slide1 l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Financial Accounting: Tools for Business Decision Making, 4th Ed. PowerPoint Presentation
Download Presentation
Financial Accounting: Tools for Business Decision Making, 4th Ed.

Loading in 2 Seconds...

play fullscreen
1 / 38

Financial Accounting: Tools for Business Decision Making, 4th Ed. - PowerPoint PPT Presentation


  • 779 Views
  • Uploaded on

Financial Accounting: Tools for Business Decision Making, 4th Ed. Kimmel, Weygandt, Kieso CHAPTER 3 Chapter 3 The Accounting Information System Analyze the effect of business transactions on the basic accounting equation. Explain what an account is and how it helps in the recording process.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Financial Accounting: Tools for Business Decision Making, 4th Ed.' - johana


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
chapter 3 the accounting information system
Chapter 3The Accounting Information System
  • Analyze the effect of business transactions on the basic accounting equation.
  • Explain what an account is and how it helps in the recording process.
  • Define debits and credits and explain how they are used to record business transactions.
  • Identify the basic steps in the recording process.
chapter 3 the accounting information system3
Chapter 3The Accounting Information System
  • Explain what a journal is and how it helps in the recording process.
  • Explain what a ledger is and how it helps in the recording process.
  • Explain what posting is and how it helps in the recording process.
  • Explain the purposes of a trial balance.
external and internal events
External and Internal Events

External Event – interaction between a business and its environment.

Internal Event – event occurring entirely within a business.

Transaction– any event that is recognized in a set of financial statements.

RECOGNIZED- An accounting entry is recorded… it becomes reflected in the financial statements.

REALIZED- regardless of whether it results in an accounting entry, the business actually receives or gives something.

exercise types of events
Exercise – Types of Events

Internal

Not Recorded

External

  • A supplier of a company‘s raw material is paid an amount owed on account.

External

External

2. A customer pays its open account.

Not Recorded

3. A new chief executive officer is hired.

External

4. The biweekly payroll is paid.

Internal

5. Raw materials are entered into production.

Not Recorded

6. A new advertising agency is hired.

7. The accountant determines the federal income taxes owed based on the income earned.

Internal

source documents
Source Documents
  • Source Document – a piece of paper that is used as evidence to record a transaction.

Sales invoice

    • Payroll timecard
    • Utility bill
    • Stock certificate
    • Promissory note (note payable)

Payment terms are 2/10, n/30

NOTE: Not all recordable events are supported by a standard source document.

exercise source documents
Exercise – Source Documents
  • Utilities expense for the month is recorded.

Purchase invoice

Sales invoice

2. A cash settlement is received from a pending lawsuit.

Cash register tape

3. Owners contribute cash to start a new corporation.

Time cards

4. The biweekly payroll is paid.

Promissory note

5. Cash sales for the day are recorded.

Stock certificates

6. Equipment is acquired on a 30-day open account.

Monthly utility statement

7. A sale is made on open account.

8. A building is acquired by signing an agreement to repay a stated amount plus interest in six months.

Other/ or- No source document normally available

effect on the accounting equation
Effect on the Accounting Equation

Assets = Liabilities + Equity

Assets - Liabilities = Equity

Assets - Liabilities = Net Assets

Net Assets = Equity

The accounting equation is made up of “Accounts.”

An account is a record used to accumulate amounts for each individual asset, liability, equity, revenue, and expense.

sara lee corp assets accounts
Sara Lee Corp. – Assets Accounts

LO 2

Describe the qualitative characteristics of accounting information.

chart of accounts
Chart of Accounts

LO 3

Analyze the effects of transactions on the accounting equation.

finally debits and credits
FINALLY- DEBITS AND CREDITS

Rule number one: forget the concept of “credit” to your account that you are probably familiar with. If your bank charges you a late fee, you complain and they reverse it, you THINK that is a credit to your account. BUT, as you will see, on YOUR books, the adjustment is a DEBIT to your cash.

