Chapter 3 Notes

Chapter 3 Notes - Chapter 3: The Accounting Information...

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Unformatted text preview: Chapter 3: The Accounting Information System Accounting I nformation System- Accounting Information System- collects and processes transaction data and then disseminates the financial information to interested parties- Various factors shape these systems o Nature of the business and transactions in which it engages o Size of the firm o Volume of data to be handled o Information demands that management and others require Basic Terminology- Financial accounting rests on a set of concepts for identity, recordings, classifying, and interpreting transactions and other events relating to enterprise- Event- a happening of consequence o Generally is the source or cause of changes in assets, liabilities, and equity o May be external or internal- Transaction- external event involving a transfer of exchange between two or more entities- Account- systematic arrangement that shows the effect of transactions and other events on a specific element- Real and Nominal Accounts o Real Account- asset, liability, and equity accounts On a balance sheet Do not close out these accounts o Nominal Account- revenue, expense, and dividend accounts Except for dividends they appear on the income statement Companies usually close nominal accounts- Ledger- the book containing accounts o General ledger- collection of all the asset, liabilities, owners equity, revenue, and expense accounts o Subsidiary ledger- contains the details related to a given general ledger account- Journal- the book of original entry where the company initially records transactions and selected other events- Posting- process of transferring the essential facts and figures from the journal to the ledger accounts- Trial Balance- list of all open accounts in the ledger and their balances o Adjusted Trial Balance- the t rial balance taken immediately after the adjustments have been posted o Post-Closing Trial Balance- the t rial balance taken immediately after the closing entries have been posted- Adjusting Entries- entries made at the end of an accounting period to bring all accounts up to date on an accrual basis- Financial Statements o Balance Sheet- shows the financial condition of the enterprise at the end of a period o Income Statement- measures results of operations during the period Page 2 of 10 o Statement of Cash Flows- reports the cash provided and used by operating, investing, and financing activities during the period o Statement of Retained Earnings- reconciles the balance of retained earnings account from beginning to the end of the period...
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Chapter 3 Notes - Chapter 3: The Accounting Information...

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