1. Financial Accounting: Tools for Business Decision Making, 3rd Ed.
Kimmel, Weygandt, Kieso
ELS

2. Chapter 3

3. Chapter 3 The Accounting Information System
After studying Chapter 3, you should be able to:
Analyze 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.

4. 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.

5. The Accounting Information System
The system of:
collecting and processing transaction data and
communicating financial information to decision makers.

6. Accounting Transactions...
are economic events that must be recorded in the financial statements because they affect
assets,
liabilities
and/or stockholders’ equity.

7. Transaction Analysis
Transaction Analysis determines the impact of the tranaction on the balance sheet.

8. Assets = Liabilities + Stockholders’ Equity
Accounting Analysis...
analyze the effect of business transactions on the basic accounting equation:
Assets = Liabilities + Stockholders’ Equity

9. The Accounting Equation...
Must always balance.

10. Is the financial position (assets, liabilities, and stockholders’ equity) of the company changed?

11. Let’s Practice
Transaction Analysis

12. a) On July 1, Cash of $95,000 was invested in the business in exchange for $95,000 worth of common stock.

13. b) Peoples, Inc., acquired land by paying $60,000 cash to Nashtown, Inc.

14. c) Peoples, Inc., purchased an estimated three month supply of office supplies on account. The company will pay $600 for these supplies later.

15. d) Peoples, Inc., received $800 for services performed.

16. e) Peoples, Inc. , performed services for $2,000
e) Peoples, Inc., performed services for $2,000. The company will be paid later in the month.

17. f) Peoples, Inc., received confirmation that a major corporation has selected their corporation to perform major consulting work. The work will start January 1 of next year.
No Transaction

18. g) Peoples, Inc. , purchased office equipment for $6,000
g) Peoples, Inc., purchased office equipment for $6,000. The Company signed a 2-year note with ACME Office Equipment Company.

19. h) Peoples, Inc., paid $1,800 for a 1-year license to operate as a business. The license expires June 30th of next year.

20. i) Peoples, Inc., collected $800 of the money owed from (e).

21. j) Peoples, Inc., paid $400 of the amount it owed from (c).

22. k) An employee has worked and earned $600 which was paid during the month.

23. l) Peoples, Inc., received a $5,000 retainer to handle a tax audit that the company will start next month.

24. m) Peoples, Inc., paid $500 for rent during the month.

25. n) Dividends of $700 were paid during the month.

26. This is a tabular summary.
107,200
This is a tabular summary.

27. Account...
an individual accounting record of increases and decreases in a specific Asset, Liability, or Stockholders’ Equity item.

28. Is a list of a company’s accounts.
Chart of Accounts...
Is a list of a company’s accounts.
ASSETS
Cash
Accounts Receivable
Advertising Supplies
Prepaid Insurance
Office Equipment
Accumulated Depreciation -

29. Account Three parts : 1) the Title of the account
2) a left or Debit side
3) a right or Credit side

30. The T Account
TITLE
DEBIT
CREDIT

31. Total the Entries to Each Side
Total Debits
Total Credits
TITLE
Debit
Credit

32. Tabular Summary
Account Form
Balancing an Account

33. NEW ART Normal Balances Illustration 3-6 Illustration 3-8

34. Normal Balances
Illustration 3-11
Illustration 3-13
NEW ART

35. Normal Balances
Illustration 3-14
NEW ART

36. Total the Entries to Each Side
Total Debits
Total Credits
TITLE
Debit
Credit
If the greater sum is on the left, the account has a Debit Balance.

37. Total the Entries to Each Side
Total Debits
Total Credits
TITLE
Debit
Credit
If the greater sum is on the right, the account has a Credit Balance.

38. Whichever side you increase is the normal balance!

39. Debits Increase assets and expenses
Decrease liabilities, common stock and revenues

40. Credits Decrease assets and expenses
Increase liabilities, common stock and revenues

41. Analyze each transaction Enter each transaction in a journal
Illustration 3-16
Analyze each transaction
Enter each transaction in a journal
Transfer journal information to ledger accounts
Page 109 in book

42. The Recording Process Analyze each transaction
Enter information in a journal
Transfer the information to the appropriate accounts

43. The Journal...
is an accounting record where the transactions are recorded in chronological order.

44. Journals Types of Journals Cash receipts Cash disbursements Sales
Purchases
General

45. Journals Journals aid the recording process by:
Disclosing in one place the complete effect of a transaction;
Providing a chronological record of transactions;
Helping prevent or locate errors because debit and credit amounts can be easily compared.

46. Account Titles and Explanations
GENERAL JOURNAL
Account Titles and Explanations
Oct. 1 Cash , Common Stock , (Invested cash in business)
Date
Debit Credit
1 Cash , Notes Payable , (Issued 3-month, 12% note payable for cash)
2 Office Equipment , Cash , (Purchased office equipment for cash)

47. The General Ledger
the entire group of accounts maintained by a company
contains all the asset, liability, and stockholders’ equity accounts

48. The General Ledger

49. The Ledger
The entries from the journal are posted to the ledger,usually in summary form, except for the general journal.

50. Posting
Transferring information from the journals to the general ledger accounts

51. Account Titles and Explanations
Posting Entries
GENERAL JOURNAL
Account Titles and Explanations
Oct. 1 Cash , Common Stock ,000
Acct 1010
Account CASH
Date
Balance
ref
debit
credit
debit
credit
Account COMMON STOCK
Acct 3010
Date
Balance
ref
debit
credit
debit
credit

52. Account Titles and Explanations
Posting Entries
GENERAL JOURNAL
Account Titles and Explanations
Oct. 1 Cash , Common Stock ,000
Acct 1010
Account CASH
Date
Balance
ref
debit
credit
debit
credit
Oct 1
gj 1
10,000
10,000
Account COMMON STOCK
Acct 3010
Date
Balance
ref
debit
credit
debit
credit
Oct 1
gj 1
10,000
10,000

53. Account Titles and Explanations
Posting Entries
GENERAL JOURNAL
Account Titles and Explanations
Oct. 1 Cash , Common Stock ,000
Acct 1010
Account CASH
Date
Balance
ref
debit
credit
debit
credit
Oct 1
gj 1
10,000
10,000
Account COMMON STOCK
Acct 3010
Date
Balance
ref
debit
credit
debit
credit
Oct 1
gj 1
10,000
10,000

54. Trial Balance
A list of all the accounts and their balances at a given time.
It serves to prove the mathematical equality of debits and credits after posting.
It aids in the preparation of financial statements.

55. Sierra Corporation Trial Balance October 31, 2004 Debit Credit
Cash $15,200
Advertising Supplies ,500
Prepaid Insurance
Office Equipment ,000
Notes Payable $ 5,000
Accounts Payable ,500
Unearned Service Revenue ,200
Common Stock ,000
Dividends
Service Revenue ,000
Salaries Expense ,000
Rent Expense
$28,700 $28,700