1. Accounting Information Systems
Chapter 7
Accounting Information Systems

2. What are the 3 Characteristics of an Accounting Event?
Specific to entity
Measurable in monetary terms
Impact the entity’s assets, liabilities, and/or owners’ equity

3. What is the Accounting Equation?
Assets = Liabilities + Owners’ equity
Assets – Liabilities = Owners’ equity (net assets)

4. What are the 9 Basic Combinations of Accounting Events?
Assets increase, assets decrease
Assets increase, liabilities increase
Assets increase, owners’ equity increase
Assets decrease, liabilities decrease
Assets decrease, owners’ equity decrease

5. Basic Combinations Continued
Liabilities increase, liabilities decrease
Liabilities increase, owners’ equity decrease
Liabilities decrease, owners’ equity increase
Owners’ equity increase, owners’ equity decrease

6. What are Debits and Credits?
Debits and credits aren’t good or bad, they’re not happy or sad, rather
Debit indicates “left” as in the left side of an account
Credit indicates “right” as in the right side of an account

7. Debits and Credits Continued

8. Asset Account
Debit
Increase
Credit
Decrease

9. Liability Account
Debit
Decrease
Credit
Increase

10. Owners’ Equity Account
Debit
Decrease
Credit
Increase

11. Revenue Account
Debit
Decrease
Credit
Increase

12. Expense Account
Debit
Increase
Credit
Decrease

13. How do Debits and Credits Apply to the first 8 Basic Combinations?
Assets increase, assets decrease
DR asset account; CR asset account
Assets increase, liabilities increase
DR asset account; CR liability account
Assets increase, owners’ equity increase
DR asset account; CR owners’ equity account
Assets decrease, liabilities decrease
DR liability account; CR asset account

14. DR and CR Continued Assets decrease, owners’ equity decrease
DR owner’s equity account; CR asset account
Liabilities increase, liabilities decrease
DR liability account; CR liability account
Liabilities increase, owners’ equity decrease
DR owners’ equity account; CR liability account
Liabilities decrease, owners’ equity increase
DR liability account; CR owners’ equity account

15. What is the Difference between Journalizing and Posting?
Recording an event in the journal
Posting
Recording the appropriate part of an event in the appropriate general ledger account

16. More DR and CR
If an account increases with a debit, what is its normal balance?
Debit
What are the normal balances of assets, liabilities, and owners’ equity
Assets—debit
Liabilities—credit
Owners equity--credit

17. Revenues and Expenses
What is the normal balance of a revenue account? Why?
Revenue accounts have credit balances because revenues increase income and income belongs to the owners
What is the normal balance of an expense account? Why?
Expense accounts have debit balances because expenses decrease income and income belongs to the owners

18. What are Adjusting Entries?
Revenue accrual
Increase revenue, increase asset
Revenue deferral
Increase revenue, decrease liability
Expense accrual
Increase expense, increase liability
Expense deferral
Increase expense, decrease asset

19. What are Examples of Each Type of Adjusting Entry?
Revenue accrual
Interest earned on an investment
Revenue deferral
Fees earned by completing work that a customer paid for in advance
Expense accrual
Interest incurred on a bank loan
Expense deferral
Rent that was prepaid is used (time passed)

20. What are Closing Entries?
Zero-out income statement accounts
Transfer the balances to owners’ equity
Corporation—retained earnings
Debit each revenue account for the amount of its balance and credit retained earnings
Credit each expense account for the amount of its balance and debit retained earnings
The change in retained earnings is the net income (loss) for the period

21. What are the Advantages of Computer-Based Transaction Systems?
Transactions posted quickly—no journalizing required
Detailed listing can be printed at any time
Internal controls
A wide variety of reports can be generated

22. What are Transaction Files and Master Files?
Similar to journals
Master files
Similar to ledgers

23. What are the Advantages of Database Systems?
Business events can be recognized in addition to accounting events
Reduced operating inefficiencies
Elimination of redundant data throughout the company

24. What is a Business Event?
Any activity that the company wishes to plan and evaluate.
Includes accounting events and other events

25. Which of the Following is a Business, but not an Accounting Event?
Determine the need for inventory
Receive inventory
Pay for inventory
Sell inventory
Answer: determine the need for inventory