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AC
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AC
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Accounting Information System
UAA – ACCT 201 Principles of Financial
Accounting Dr. Fred Barbee
Chap
ter 2
AC
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AC
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Accounting Information System
First . . . A brief review of Day #2
Topics.
Chap
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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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Debits
Debit comes from Latin and merely means “left,” or the “left-hand” side of an account. Abbreviated “DR.”
Account Title
Left Side
Debit Side
We need to stop here
and change our way of thinking!
Symbolically, let’s erase that memory
C:\memory\debit\erase *.*
Are you sure (Y/N)?
All files in directory will be deleted
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Credits
Credit also comes from the Latin, and means “right,” or the “right-hand” side of an account. Abbreviated “CR.”
Account Title
Right Side
Credit Side
Let’s stop here and
modify our thinking – at least for this
class!
Symbolically, let’s erase that
memory
C:\memory\credit\erase *.*
Are you sure (Y/N)?
All files in directory will be deleted
Assets
Liabilities
Owners’ Equity
The algebraic relationship in the fundamental accounting model.
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Account Title
Debit
Credit
Always
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DR CR
Assets
LiabilitiesDR CR
DR CR
Owners’ Equity
Debits Credits
The Second Equality . . .
The algebraic relationship
between account increases and
decreases.
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Expenses
Revenue
Owners’ Equity
Liabilities
Assets
Debit-Credit Rules . . .
Debit Credit
Credit Debit
Credit Debit
Credit Debit
Debit Credit
Account Inc. Dec.
Debit-Credit Rules . . .
Debits Credits
Assets Expenses
Liabilities Equity
RevenueIncrease
Decrease Liabilities
Equity Revenue
Assets Expenses
ebits
ncrease
ssets
xpenses
iabilities
evenues
redits
ncrease
quity
ACCOUNT NAME: ACCOUNT No.
Date Description PR Debit Credit Balance
Step 4: Record the journal information in
a ledger.
Step 3: Record transactions in
a journal.
Step 5: Prepare a trial balance.
Steps in Processing Transactions
Step 1: Examine source
documents.
LiabilitiesLiabilities EquityEquityAssetsAssets = +
Step 2: Analyze transactions.
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General Journal Page 1
Date Description PR Debit Credit
Jan 6 Art Supplies 1,800
Office Supplies 800
Accounts Payable
2,600
Purchase of art and office supplies on credit
Transaction Date
Titles of Affected Accounts
Dollar amount of debits and credits
Transaction explanation
General Journal for FastForward
T-accounts are useful illustrations, but balance column ledger
accounts are used in practice.
Balance Column Ledger
1 Identify the account.
Posting Journal Entries - Example
2 Enter the date.
Posting Journal Entries - Example
3Enter the amount.
Posting Journal Entries - Example
4Enter the journal reference.
Posting Journal Entries - Example
5
Compute the balance.
Posting Journal Entries - Example
Enter the ledger reference. 6
Posting Journal Entries - Example
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Accounting Information System
Text Section:Trial Balance (p. 63)
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Learning Objective
Prepare and explain the use of a trial balance.
P2
Procedural
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Trial Balance
A Trial Balance is a listing of all accounts and their balances at a point in time.
AC
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Accounting Information System
Text Section:Unadjusted Financial
Statements (p. 68)
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Learning Objective
Prepare unadjusted financial statements from business transactions.
P3
Procedural
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Income Statement
A statement showing revenues and expenses for a period of time.
Revenues = Inflows of assets in exchange for products and services provided to customers.
Expenses = Outflows or the using up of assets that result from providing products and services to customers.
Exh.2.19
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Statement of Retained Earnings
A statement showing additions to (net income) and deductions from (net loss, dividends) the Retained Earnings account.
Exh.2.19
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Balance Sheet
A statement showing the balances in asset, liability, and equity accounts at a point in time.
Exh.2.19
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Statement of Cash Flows
A statement showing the sources and uses of funds relating to the
Operating
Investing, and
Financing
Activities of a company.
Exh.2.19
Generally, dollar signs ($) are not used in the journals
or ledgers.
Generally, dollar signs ($) are not used in the journals
or ledgers.
RoundingRoundingRound numbers in
financial statements to the nearest dollar.
Round numbers in financial statements to the
nearest dollar.
ACCOUNT NAME: ACCOUNT No.
Date Description PR Debit Credit Balance
Formatting Conventions
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Accounting Information System
Text Section:Decision Analysis (p. 70)
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Learning Objective
Analyze the impact of transactions on accounts and financial statements.
A2
Analytical
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Learning Objective
Compute return on equity and use it to analyze company performance.
A3
Analytical
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Describes the relationship between net income for the period and average equity.
Helps an owner judge the compnay’s profitability compared to other business or personal opportunities.
Using the Information - Return on Equity
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Learning Objective
Compute the debt ratio and describe its use in analyzing company performance.
A4
Analytical
The EndThe End
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