ACCT 201 ACCT 201 ACCT 201

Accounting Information System

Chapter

UAA ACCT 201 Principles of Financial Accounting Dr. Fred Barbee

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Accounting Information System

Chapter

First . . . A brief review of Day #1 Topics.

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Learning Accounting
If you want to learn accounting, you learn it one concept at a time, one principle at a time.

The Accounting System: A Conceptual Overview

Operating Environment
Entity B Business Entity A
System Inputs: Measurable Transactions and Events Process and Summarize System Outputs: Financial Statements and Reports

Entity C

Entity D

Entity E

A business continues operation instead of being closed or sold.

A business is accounted for separately from its owner(s).

Financial Statement information is supported by independent, unbiased evidence.

Express transactions and events in monetary units.

Financial statements are based on actual costs incurred in business transactions.

The Accounting Process

Exh. 2.2

Transaction or event

Source documents

Analysis

Reporting Trial balance Recording & posting

Account Title
Left Side Right Side

Account Title
Date Item Post Ref Debit

Account No. ### Credit Balance Debit Credit

Assets

Liabilities

Owners Equity

Capital Stock

Retained Earnings

The Accounting Equation A = L + OE

Revenue

-Expenses

Net Income

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Analyzing Transactions
1. Analyze the transaction and its source. 2. Identify the impact of the transaction on account balances. 3. Identify the financial statements that are impacted by the transaction.

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Chapter

Exercise 2-5

Identifying effects of transactions on accounting equation Learning Objectives: A1 (p. 84)

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Accounting Information System

Chapter

Text Section: Processing and Analyzing Transactions (p. 52)

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C6

Learning Objective

Describe a ledger and a chart of accounts.

Conceptual

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C7

Learning Objective

Define debits and credits and explain their role in double-entry accounting.

Conceptual

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Debits and Credits

The debit/credit convention or coding system is very simple. Do not make it difficult because you cannot accept its simplicity.

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Lets . . .

. . . At Debits

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Debits
Debit comes from Latin and merely means left, or the lefthand side of an account. Abbreviated DR.

Account Title
Left Side
We need to stop here and change our way of thinking!

Debit Side

Symbolically, lets erase that memory

C:\memory\debit\erase *.*

All files in directory will be deleted Are you sure (Y/N)?

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Lets . . .

. . . At Credits

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Credits
Credit also comes from the Latin, and means right, or the righthand side of an account. Abbreviated CR.

Account Title
Right Side
Lets stop here and modify our thinking at least for this class!

Credit Side

Symbolically, lets erase that memory

C:\memory\credit\erase *.*

All files in directory will be deleted Are you sure (Y/N)?

So, how can we use this?

Thats a good question!

Accounts actually provide two equalities or balances . . .

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Lets . . .

At the first equality

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Assets

The algebraic relationship in the fundamental accounting model.

Liabilities Owners Equity

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Account Title

Debi Credit t

Alway

Assets
DR CR

Liabilities
DR CR

Owners Equity
DR CR

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The Second Equality . . .

Debits Credits

The algebraic relationship between account increases and decreases.

Debit-Credit Rules . . .
Account
Assets Liabilities Owners Equity Revenue Expenses Inc. Debit Credit Credit Credit Debit Dec. Credit Debit Debit Debit Credit

Debit-Credit Rules . . .
Debits Increase Decrease Assets Expenses
Liabilities Equity Revenue

Credits
Liabilities Equity Revenue

Assets Expenses

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Basic Facts About Accounts

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For every transaction there must be at least one debit and one credit;

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Debits must always equal credits for each transaction, and;

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Debits are always entered on the left side of an account and credits on the right side.

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ncrease ebits xpense s ssets

evenues quity iabilities ncrease redits

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After Eating Dinner
Accounts increased with a debit: Assets Expenses

Lets Read the Comics

Accounts increased with a credit: Liabilities Revenues Capital

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Dividends

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P1

Learning Objective

Record transactions in a journal and post entries to a ledger.

Procedural

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Steps in Processing Transactions

Assets Assets

Liabilities Liabilities

Equity Equity

Step 1: Examine source documents.

Step 2: Analyze transactions.

We saw these steps earlier. Now, lets look at some additional ones.

Steps in Processing Transactions

Assets Assets

Liabilities Liabilities

Equity Equity

Step 1: Examine source documents.

AC C O UNT NAM E :
D a te D e s c rip tio n PR

Step 2: Analyze transactions.

AC C O UNT No .
D e b it C re d it B a la nc e

Step 5: Prepare a trial balance.

Step 4: Record the journal information in a ledger.

Step 3: Record transactions in a journal.

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General Journal
Date Jan Description Office Supplies Accounts Payable
Purchase of art and office supplies on credit

Page 1 Debit 1,800 800 2,600 Credit

PR

6 Art Supplies

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Journals . . .
A journal contains a chronological record of the transactions of a business.

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Advantages
Sets forth transactions of each day. Records transactions in chronological order. Shows the analysis of each transaction in terms of debit and credit effects. Supplies an explanation of each transaction

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Advantages
Serves as a source for future reference to accounting transactions. Removes lengthy explanations from the ledger accounts. Makes posting the ledger at convenient times possible.

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Advantages
Assists in keeping the ledger in balance. Aids in tracing errors. Promotes the division of labor.

General Journal for FastForward

Transaction Date Titles of Affected Accounts

Transaction explanation

Dollar amount of debits and credits

Balance Column Ledger

T-accounts are useful illustrations, but balance column ledger accounts are used in practice.

Balance Column Ledger

Note the the t-account tool is derived from the debit and credit columns of the ledger.

Balance Column Ledger

The last line in the balance column shows the current balance in the account.

Exh. 2.16

Posting Journal Entries - Example

Identify the account.

Posting Journal Entries - Example

Enter the date.

Posting Journal Entries - Example

Enter the amount.

Posting Journal Entries - Example

Enter the journal reference.

Posting Journal Entries - Example

Compute the balance.

Posting Journal Entries - Example

Enter the ledger reference.