307031.ppt accounting

8/14/2019 307031.Ppt Accounting

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C H A P T E R

33

The Accounting Information

System


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The Accounting

Information System

AccountingAccounting

InformationInformation

SystemSystem

Basic terminologyBasic terminology

Debits and creditsDebits and credits

Basic equationBasic equation

Financial statementsFinancial statementsand ownershipand ownershipstructurestructure

The AccountingThe Accounting

CycleCycle

Identification andIdentification andrecordingrecording

JournalizingJournalizing

PostingPosting

Trial balanceTrial balance

Adjusting entriesAdjusting entries

Adjusted trial balanceAdjusted trial balance

ClosingClosing

Post-closing trialPost-closing trialbalancebalance

Reversing entriesReversing entries


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The Accounting Equation

Assets =Liabilities+ Shareholders Equity

Assets=Liabilities+ Common Shares + RetainedEarnings

Retained Earnings by Year End (Method 1)

= Revenues (all years)expenses (all years)dividends (allyears)

= Net income (all years)-dividends (all years)

Retained Earnings by Year End (Method 2)

= Beginning Retained Earnings + Net income dividends

Retained Earnings: revenues that made AND retained inbusiness.


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The Accounting Equation

Retained Earnings (R/E): revenues thatmade AND retained in the business.

1 2 3 4 5Net income 100 110 120 130 140Dividend (20) (20) (20) (20) (20)

Year-end R/E 80 ? ? ? ?

R/E by year 2 (M1): 100+110-40=170

R/E by year 2 (M2): 80+110-20=170R/E by year 3 (M1): 100+110+120-60=270

R/E by year 3 (M2): 170+120-20=270

The second way to calculate R/E is thepopular way used in real world business.


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Basic Terminology

Event

The source/cause of a change in

assets, liabilities and equity

Account

A summary of the transactions for

each type of asset, liability andequity item


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Basic Terminology

Ledger Book containing all accounts

Each account has a separate page

Journal Book of original entry for all transactions

Posting Process of transferring transaction information

from the journal to the ledger

Trial balance Listing of all accounts and their balances from the

general ledger

Tool used to ensure that the general ledger is inbalance


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The Rules of Debit and

CreditAccount Debit Credit

Assets Increase Decrease

Liabilities Decrease Increase

Shareholders

Equity

Decrease Increase

Revenue Decrease Increase

Expenses Increase Decrease


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The Accounting Cycle

Identification andMeasurement ofTransactions

1

Post-Closing Trial

Balance

9

Close TemporaryAccounts

8

Prepare FinancialStatement

7

Adjusted Trial

Balance

6

Record AdjustingJournal Entries toWorksheet (post to

the Ledgers as well)

Prepare AdjustingJournal Entries

5

Prepare TrialBalance

4

Post Journal

Entries to theLedgers

3

RecordTransaction inJournal

2

Reversing Entries10


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Basic Terminology (Step5)

Adjusting entries

Record the effects of accrual accounting

Ensure that revenue recognition and the

matching principle are followed

Five classifications of year-end adjusting

entries:

1. Prepaid expenses2. Unearned revenues

3. Accrued revenues

4. Accrued expenses

5. Depreciations/Amortization


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Adjusting Entries:

Recognizing Revenue

Adjusting

Unearned Revenue

Recording

Accrued Revenue

Revenues receivedin cash

andrecorded as liabilitiesbefore being earned

Revenues earnedbut not yet

received in cashor recorded

E3 6 T t 109


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E3-6 Text page 109:Karen Pain started dental practice on Jan 1, 2005. Thefollowing transactions occurred during the first month.

3. At Jan 31, $1,750 services was earned but not

billed to insurance companies (customers areon dental insurance plan).

4. Utility expense incurred but not paid by Jan 31totaled $1,520.

5. On Jan 1, purchase dental equipment for$80,000, paying $20,000 in cash and signinga $60,000, 3 year note payable. Theequipment amortization is $400 per month.Interest is $500 per month.

6. Purchased a one-year malpractice insurancepolicy on Jan 1 for $13,000.

7. Purchased $2,600 of dental supplies. On Jan31 determined that $500 of supplies were on

hand.

E3 6 T t 109 S l ti


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E3-6 Text page 109 Solution

1. Accounts Receivable 1,750

Service Revenue 1,7502. Utilities Expense 1,520Utilities Payable 1,520

3. Amortization Expense 400

Accumulated AmortizationEquipment 400Interest Expense 500

Interest Payable 5004. Insurance Expense 1,083

Prepaid Insurance 1,083($13,000 /12)

5. Supplies Expense 2,100Supplies 2,100($2,600 -

$500)


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Basic Terminology (Step8)

Permanent account Also known as a real account

Permanent accounts are not closed at year-end.The balances of these accounts will be carriedover to the next year.

All balance sheet accounts are permanentaccounts excepts distribution accounts (e.g.Dividend account is a temporary account)

Temporary account Also known as a nominal account

Temporary accounts are closed at year-end toRetained Earnings

All income statement accounts are temporaryaccounts


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Homework assignment

E3-8, E3-17, P3-3

307031.ppt accounting

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