PP ACC 301 Ch 3 Power point - Accounting Information System Accounting information system Collects and processes transaction data Disseminates 3-1 the

3-1 Accounting information system  Collects and processes transaction data.  Disseminates the financial information to interested parties. Accounting Information System LO 1 Understand basic accounting terminology.

3-2 LO 2 Explain double-entry rules.  An a ccount 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 . Debits and Credits Accounting Information System

3-3 Account Name Debit / Dr. Credit / Cr. Debits and Credits  An arrangement that shows the effect of transactions on an account.  Debit = “Left”  Credit = “Right” Account Account LO 2 Explain double-entry rules. An Account can An Account can be illustrated in a be illustrated in a T-Account form. T-Account form.

3-4 Account Name Debit / Dr. Credit / Cr. LO 2 Explain double-entry rules. $10,000 Transaction #2 $3,000 $15,000 8,000 Balance Transaction #1 Transaction #3 If the sum of Debit entries are greater than the sum of Credit entries, the account will have a debit balance. Debits and Credits

3-5 Account Name Debit / Dr. Credit / Cr. If the sum of Credit entries are greater than the sum of Debit entries, the account will have a credit balance. LO 2 Explain double-entry rules. $10,000 Transaction #2 $3,000 $1,000 8,000 Transaction #3 Balance Transaction #1 Debits and Credits

3-6 Normal Balance Credit Normal Balance Credit Normal Balance Debit Normal Balance Debit Debits and Credits Summary LO 2 Explain double-entry rules.

3-7 Balance Sheet = + - Asset Liability Equity Revenue Expense Debit Credit Debits and Credits Summary LO 2 Explain double-entry rules. Income Statement

3-8 The Accounting Equation LO 2 Explain double-entry rules. Relationship among the assets, liabilities and stockholders’ equity accounts of a business: The equation must be in balance after every transaction. For every Debit there must be a Credit . Illustration 3-3

3-9 Double-Entry System Illustration Assets Assets Liabilities Liabilities Stockholders’ Equity Stockholders’ Equity = + 1. Owners invest $40,000 in exchange for common stock. + 40,000 + 40,000 LO 2 Explain double-entry rules.

3-10 Assets Assets Liabilities Liabilities = + 2. Disburse $600 cash for secretarial wages. - 600 - 600 (expense) LO 2 Explain double-entry rules. Stockholders’ Equity Stockholders’ Equity Double-Entry System Illustration