ch03 - CHAPTER 3 The Accounting Information System CHAPTER...

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CHAPTER 3 The Accounting Information System CHAPTER OVERVIEW Chapter 3 shows you how to analyze transactions and their effect on the accounting equation. You will learn about accounts and debits and credits and how to perform the basic steps in the recording process: journalizing, posting transactions to the ledger, and preparing a trial balance. REVIEW OF SPECIFIC STUDY OBJECTIVES SO1. Analyze the effect of business transactions on the basic accounting equation. ¿ The accounting information system is the system of collecting and processing transaction data and communicating financial information to decision makers . ¿ Accounting transactions are economic events that require recording in the financial statements . An accounting transaction occurs when assets, liabilities, or stockholders' equity items change as a result of an economic event . ¿ Transaction analysis is the process of identifying the specific effects of economic events on the accounting equation . The accounting equation must always be in balance after a transaction is recorded. Remember: It is a mathematical equation. If a stockholder invests cash in the business, then cash on the left side of the equation increases while stockholders' equity on the right side of the equation increases by the same amount.
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Kimmel Accounting: Tools for Business Decision Making 3-2 ¿ Please remember the following with respect to specific parts of the accounting equation: 1. If a company receives cash for work to be performed in the future, then it should not record revenue. It records an increase in cash on the left side of the equation and an increase in liabilities on the right side of the equation: It owes performance of that work in the future. 2. Revenues increase stockholders' equity. 3. Expenses decrease stockholders' equity. 4. Some events in the life of a corporation are not transactions and, thus, are not to be recorded. The hiring of an employee and the beginning of an employees' strike are two such events. SO2. Explain what an account is and how it helps in the recording process. ¿ An accounting information system uses accounts that are individual accounting records of increases and decreases in a specific asset, liability, or stockholders' equity item . ¿ The simplest form of an account is the T-account , so called because of its shape. T- accounts have account titles , a left side (called the debit side) , and a right side (called the credit side) . SO3. Define debits and credits and explain how they are used to record business transactions. ¿ Debit, abbreviated Dr., means left , while credit, abbreviated Cr., means right . These terms simply denote position: They do not mean good or bad, increase or decrease. The important thing is to know what a debit does to a particular account and what a credit does to that same account . ¿ To debit an account
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ch03 - CHAPTER 3 The Accounting Information System CHAPTER...

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