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

Entity C

System Outputs: Financial Statements and Reports

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. ### Balance Credit 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)

C6

Learning Objective

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Describe a ledger and a chart of accounts.

Conceptual

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C7

Learning Objective

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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.

Lets . . .

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. . . 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)?

Lets . . .

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. . . 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 . . .

Lets . . .

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At the first equality

Assets

The algebraic relationship in the fundamental accounting model.

Liabilities

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Owners Equity

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Account Title

Debit Credit

Always

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 Inc. Dec.

Debit
Credit

Credit
Debit

Owners Equity
Revenue

Credit
Credit

Debit
Debit

Expenses

Debit

Credit

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

Credits
Liabilities Equity Revenue

Decrease

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
xpenses 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

Dividends

Capital

P1

Learning Objective

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

Procedural

Steps in Processing Transactions

Assets

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=
(3)

Liabilities
Equipment 30,000

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

=
(3)

Liabilities
Equipment 30,000

Equity

Step 1: Examine source documents.

ACCOUNT NAME:
Date Description

Step 2: Analyze transactions.

ACCOUNT No.
PR Debit Credit Balance
Date

GENERAL JOURNAL
Description Post. Ref.

Page
Debit

123
Credit

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 6 Art Supplies Office Supplies Accounts Payable
Purchase of art and office supplies on credit

Page 1 Debit 1,800 800 2,600 Credit

PR

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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
Page 1
Debit 30,000 30,000 Credit

GENERAL JOURNAL
Date 2001 Dec. 1 Cash Description PR

Common Stock Issuance of stock Dec. 2 Supplies Cash Transaction Purchased store supplies explanation for cash

Dollar amount of debits and credits

2,500

2,500

Balance Column Ledger

T-accounts are useful illustrations, but balance column ledger accounts are used in practice.
CASH
Date 2001 Dec. 1 Dec. 2 Dec. 3 Dec. 10 Description PR G1 G1 G1 G1 Debit

ACCOUNT No.
Credit

101
Balance

Issuance of stock Purchased supplies Purchased equipment Collection from customer

30,000 2,500 26,000 1,900

30,000 27,500 1,500 3,400

Balance Column Ledger

Note the the t-account tool is derived from the debit and credit columns of the ledger.
CASH
Date 2001 Dec. 1 Dec. 2 Dec. 3 Dec. 10 Description PR G1 G1 G1 G1 Debit

ACCOUNT No.
Credit

101
Balance

Issuance of stock Purchased supplies Purchased equipment Collection from customer

30,000 2,500 26,000 1,900

30,000 27,500 1,500 3,400

Balance Column Ledger

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

Exh. 2.16

CASH
Date 2001 Dec. 1 Dec. 2 Dec. 3 Dec. 10 Description PR G1 G1 G1 G1 Debit

ACCOUNT No.
Credit

101
Balance

Issuance of stock Purchased supplies Purchased equipment Collection from customer

30,000 2,500 26,000 1,900

30,000 27,500 1,500 3,400

Posting Journal Entries - Example

GENERAL JOURNAL
Date 2001 Dec. 1 Cash Description PR Debit 30,000 30,000

Page 1
Credit

Common Stock Issuance of stock Dec. 2 Identify the account. Supplies Cash CASH Purchased store supplies for cash Date Description PR

2,500

ACCOUNT No.
Debit Credit

2,500

101

Balance

2001

Dec. 3

Purchased equipment

G1

20,000.00

########

Posting Journal Entries - Example

GENERAL JOURNAL
Date 2001 Dec. 1 Cash Description PR Debit 30,000 30,000

Page 1
Credit

Common Stock Issuance of stock

Enter the date. 2 Dec. 2 Supplies

CASH
Date 2001 Dec. 1 Dec. 3

2,500

Cash Purchased store supplies for cash Description

ACCOUNT No.
PR Debit Credit

2,500

101

Balance

Purchased equipment

G1

20,000.00

########

Posting Journal Entries - Example

GENERAL JOURNAL
Date 2001 Dec. 1 Cash Description PR Debit 30,000 30,000

Page 1
Credit

Common Stock Issuance of stock Dec. 2 Supplies Enter the Cash CASH Purchased store supplies for cash Date Description PR

amount.
Debit

3 2,500
2,500

ACCOUNT No.
Credit

101

Balance

2001 Dec. 1 Dec. 3

Issuance of stock Purchased equipment

G1

30,000 20,000 (20,000)

Posting Journal Entries - Example

GENERAL JOURNAL
Date 2001 Dec. 1 Cash Description PR Debit 30,000 30,000

Page 1
Credit

Common Stock Issuance of stock Dec. 2 Supplies the journal Enter Cash CASH Purchased store supplies for cash Date Description

reference.
PR G1 G1 Debit

4 2,500

ACCOUNT No.
Credit

2,500

101

Balance

2001 Dec. 1 Dec. 3

Issuance of stock Purchased equipment

30,000 20,000 (20,000)

Posting Journal Entries - Example

GENERAL JOURNAL
Date 2001 Dec. 1 Cash Description PR Debit 30,000 30,000

Page 1
Credit

Common Stock Issuance of stock Dec. 2 SuppliesCompute the balance. Cash CASH Purchased store supplies for cash Date Description PR Debit 2,500

ACCOUNT No.
Credit

2,500

101

Balance

2001 Dec. 1 Dec. 3

Issuance of stock Purchased equipment

G1 G1

30,000 20,000

30,000 (20,000)

Posting Journal Entries - Example

GENERAL JOURNAL
Date 2001 Dec. 1 Cash Description PR 101 Debit 30,000 30,000

Page 1
Credit

Common Stock Issuance of stock Dec. 2 Supplies 2,500 Enter the ledger reference. Cash CASH Purchased store supplies ACCOUNT No. for cash Date Description PR Debit Credit

6
2,500

101

Balance

2001 Dec. 1 Dec. 3

Issuance of stock Purchased equipment

G1 G1

30,000 20,000

30,000 (20,000)