ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2.

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Presentation transcript:

ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

ACCT 201 ACCT 201 ACCT 201 Accounting Information System First... A brief review of Day #2 Topics. Chapter 2

ACCT 201 ACCT 201 ACCT 201

Debits and Credits The debit/credit convention or coding system is very simple. Do not make it difficult because you cannot accept its simplicity.

ACCT 201 ACCT 201 ACCT 201 Debits Debit comes from Latin and merely means “left,” or the “left- hand” side of an account. Abbreviated “DR.”

Account Title Left Side Debit Side We need to stop here and change our way of thinking!

Symbolically, let’s erase that memory C:\memory\debit\erase *.* Are you sure (Y/N)? All files in directory will be deleted

ACCT 201 ACCT 201 ACCT 201 Credits Credit also comes from the Latin, and means “right,” or the “right- hand” side of an account. Abbreviated “CR.”

Account Title Right Side Credit Side Let’s stop here and modify our thinking – at least for this class!

Symbolically, let’s erase that memory C:\memory\credit\erase *.* Are you sure (Y/N)? All files in directory will be deleted

Assets Liabilities Owners’ Equity The algebraic relationship in the fundamental accounting model. ACCT 201 ACCT 201 ACCT 201

Account Title DebitCredit Always ACCT 201 ACCT 201 ACCT 201

DRCR Assets Liabilities DRCR DRCR Owners’ Equity

DebitsCredits The Second Equality... The algebraic relationship between account increases and decreases. ACCT 201 ACCT 201 ACCT 201

Expenses Revenue Owners’ Equity Liabilities Assets Debit-Credit Rules... DebitCredit Debit CreditDebit CreditDebit Credit Account Inc.Dec.

Debit-Credit Rules... DebitsCredits Assets Expenses Liabilities Equity Revenue Increase Decrease Liabilities Equity Revenue Assets Expenses

ebits ncrease ssets xpenses

iabilities evenues redits ncrease quity

Step 4: Record the journal information in a ledger. Step 3: Record transactions in a journal. Step 5: Prepare a trial balance. Steps in Processing Transactions Step 1: Examine source documents. Liabilities Equity Assets =+ Step 2: Analyze transactions.

ACCT 201 ACCT 201 ACCT 201 General Journal Page 1 DateDescriptionPRDebitCredit Jan6Art Supplies1,800 Office Supplies800 Accounts Payable2,600 Purchase of art and office supplies on credit

 Transaction Date  Titles of Affected Accounts  Dollar amount of debits and credits  Transaction explanation General Journal for FastForward

T-accounts are useful illustrations, but balance column ledger accounts are used in practice. Balance Column Ledger

1 Identify the account. Posting Journal Entries - Example

2 Enter the date. Posting Journal Entries - Example

3 Enter the amount. Posting Journal Entries - Example

4 Enter the journal reference. Posting Journal Entries - Example

5 Compute the balance. Posting Journal Entries - Example

Enter the ledger reference. 6 Posting Journal Entries - Example

ACCT 201 ACCT 201 ACCT 201 Accounting Information System Text Section: Trial Balance (p. 63) Chapter 2

ACCT 201 ACCT 201 ACCT 201 Learning Objective Prepare and explain the use of a trial balance. P2 Procedural

ACCT 201 ACCT 201 ACCT 201 Trial Balance A Trial Balance is a listing of all accounts and their balances at a point in time.

ACCT 201 ACCT 201 ACCT 201 Accounting Information System Text Section: Unadjusted Financial Statements (p. 68) Chapter 2

ACCT 201 ACCT 201 ACCT 201 Learning Objective Prepare unadjusted financial statements from business transactions. P3 Procedural

ACCT 201 ACCT 201 ACCT 201 Income Statement A statement showing revenues and expenses for a period of time. Revenues = Inflows of assets in exchange for products and services provided to customers. Expenses = Outflows or the using up of assets that result from providing products and services to customers.

Exh. 2.19

ACCT 201 ACCT 201 ACCT 201 Statement of Retained Earnings A statement showing additions to (net income) and deductions from (net loss, dividends) the Retained Earnings account.

Exh. 2.19

ACCT 201 ACCT 201 ACCT 201 Balance Sheet A statement showing the balances in asset, liability, and equity accounts at a point in time.

Exh. 2.19

ACCT 201 ACCT 201 ACCT 201 Statement of Cash Flows A statement showing the sources and uses of funds relating to the Operating Investing, and Financing Activities of a company.

Exh. 2.19

Generally, dollar signs ($) are not used in the journals or ledgers. Rounding Round numbers in financial statements to the nearest dollar. Formatting Conventions

ACCT 201 ACCT 201 ACCT 201 Accounting Information System Text Section: Decision Analysis (p. 70) Chapter 2

ACCT 201 ACCT 201 ACCT 201 Learning Objective Analyze the impact of transactions on accounts and financial statements. A2 Analytical

ACCT 201 ACCT 201 ACCT 201 Learning Objective Compute return on equity and use it to analyze company performance. A3 Analytical

ACCT 201 ACCT 201 ACCT 201  Describes the relationship between net income for the period and average equity.  Helps an owner judge the compnay’s profitability compared to other business or personal opportunities. Using the Information - Return on Equity

ACCT 201 ACCT 201 ACCT 201 Learning Objective Compute the debt ratio and describe its use in analyzing company performance. A4 Analytical

The End