Bus Adm. 201 Notes Lecture 4Outline of Last Lecture I. Profitability RatiosII. Current Ratio FormulaIII. Debts to Total Assets Ratio FormulaIV. Free Cash Flow RatioOutline of Current Lecture Accounting Information SystemII. The four componentsIII. Steps in Transaction AnalysisA. TransactionIV.AccountsA.Account Implementation Current LectureAccounting Information System- Accounting Transactions- Analyzing Transactions- Summary of TransactionsSteps in the Recording Process- The Journal- The Ledger- Chart of Accounts- Posting- The recording process illustrated The Account- Debits and Credits- Debit and Credit Procedures- Stockholders’ Equity relationships- Summary of Debit/Credit rulesThese 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.The Trial Balance- Limitations of a Trial Balance- Collects, organizes and processes transaction data- Transaction is an event that results in a change of a balance sheet item.- Typically it is an exchange. (Asset, liability, stock, revenue or expense for one another)Steps in transaction Analysis:Step 1: Accumulate factsStep 2: Determine effects on accounting equationNote: Algebra requires that you keep the equalityTransaction Analysis: is the process of identifying the specific effects of economic events on the accounting equation.- Two or more items will always be affected Account is…- Lowest level of detail in accounting- Records increases and decreases for a specific asset, liability, or stockholders’ equity item- Number of accounts used depends on facts and personal desires of the accountant and management - Note: it’s easier to add up accounts to get a grouped total than it is to split out what has been grouped in a single account- Stockholders equity has accounts for: -Stock-Retained Earnings (from previous years)Also temporary, current year only accounts:-dividends (paid in current year)-Revenues (earned in current year)-Expenses (incurred in current year)Account Implementation: Tabular system format (not used in the business world)Account Implementation: Account form (AKA T-Account)- We use this form of account throughout this book to explain basic accounting relationships.Account Implementation: Running balance