.
21 Proprietorship or Partnership Ownership StructureOwnership structure dictates the types of accounts that are part of the equity section.Proprietorship or PartnershipCorporationCapital AccountDrawing AccountCommon StockAdditional Paid-in CapitalDividends DeclaredRetained EarningsLO 2 Explain double-entry rules.
22 Corporation Ownership Structure Illustration 3-4Balance SheetStockholders’ EquityCommon Stock (Investment by stockholders)Retained Earnings (Net income retained in business)DividendsNet income or Net loss (Revenues less expenses)Income StatementStatement of Retained EarningsLO 2 Explain double-entry rules.