Ch03 Notes - CHAPTER 3 The Accounting Information System...

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3-1 CHAPTER 3 - The Accounting Information System Double-Entry Accounting - process used in recording transactions. 3. Debit and credit - indicates the effect a transaction has on account balances. Debit side of any account is the left side; the right side is the credit side. Assets and expenses - increased by debits and decreased by credits. Liabilities, owners' equity & revenues - decreased by debits & increased by credits Debits increase assets and expenses Credits increase liabilities, owners' equity, and revenues The normal balance of an account is the same as the increase side. 4. In a double-entry system, for every debit there must be a credit and vice-versa. The basic equation in accounting: Assets = Liabilities + Stockholders' Equity. (Asset, Liability, and Equity) (Revenue & Expense) (On Balance Sheet) (on Income Statement) (Real Permanent Accounts) (Com St & Ret Earn) (Stockholder’s Equity) (Dividends, Revenue & Expense) (Nominal – Temporary Accounts) (Closed at year end to Ret Earn) (Statement of Retained Earnings)
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3-2 The Accounting Cycle Summary of steps in accounting cycle performed every fiscal period are: a. Enter the transactions of the period in appropriate journals. b. Post from the journals to the ledger (or ledgers). c. Take an unadjusted trial balance. d. Prepare adjusting journal entries and post them to the ledger(s). e. Take a trial balance after adjusting (adjusted balance). f. Prepare the financial statements from the second trial balance. g. Prepare closing journal entries and post them to the ledger(s). h. Take a trial balance after closing (post-closing trial balance). i. Prepare reversing entries and post them to the ledger(s). (Optional - appendix)
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3-3 5. (S.O. 3) The first step in the accounting cycle is analyze transactions and selected other events to determine which events represent transactions that should be recorded. 6. Events can be classified as external or internal . External events - between the enterprise and its environment Internal events - transactions totally within the enterprise. Journalizing 7. (S.O. 4) Transactions are initially recorded in a journal Journal - the book of original entry general journal - a chronological listing of transactions expressed in terms of debits and credits to particular accounts (journal entries) Parts of a Journal Entry Debit – Account and Amount Credit – Account and Amount Date Explanation specialized journals - for transactions with common characteristics. Journal
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This note was uploaded on 06/20/2011 for the course ACCT 3250 taught by Professor Robinson during the Spring '11 term at Georgia Southwestern.

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Ch03 Notes - CHAPTER 3 The Accounting Information System...

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