ACCT 200 Lecture 3 Outline of Last Lecture I. The Classified Balance SheetII. Financial Reporting ConceptsOutline of Current Lecture II. Accounting Information SystemIII. The AccountIV. Steps in the Recording ProcessV. The Trial BalanceCurrent LectureChapter 3: The Accounting Information SystemAccounting Information SystemSystem of- Collecting and processing transaction data and communicating financial information to decision makers- Most businesses use computerized accounting (EDP) systemsTransactions: Economic event must be recorded in financial statements.A, L, SE changes = economic event- Asset, liabilities, or stockholders equity items change as a result of some economic event- Examples: Are the following events recorded in the accounting records?o Purchase a computer? (Yes)o Discuss guided trip with customer? (No)o Pay rent? (Yes)o Meet banker about investment options? (No)o Sell inventory? (Yes) (cash inv=asset)o Hired a new employee (No)*1 day of work= wages pay=liabilityAnalyzing TransactionsThe process of identifying the specific effects of economic events on the accounting equationBasic Accounting Equation:- Assets = liabilities + stockholders equityo Assets (cash, IR, Prepaid)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.o Liabilities (payables, equity, RE)Analyzing TransactionsA = L + SEExpanded Equation with Account NamesA = L + SE /\ CS RE/ | \^ rev ^ exp ^ divThe AccountDebit and Credit ProceduresDouble-entry system- Each transaction affects two or more accounts- Accounting equation must remain in balance- Recording done by debiting at least one account and crediting another- Debits must equal credits (total dollar amount)Account- Records up or down in assets, liability, revenue, or expenses- Debit = “left”- Credit = “right”*An account can be illustrated in a T-Account formAccounting transactions- Normal balance = side where increases in the account are recorded- Liability, debt, credit, rush = A/P = liability- Normal debt balance is for expenses and dividends- DEAD- Debt, Expense, Assets, DividendsSummary of Debit/ Credit Rules- Relationship among the assets, liabilities, and stockholders’ equity of a business- Basic equation: o Assets = liabilities + stockholders equity- Expanded basic equation:o Assets = liabilities + CS + RE + DIV + Rev + Exp- These are normal balances-increasing sidesSteps in the Recording Process- Analyze each transaction- Enter transaction in a journal- Transfer journal information to ledger accounts (put it to a specific account)The Journal- Contributions to the recording process:o Discloses the complete effects of a transactiono Provides a chronological record of transactionso Helps to prevent or locate errors because the debt and credit amounts can be easily comparedJournalizing- Entering transaction data in the journal Practice Journal EntriesMay 4- Paid $700 due for supplies previously purchased on account.A/P $700 Cash $700May 7- Performed advisory services on account for $6800A/R $6800 Rev $6800Steps in the Recording Process- The ledger is comprised of the entire group of accounts maintained by a companyIndividual asset account = individual liability accounts + individual stockholder equity accountEquipment Interest payable Salaries and wages expenseLand Salaries and wages payable Service revenueSupplies Accounts payable DividendsCash notes payable Retained earningsCommon StockCharts of Accounts- listing of accounts used by a company to record transactionsPosting- the process of transferring journal entry amounts to ledger accountsThe Trial Balance- A list of accounts and their balances at a given time- Accounts are listed in the order in which they appear in the ledger- Purpose is to prove that debits equal credits- May also uncover errors in journalizing and posting- Useful in the preparation of financial statementsThe order of presentation in the trial balance is:1. Assets2. Liabilities3. Stockholders’ equity4. Revenues5. ExpensesLimitations of a Trial Balance- The trial balance may balance even wheno A transaction is not journalizedo A correct journal entry is not postedo A journal entry is posted twiceo Incorrect accounts are used in journalizing or postingo Offsetting errors are made in recording the amount of a