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Accounting Information System

UAA – ACCT 201 Principles of Financial

Accounting Dr. Fred Barbee

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Accounting Information System

First . . . A brief review of Day #2

Topics.

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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.

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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