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Copyright 2006 Pearson Education Canada Inc. 3-1
3-2 Copyright 2006 Pearson Education Canada Inc.
Outline Accounting as an Information
System Business Transactions The Accounting Cycle Rules of Debit and Credit The Journal Transactional Analysis The General Journal: Illustration
3-3 Copyright 2006 Pearson Education Canada Inc.
Accounting as an Information System
INPUT ---- PROCESS ---- OUTPUT
SOURCE ACCOUNTING INFORMATION
DOCUMENTS CYCLE TO
MANAGEMENT Business Transactions Financial Statements
3-4 Copyright 2006 Pearson Education Canada Inc.
Business Transactions
Raw Material of the accounting process
Like crude oil or food supplies, transactions must be processed in order to get the end product
3-5 Copyright 2006 Pearson Education Canada Inc.
The Accounting Cycle
Processing of the accounting raw material (business transactions) in order to get the final product-Information to Management in the form of Financial Statements
3-6 Copyright 2006 Pearson Education Canada Inc.
The Accounting Cycle
The accounting cycle: first 3 steps Identification of Business Transactions Journalizing-recording the business
transactions in chronological order in a Journal
Posting to the General Ledger
3-7 Copyright 2006 Pearson Education Canada Inc.
The Accounting Cycle
STEP ONEIDENTIFYING BUSINESS
TRANSACTIONS
STEP TWOJOURNALIZING
STEP THREEPOSTING
3-8 Copyright 2006 Pearson Education Canada Inc.
Identifying Business Transactions: Step 1
Identification of Business Transactions
Values Received=Values Given
VR=VG Debits = Credits Dr= Cr
3-9 Copyright 2006 Pearson Education Canada Inc.
Rules of Debits and Credits
DEBIT CREDIT
ASSETS INCREASE DECREASE
LIABILITIES DECREASE INCREASE
OWNERS’ EQUITY DECREASE INCREASE
REVENUE DECREASE INCREASE
EXPENSE INCREASE
DECREASE
3-10 Copyright 2006 Pearson Education Canada Inc.
Journalizing: Step 2
3-11 Copyright 2006 Pearson Education Canada Inc.
The Journal A book of original entry
Transactions are recorded in chronological order
Used to complete Step 2 of the Accounting Cycle
3-12 Copyright 2006 Pearson Education Canada Inc.
The General Journal
Date Account Names Ref Dr Cr
3-13 Copyright 2006 Pearson Education Canada Inc.
Recording Transactions in the General Journal – Step 2 of the Accounting Cycle
1. Mr. Carlton invests $30,000 in a new travel agency
2. The business borrows $50,000 at 8% APR
3. First month rent is paid, $1,000.
3-14 Copyright 2006 Pearson Education Canada Inc.
Transactional Analysis
1. Value Received by the Travel Agency is $30,000 in Cash- Debit Cash; Value Given by the Travel Agency is ownership interest in the amount of $30,000- Credit M. Carlton, Capital
2. Value Received is $50,000 in Cash- Debit Cash; Value given is the promise to pay $50,000 in the future- Credit notes payable
3. Value Received is the use of the premises rented worth $1,000- Debit Rent Expense; Value Given is a payment of $1,000 in Cash- Credit Cash
3-15 Copyright 2006 Pearson Education Canada Inc.
The General Journal: Illustration
Date Account Names Ref Dr. Cr.
Sep. 1 Cash 30,000- M.Carlton, Capital 30,000- Owner’s investment
Sep. 2 Cash 50,000- Notes Payable 50,000- Company borrows money at 12% APR
Sep. 3 Rent Expense 1,000- Cash 1,000- Rent is paid