Presentation on theme: "Financial Accounting: Tools for Business Decision Making"— Presentation transcript:
1 Financial Accounting: Tools for Business Decision Making Kimmel, Weygandt, Kieso, TrenholmKIMMELPrepared by:Barbara TrenholmUniversity of New Brunswick
2 Chapter 3 The Accounting Information System After studying Chapter 3, you should be able to:Analyse 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.Identify the basic steps in the recording process.
3 Chapter 3 The Accounting Information System 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.
4 The Accounting Information System The system ofCollecting and processing transaction dataCommunicating financial information to interested parties
5 Accounting Equation Assets = Liabilities + Shareholders’ Equity The accounting equation must always balance
6 Accounting Transactions Transactions are events that must be recorded in the financial statementsTransaction analysis determines impact on the accounting equation
7 Illustration 3-1Is the financial position (assets, liabilities, and shareholders’ equity) of the company changed?
8 AccountAn individual accounting record of increases and decreases in a specific Asset, Liability, or Shareholders’ Equity item
9 Account Three parts 1) the title of the account 2) a left or debit side3) a right or credit side
16 Expanded Accounting Equation Illustration 3-15Expanded Accounting EquationPage 109 in book
17 Recording Process Analyse each transaction Enter each transaction in a journalTransfer journal information to ledger accounts
18 JournalAccounting record where the transactions are recorded in chronological orderTypes of journalsCash receiptsCash disbursementsSalesPurchasesGeneral
19 Journals Journals aid in the recording process by Disclosing in one place the complete effect of a transactionProviding a chronological record of transactionsHelping prevent or locate errors because debit and credit amounts can be easily compared
20 Account Titles and Explanations GENERAL JOURNALAccount Titles and ExplanationsOct. 1 Cash , Common Shares , (Invested cash in business)Illustration 3-17DateDebit Credit1 Cash , Notes Payable , (Issued 3-month, 12% note payable for cash)2 Office Equipment , Cash , (Purchased office equipment for cash)
21 General Ledger Entire group of accounts maintained by a company Contains all the asset, liability, and shareholders’ equity accounts