Chapter_3 - Chapter 3 The accounting information system...

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Chapter 3 The accounting information system records, sorts and stores accounting information from transactions. An accounting transaction is something that affects the business that can be measured in money. Not everything the business does is covered by a transaction. Hiring honest, competent employees will be one of the most important actions to a business, but as the credit card ad says,” priceless”. You can not place a dollar value on that. The Accounting Equation Assets = Liabilities + Stockholder’s Equity Own Owe Owner’s claims Liabilities are the creditor claims on assets. Stockholder’s equity is the ownership claims on assets. Please refer to Chapter 3 transactions in Excel. 1. You invest $25,000 in your business. 2. You purchase 1,500 of supplies on account (on credit). At this point liabilities and equity are shown as sources of assets. Where did the cash and supplies come from; creditor claims and owner claims. 3. You earn Fees of $500 doing the work of the business and receive payment in cash. We now see three reasons for assets to increase; ownership investment, borrowing or buying on credit and revenue. 4. Pay the rent, $900. We have our first expense. An expense is a reduction of assets from the operation of the business. It is the same as rent on your apartment; you have used an asset (in this case cash), you have fewer assets and less to have a claim on. Owner’s equity has gone down.
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Chapter_3 - Chapter 3 The accounting information system...

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