Chapter 3 Outline - Chapter 3 page 1 of 12 Chapter 3 The...

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Chapter 3 page 1 of 12 Chapter 3: The Accounting Information System The purpose of this chapter is to explain and illustrate the features of an accounting information system. 1) Accounting Information System : Factors to consider when forming an info system are: nature of business, size of firm, volume of data, and informational demands a) Basic Technology : (Refer to page 63 for definitions.) i) Event : ii) Transaction : iii) Account : iv) Real and Nominal Accounts : Real (Permanent) Accounts : Nominal (Temporary) Accounts : v) Ledger : General Ledger : Subsidiary Ledger : vi) Journal : vii) Posting : viii) Trial Balance (TB) : Adjusted Trial Balance : Trial balance taken immediately after all adjustments have been posted. Post-Closing (or After-Closing) Trial Balance : A TB taken immediately after closing entries have been posted. ix) Adjusting Entries : x) Financial Statements :
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Chapter 3 page 2 of 12 xi) Closing Entries : The formal process by which all nominal accounts are reduced to zero and the net income or net loss is determined and transferred to an owners’ equity account; also known as “closing the ledger,” “closing the books,” or merely “closing.” b) Debits and Credits : i) Debit(ing) : ii) Credit(ing) : This procedure is an accounting custom or rule. Debits = Credits provides the basis for double-entry system of recording transactions. If every transaction is recorded with equal debits and credits, then the sum of all debits to the accounts must equal the sum of all credits. iii) Debit Balance : The total of the debit amounts exceeds the credits. iv) Credit Balance : The total of the credit amounts exceeds the debits. All ASSET, EXPENSE, and DIVIDENDS accounts are increased on the debit (left) side and decreased on the credit (right) side. All LIABILITY, EQUITY, and REVENUE accounts are increased on the credit (right) side and decreased on the debit (left) side. Illustration 3-1: Double Entry (Debit and credit) Accounting System (p64) Normal Balance = Debit: Asset Account Expense Account Debit Credit Debit Credit Dividends Debit Credit Normal Balance = Credit: Liability Account Stockholders’ Equity Accounts Debit Credit Debit Credit Revenue Account Debit Credit
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Chapter 3 page 3 of 12 c) Basic Equation : In a double entry system, for every debit there must be a credit and vice versa. This leads to the basic accounting equation. (See Illustrations 3-2 and 3-3 on page 65.) Note : Common Stock (and APIC) (Real or permanent account) + Retained Earnings (Real or permanent account) - Dividends (Nominal or temporary account) + Revenues (Nominal or temporary account) - Expenses (Nominal or temporary account) Stockholders’ Equity or CS + RE - Div + NI (or - NL) = SHE d) Financial Statements and Ownership Structure : i) Common Stock and Retained Earnings are reported in the stockholders’ equity section of the balance sheet. ii) Dividends are reported on the statement of retained earnings.
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This note was uploaded on 09/01/2011 for the course BUSINESS 101 taught by Professor - during the Spring '11 term at Mississippi Valley State University.

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Chapter 3 Outline - Chapter 3 page 1 of 12 Chapter 3 The...

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