CH3MainIdeasHandoutSolution

CH3MainIdeasHandoutSolution - MAIN IDEAS IN CH 3 HANDOUT...

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MAIN IDEAS  IN CH  3 HANDOUT  SOLUTION THE ACCOUNTING  INFORMATION  SYSTEM (NOTE:  Handouts  are  not a  substitute  for reading  and  studying  the  text; handouts  do  not cover  everything  that you  need  to know.) 1. The  main  ideas  you  should  learn  in this  chapter  include  the  following: LO1 Understand  basic  accounting  terminology. LO2 Explain  double- entry  rules. LO3 Identify steps  in the  accounting  cycle. LO4 Record  transactions  in journals,  post  to ledger  accounts,  and  prepare  a  trial balance. LO5 Explain  the  reason  for preparing  adjusting  entries. LO6 Prepare  financial  statem ents  from  the  adjusted  trial balance. LO7 Prepare  closing  entries. LO1:   UNDERSTAND  BASIC  ACCOUNTING  TERMINOLOGY. The  chapter  begins  with a  review  of  basic  accounting  terminology.    We  will not  go  over  this  in class  but  be  sure  you   understand  what  these   terms  mean  and   where   they  fit  in the  accounting  cycle.    Most   of  these  are   terms  which   you   should  have  covered  in ACCT  280  – there  are  a  few new  ones. LO2:   EXPLAIN DOUBLE-ENTRY  RULES. To   learn   double- entry   rules,   you   have   to   first   master   the   concept   of   increas e s   and   decrea s e s   to   accounts.     Then   applying  the   accounting   terminology   to  the  rules   (DEBIT  OR   CREDIT)  is   much  easier.  Learning  the   debit   and  credit   rules  is  a  MUST  in INTERMEDIATE  ACCOUNTING.   Illustration  3-3  on  page  65  of your  text provides  a  good  picture  of  how   the   debits  and  credits   rules  are  used   in the  expanded  accounting  equation.     Take  som e  advice:   While  you  are   learning  these  rules,  use  a  three- step  proce s s  in your  analysis  (1)  First asks  yourself:  “What  type  of account  is  affected   – is  it an  asset,  liability,  or  one  of  the  many  stockholders’  equity  accounts?  (2)  Second,  ask  yourself,  “Is the  account   increasing   or   decrea sing ?”   (3)   Finally,   ask   yourself,   “What   are   the   debit/credit   rules   for   the   type   of   account   and   the   increas e  or  decrea s e  I have  to recognize?”   DEBITS   AND CREDITS   are  just  accounting  languag e  to   describe   how  events   affect   accounts  in terms   of  increas e s  and   decrea s e s   thems elve s  only  refer  to  the  left (debit)  and  right  (credit)  of an  account  – whether  the  debit  is  an  increas e  or  decrea s e  depends  sole   account  it affects.    Becaus e  the  accounting  equation  is an  algebraic  equation,  it only  make s  sens e  that debits  have  to equal  credits  at a
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CH3MainIdeasHandoutSolution - MAIN IDEAS IN CH 3 HANDOUT...

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