CRUTCH:

ASSETS & LIABILITIES: DEBIT GOOD, CREDIT BAD

EQUITY & INCOME: OPPOSITE (DEBIT BAD, CREDIT GOOD)

MORE: ASSETS AND EXPENSES ARE DEBITS

LIABILITIES, EQUITY AND REVENUES ARE CREDITS

OH YEAH, ONE OTHER THING: DEBITS ON THE LEFT, CREDITS ON THE RIGHT!

REMEMBER FROM PRIOR CHAPTERS: “FOR EVERY ACTION THERE IS AN EQUAL AND OPPOSITE REACTION”… IN ACCOUNTING TERMS, FOR EVERY DEBIT, THERE IS A CREDIT.

graphic debits and credits generally
Graphic debits and credits (GENERALLY)

Balance Sheet

Income Statement

2004

2004

Assets:

Revenues & Gains:

DEBITS

CREDITS

Liabilities:

CREDITS

Expenses & Losses:

Equity:

DEBITS

CREDITS

another crutch
ANOTHER CRUTCH

“Debit” Card- comes from your checking account, which is an ASSET.

“Credit” Card- creates a LIABILITY.

DEBIT- ASSET

CREDIT- LIABILITY

review
Review

What is the normal balance for the following accounts?

Cash

Debit

Credit

Accounts Payable

Accounts Receivable

Debit

Service Revenue

Credit

Common Stock

Credit

Salaries Expense

Debit

review15
Review

What is the normal balance for the following accounts?

Dividends

Debit

Debit

Building

Taxes Payable

Credit

Unearned Revenus

Credit

Prepaid Insurance

Debit

Rent Expense

Debit

debits and credits
Debits and Credits

Balance Sheet Income Stmt.

-

=

+

=

Asset

Liab.

Equity

Rev.

Exp.

Debit

Credit

debits and credits posting
DEBITS AND CREDITS- POSTING

We need to write a transaction in a format that can be communicated / input. We use a journal entry:

DEBITS ON THE LEFT

CREDITS ON THE RIGHT

accounting equation journal entries
ACCOUNTING EQUATION- JOURNAL ENTRIES

On Jan. 3rd, sold common stock for $100,000 cash.

What is the impact to common stock?

INCREASE $100,000

What is the impact to cash?

INCREASE $100,000

HOW IS THIS EXPRESSED IN A JOURNAL ENTRY?

ACCOUNTDEBIT/ DR.CREDIT/ (CR)

Cash $100,000

Common Stock $100,000

accounting equation journal entries19
ACCOUNTING EQUATION- JOURNAL ENTRIES

On Jan. 10th, purchased a building by signing a $150,000 note payable..

What is the impact to Building (Fixed assets)?

INCREASE $150,000

What is the impact to Notes Payable?

INCREASE $150,000

HOW IS THIS EXPRESSED IN A JOURNAL ENTRY?

ACCOUNTDEBIT/ DR.CREDIT/ (CR)

Building $150,000

Note payable $150,000

how to learn debits and credits
HOW TO LEARN DEBITS AND CREDITS

There is no way to teach it and no way to learn it other than by:

PRACTICE!!!!!

PRACTICE!!!!!

PRACTICE!!!!!

PRACTICE!!!!!

accounting equation journal entries21
ACCOUNTING EQUATION- JOURNAL ENTRIES

On Jan. 15th, purchased inventory on account for $60,000.

What is the impact to Inventory?

INCREASE $60,000

What is the impact to cash?

NONE- PURCHASED ON ACCOUNT

What is the impact to accounts payable?

INCREASE $60,000

HOW IS THIS EXPRESSED IN A JOURNAL ENTRY?

ACCOUNTDEBIT/ DR.CREDIT/ (CR)

Inventory $60,000

Accounts payable $60,000

by the way
BY THE WAY

WHAT IS THE DIFFERENCE BETWEEN THESE ENTRIES:

ACCOUNTDEBIT/ DR.CREDIT/ (CR)

Inventory $60,000

Accounts payable $60,000

AND

ACCOUNTDEBIT/ DR.CREDIT/ (CR)

Accounts payable $60,000

Inventory $60,000

ANSWER:

NOTHING- IT IS ONLY A CONVENTION TO LIST THE DEBITS FIRST!

accounting equation journal entries23
ACCOUNTING EQUATION- JOURNAL ENTRIES

On Jan. 20th, sold inventory costing $30,000, for $75,000 on account.

