ACCT 200 Lecture 3 Outline of Last Lecture I The Classified Balance Sheet II Financial Reporting Concepts Outline of Current Lecture II Accounting Information System III The Account IV Steps in the Recording Process V The Trial Balance Current Lecture Chapter 3 The Accounting Information System Accounting Information System System of Collecting and processing transaction data and communicating financial information to decision makers Most businesses use computerized accounting EDP systems Transactions 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 liability Analyzing Transactions The process of identifying the specific effects of economic events on the accounting equation Basic Accounting Equation Assets liabilities stockholders equity o 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 Transactions A L SE Expanded Equation with Account Names A L SE CS RE rev exp div The Account Debit and Credit Procedures Double 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 form Accounting 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 Dividends Summary 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 sides Steps 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 transaction o Provides a chronological record of transactions o Helps to prevent or locate errors because the debt and credit amounts can be easily compared Journalizing Entering transaction data in the journal Practice Journal Entries May 4 Paid 700 due for supplies previously purchased on account A P 700 Cash 700 May 7 Performed advisory services on account for 6800 A R 6800 Rev 6800 Steps in the Recording Process The ledger is comprised of the entire group of accounts maintained by a company Individual asset account individual liability accounts individual stockholder equity account Equipment Interest payable Salaries and wages expense Land Salaries and wages payable Service revenue Supplies Accounts payable Dividends Cash notes payable Retained earnings Common Stock Charts of Accounts listing of accounts used by a company to record transactions Posting the process of transferring journal entry amounts to ledger accounts The 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 statements The order of presentation in the trial balance is 1 Assets 2 Liabilities 3 Stockholders equity 4 Revenues 5 Expenses Limitations of a Trial Balance The trial balance may balance even when o A transaction is not journalized o A correct journal entry is not posted o A journal entry is posted twice o Incorrect accounts are used in journalizing or posting o Offsetting errors are made in recording the amount of a transaction