ACC210NotesC03

ACC210NotesC03 - CHAPTER 3 The Accounting Information...

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1 CHAPTER 3 The Accounting Information System Study Objectives 1. Analyze the effect of business transactions on the basic accounting equation. 2. Explain what an account is and how it helps in the recording process. 3. Define debits and credits and explain how they are used to record business transactions. 4. Identify the basic steps in the recording process. 5. Explain what a journal is and how it helps in the recording process. 6. Explain what a ledger is and how it helps in the recording process. 7. Explain what posting is and how it helps in the recording process. 8. Explain the purposes of a trial balance. 3-1
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Chapter Outline Study Objective 1 - Analyze the Effect of Business Transactions on the Basic Accounting Equation ¨ Accounting Information System § collects and processes transactions. § communicates financial information to decision makers. ¨ Factors that shape the Accounting Information System include: § nature of the company’s business § types of transactions § company size § information demands of management and others. ¨ Most businesses use computerized accounting systems (electronic data processing – EDP – systems). Accounting Transactions § economic events that require recording in the financial statements § occur when assets, liabilities, or stockholders’ equity items change as a result of some economic event Examples of external events--the purchase of equipment, payment of rent, payment of utilities, payment of salaries and wages, etc. Examples of internal events--cost of supplies used, cost of buildings and equipment used or depreciated. ¨ Transaction analysis - the process of identifying the specific effects of economic events on the accounting equation Understand the difference between Supplies and Supplies Expense. Supplies are recorded as an asset because they are available for future use. Recording Supplies Expense is covered in Chapter 4 and occurs when the supplies are used in business operations. Understand terms: on account, paid cash, received cash and the difference between accounts receivable and accounts payable. 3-2
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Process ¨ Account - an individual accounting record of increases and decreases in a specific asset , liability , or stockholders' equity item. § An account consists of three parts: (1) the title of the account, (2) a left or debit side, and (3) a right or a credit side. § It is referred to as a T account because the alignment of the parts of the account resemble the letter T , Use proper account titles from the Chart of Accounts in their journal entries and for their T accounts. Do not use phrases such as ‘paid cash’, ‘bought supplies’, ‘performed services’ as account titles. These phrases represent descriptions of the events. Capitalize the name when referring to a specific account.
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ACC210NotesC03 - CHAPTER 3 The Accounting Information...

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