Did we “earn” the revenue?

Yes- SALES INCREASE $75,000

Sold for cash or “on account”

“ON ACCOUNT” ACCOUNTS RECEIVABLE INCREASE $75,000

What is the impact to Inventory?

DECREASE $30,000

When we “Squeeze” Inventory from the Balance sheet to the income statement, where does it go (HAVE WE RECEIVED THE BENEFIT)?

COGS $30,000

HOW IS THIS EXPRESSED IN A JOURNAL ENTRY?

ACCOUNTDEBIT/ DR.CREDIT/ (CR)

Accounts receivable $75,000

Sales $75,000

Cost of goods sold $30,000

Inventory $30,000

accounting equation journal entries24
ACCOUNTING EQUATION- JOURNAL ENTRIES

On Jan. 29th, received $40,000 cash from customers who purchased goods on account.

SHOULD THIS IMPACT THE INCOME STATEMENT?

NO! WE RECORDED THE SALE WHEN IT WAS EARNED, THIS ONLY REFLECTS A CHANGE FROM AN ACCOUNT RECEIVABLE TO CASH.

What is the impact to sales?

NONE

What is the impact to accounts receivable?

DECREASE $40,000

What is the impact to cash?

INCREASE $40,000

HOW IS THIS EXPRESSED IN A JOURNAL ENTRY?

ACCOUNTDEBIT/ DR.CREDIT/ (CR)

Cash $40,000

Accounts receivable $40,000

additional terms
Additional Terms

General Ledger – a file that contains the activity of all the accounts.

T Account – a format used to illustrate the increases, decreases and resulting total balance for each account.

slide26

Account Name

Credit / Cr.

Debit / Dr.

(T Account illustration with excel)

slide27

Assets

Credit / Cr.

Debit / Dr.

“NORMAL”- DEBIT

slide28

Liabilities

Credit / Cr.

Debit / Dr.

“NORMAL”- CREDIT

slide29

Equity

Credit / Cr.

Debit / Dr.

“NORMAL”- CREDIT

slide30

Revenue

Credit / Cr.

Debit / Dr.

“NORMAL”- CREDIT

slide31

Expense

Credit / Cr.

Debit / Dr.

“NORMAL”- DEBIT

remember this slide from before
REMEMBER THIS SLIDE FROM BEFORE?

On Jan. 3rd, sold common stock for $100,000 cash.

What is the impact to common stock?

INCREASE $100,000

What is the impact to cash?

INCREASE $100,000

HOW IS THIS EXPRESSED IN A JOURNAL ENTRY?

ACCOUNTDEBIT/ DR.CREDIT/ (CR)

Cash $100,000

Common Stock $100,000

WHAT WOULD THIS LOOK LIKE IN THE T-ACCOUNTS?

entry posted to t accounts
ENTRY POSTED TO T-ACCOUNTS

ACCOUNTDEBIT/ DR.CREDIT/ (CR)

Cash $100,000

Common Stock $100,000

$100,000

$100,000

$100,000

$100,000

the journal
The Journal

General Journal – a chronological record of transactions, also known as the book of original entry. What you record in the journal is known as a “Journal Entry.”

posting
Posting

Posting – the process of transferring amounts from the journal to the ledger accounts.

General Journal

GJ1

General Ledger

trial balance
Trial Balance

Trial Balance – a list of each account and its balance; used to prove equality of debits and credits.

LO 7

Explain the purposes of a trial balance.

event 9 hiring of new employees
Event 9 – Hiring of New Employees

Oct. 9 – Sierra hired four new employees to begin work on Oct. 15.

Accounting transaction has NOT occurred!