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Chapter 3 notes - Accounting Information System Accounting...

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Accounting Information System Accounting Information System- collects and processes transaction data and then disseminates the financial information to interested parties. Debits and Credits --When a company enters an amount on the left side of an account, it debits the account. --When a company enters an amount on the right side of the account, it credits the account. Double -entry accounting- a company records the dual effect of each transaction in appropriate accounts. The system provides a logical method for recording transactions. --The accounting equation: Assets=Liabilities + Stockholder's Equity --Stockholder's Equity=Common stock + RE - Dividends + Revenues - Expenses Financial Statements and Ownership Structure --Income statement reports revenues and expenses --Statement of retained earnings reports dividends --The stockholder's equity section of the balance sheet reports common stock and retained earnings --Revenues, dividends and expenses all affect stockholder's equity The Accounting Cycle Identifying and Recording Transactions and Other Events --Companies should record all cash sales or purchases, not matter how small --An item should be recognized in the financial statements if it is an element, is measurable, and is relevant and reliable. --External events involve interaction between an entity and its environment --Internal events occur within an entity
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--Many events have both external and internal elements --Transactions are types of external events Journalizing --A company records in accounts those transactions and events that affect its assets, liabilities and equities. --The general ledger contains all the asset, liability, and stockholder's equity accounts.
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