basics-of-accounting-information-processing

Describe the transactions that produced those results

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Unformatted text preview: capable of maintaining retrievable documentation for each and every transaction In other words, some transaction logging process must be in place. In general terms, an accounting system is a system where transactions and events are reliably processed and summarized into useful financial statements and reports. Whether this system is manual or automated, the heart of the system will contain the basic processing tools: accounts, debits and credits, journals, and the general ledger. This chapter will provide insight into these tools and the general structure of a typical accounting system. Download free eBooks at bookboon.com 27 6.1 Accounts The records that are kept for the individual asset, liability, equity, revenue, expense, and dividend components are & Information Processing Basics of Accounting known as accounts. In other words, a business would maintain an ccounts, Debits, and Credits A account for cash, another account for inventory, and so forth for every other financial statement element. All accounts, collectively, are said to comprise a firm’s general ledger. In a manual processing system, you could imagine the general ledger as nothing more than a notebook, with a separate page for every account. 6.1 Accounts Thus, you could thumb through the notebook to see the “ins” and “outs” of expense, and dividend as The records that are kept for the individual asset, liability, equity, revenue, every account, as well existing balances. An account could In other words, a business would maintain an account for cash, components are known as accounts. be as simple as the following: another account for inventory, and so forth for every other financial statement element. All accounts, collectively, are said to comprise a firm’s general ledger. In a manual processing system, you could imagine the general ledger as nothing more than a notebook, with a separate page for every account. Thus, you could thumb through the notebook to see the “ins” and “outs” of every account, as well as existing balances. An account could be as simple as the following: ACCOUNT: Cash Date Description Increase Decrease Balance $ 50,000 Balance forward Jan. 2, 20X3 Collected receivable Cash sale Jan. 5, 20X3 Paid rent Jan. 7, 20X3 Paid salary Jan. 8, 20X3 Cash sale Jan. 8, 20X3 Paid bills 2,000 57,000 Jan. 10, 20X3 Paid tax 1,000 56,000 Jan. 12, 20X3 * Jan. 1, 20X3 Jan. 3, 20X3 * Collected receivable $ 10,000 60,000 5,000 65,000 $ 7,000 58,000 3,000 55,000 4,000 7,000 59,000 63,000 This account reveals that cash has a balance of $63,000 as of January 12. By examining the account, you can see the various transactions that caused increases and decreases to the $50,000 beginning of month cash balance. In many respects, this Cash account resembles the “register” you might keep for a wallet style check book. If you were to prepare a balance sheet on January 12, you would include cash for the indicated amount (and, so forth for each of the other accounts comp...
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This document was uploaded on 09/24/2013.

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