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Chapter 3. The Accounting Information System. 1. Accounting Equation. A = L + SE Expanded: A = L + SE + R + G - E - L Definitions of elements. 2. Financial Statements. Balance Sheet Income Statement Statement of Stockholders’ Equity ( or Retained Earnings Statement)

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chapter 3

Chapter 3

The Accounting Information System

1 accounting equation
1. Accounting Equation
  • A = L + SE
  • Expanded: A = L + SE + R + G - E - L
  • Definitions of elements
2 financial statements
2. Financial Statements
  • Balance Sheet
  • Income Statement
  • Statement of Stockholders’ Equity (or Retained Earnings Statement)
  • Cash Flow Statement
  • Articulation
3 accounts
3. Accounts
  • Definition
  • Number needed
  • T account
  • General ledger
4 debits and credits
4. Debits and Credits
  • Definitions
  • Increases and decreases
  • Normal balance
  • Balance of an account
5 journal entries
5. Journal Entries
  • Journalizing
  • Format
  • Posting
  • Special journals
  • Analyzing transactions
  • E 3-1
6 trial balance
6. Trial Balance
  • Definition
  • Purpose
  • When prepared?
  • Order of accounts
7 adjusting entries
7. Adjusting Entries
  • Purpose
  • Types
    • Deferrals – cash flow occurs before revenue/expense recognition
      • Expense, Revenue
    • Accruals – cash flow occurs after revenue/expense recognition
      • Expense, Revenue
    • Other
      • Bad debts, Depreciation, Cost of goods sold
8 deferred expense adjustments
8. Deferred Expense Adjustments
  • On January 1 you paid $1,800 for three months’ rent in advance.
9 deferred revenue adjustments
9. Deferred Revenue Adjustments
  • On May 1 your tenant pays you $3,600 for four months’ rent in advance.
10 accrued expense adjustments
10. Accrued Expense Adjustments
  • On December 31 your employees have earned wages of $10,000 but they will not be paid until January 5.
    • Without reversing
    • With reversing
11 accrued revenue adjustments
11. Accrued Revenue Adjustments
  • As of December 31 another of your apartment building tenants has not paid his December rent of $700.
    • Without reversing
    • With reversing
12 reversing entries
12. Reversing Entries
  • Purpose
  • If you choose to use reversing entries, what adjustments should be reversed?
    • All accruals
    • Deferrals initially recorded as a revenue or expense
13 other adjusting entries
13. Other Adjusting Entries
  • Bad Debts Adjustment
  • Depreciation Expense
  • Inventory and cost of good sold adjustments
    • Perpetual inventory system
    • Periodic inventory system
14 closing entries
14. Closing Entries
  • Purpose
  • Entries
    • Using income summary account
      • Close temporary accounts with Cr balances to income summary
      • Close temporary accounts with Dr balances to income summary
      • Close income summary to retained earnings
      • Close dividends account to retained earnings
    • Making one entry
15 cash basis of accounting
15. Cash Basis of Accounting
  • Definition
  • GAAP requirements
  • Conversion to accrual basis