Ch03_SummaryNotes - CHAPTER 3 The Accounting Information...

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CHAPTER 3 The Accounting Information System LEARNING OBJECTIVES 1. Understand basic accounting terminology. 2. Explain double-entry rules. 3. Identify steps in the accounting cycle. 4. Record transactions in journals, post to ledger accounts, and prepare a trial balance. 5. Explain the reasons for preparing adjusting entries. 6. Prepare financial statements from the adjusted trial balance. 7. Prepare closing entries. *8. Differentiate the cash basis of accounting from the accrual basis of accounting. *9. Identify adjusting entries that may be reversed. *10. Prepare a 10-column worksheet. CHAPTER REVIEW *Note: All asterisked (*) items relate to material contained in the Appendices to the chapter. 1. Chapter 3 presents a concise yet thorough review of the accounting process. The basic elements of the accounting process are identified and explained, and the way in which these elements are combined in completing the accounting cycle is described. Procedures and the Double-Entry Recording Process 2. (S.O. 1) The accounting process can be described as a set of procedures used in identifying, recording, classifying, and interpreting information related to the transactions and other events of a business enterprise. To understand the accounting process, one must be aware of the basic terminology employed in the process. The basic terminology includes: event, transaction, account, real accounts, nominal accounts, ledger, journal, posting, trial balance, adjusting entries, financial statements, and closing entries. These terms refer to the various activities that make up the accounting cycle. As we review the steps in the accounting cycle, the individual terms will be defined. 3. (S.O. 2) Double-entry accounting refers to the process used in recording transactions. The terms debit and credit are used in the accounting process to indicate the effect a transaction has on account balances. The debit side of any account is the left side; the right side is the credit side. Assets and expenses are increased by debits and decreased by credits. Liabilities, owners’ equity, and revenues are decreased by debits and increased by credits.
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The Accounting Cycle 4. In a double-entry system, for every debit there must be a credit and vice-versa. This leads
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Ch03_SummaryNotes - CHAPTER 3 The Accounting Information...

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