Financial Accounting Notes 3

7/29/2019 Financial Accounting Notes 3

1/45

Chapter 3

The Accounting Information System

and the Accounting Cycle


2/45

LEARNING OBJECTIVES

Chart of Accounts

JOURNAL ENTRIES!

T-ACCOUNTS!-Post transactions

Prepare a Trial Balance

Understand Accounting Cycle


3/45

Now that weve analyzed the effect transactions

have on the Accounting Equation

We need to standardize the format

Each transaction must be recorded in a manner

that:

o Is recognizable by General Ledger Software

o Can be interpreted efficiently by accounting

professionals

o Accurately reflects the economic activity


4/45

Are you left-handed?

If I ask a class how many people are

left-handed

Invariably, several people raise theirleft hands!


5/45

Why did these folks raise their left

hands?

Because thats how their brains are

wired!

Thats their dominant side.


6/45

Lets play some basketball

If these same left-handed people wereplaying basketball.

Wed expect them to dribble with theirleft hands.


7/45

Go up the court on the left side..

And have their strong shot on the left.


8/45

Lets play some Defense.

How would we defend against these

left-handed players?

Wed force them to the right!


9/45

What does Basketball have to do with

Accounting?

Assets are left-handed!

Thats no surprise.they dominate the

left-hand side of the Accounting

Equation.

They have the home court advantageon the left-hand side. AssetsHome Away


10/45

The Accounting word for left is

DEBIT!

Assets are debit-handed

They are dominant on the leftAnd weak on the right


11/45

Assets are strong on the left

AssetsStrong on Left Weak on Right

Dominant

Assets


12/45

Logical, isnt it?

Assets


13/45

So, if Assets

Are on the left-hand side of the

equation

And increase on the left

How would you expect Liabilitiesand Equity to behave?


14/45

Liabilities and Equity are strong on the

Right

And weak on the left

Thats no surprise.they dominate the

right-hand side of the Accounting

Equation.

They have the home court advantageon the right-hand side. Liabilities and EquityAway Home


15/45

The Accounting word for right is

CREDIT!Liabilities and Equity are

credit-handed

They are dominant on the rightAnd weak on the left


16/45

Liabilities and Equity are strong on the

right

Liabilities and EquityStrong on RightWeak on Left

Dominant

Liabilities and Equity


17/45

Statement of Stockholders Equity

Lets take a closer look at Equity

StockholdersEquity

ContributedCap

ital

Dividends

Revenues

Expenses

I ncome Statement


18/45

Heres a trick to help you remember the

four components of equity.

Think of the Owner going for a R I D ERevenues

Investments

Dividends

Expenses

Increase Equity

Decrease Equity


19/45

Statement of Stockholders Equity

Stockholders RIDE!

StockholdersEquity

Investmen

t

Dividends

Revenues

Expenses

I ncome Statement


20/45

An items location in the accounting equation determines

its STRONG side

Assets Liabilities Equities


21/45

The left-hand side of the equation goes up on the left;

Assets

Increasewithdebits

D

ecreasewithCre

dits

Liabilities

IncreasewithC

redits

D

ecreasewithDeb

its

Contributed Capital+w

ithCredits

the right-hand side of the equation goes up on the right!

Retained Earnings

+withRevenues

-WithExpenses

-WithDividends

RIDE!


22/45

Armed with this knowledge of

Debits and Credits, were ready to start

into the Accounting Cycle.

The Accounting Cycle begins with theanalysis of transactions, and

Ends with a Post-Closing Trial Balance.


23/45

The Accounting Cycle

In this

Chapter, well

cover Steps 1through 3


24/45

Quality Web Designs

This example is found onpage 110 in your text.

For each transaction, we will:

Analyze the impact on the accounting equation

Apply the rules forDebits and Credits

Prepare thejournal entry

Post the Entry to the T accounts.


25/45

Transaction 1)


26/45

Post the transaction to the T accounts


27/45

Transaction 2)


28/45



29/45

Transaction 3)


30/45



31/45

Transaction 4)


32/45



33/45

Transaction 5)


34/45



35/45

Transaction 6)


36/45



37/45

Transaction 7)


38/45



39/45

Transaction 8)


40/45


The Ending Balance from Each of


41/45

The Ending Balance from Each of

the T accounts

Is listed on the Trial Balance, in order of

liquidity

Total Debits

= Total

Credits

Revenue and Expense balances are


42/45

Revenue and Expense balances are

recorded on the income statement

Net Income is transferred to the

Statement of Retained Earnings


43/45

Net Income and Dividends are reported on the

Statement of Retained Earnings

From Income

Statement To Balance

Sheet

Assets Liabilities and the Ending Balance from the


44/45

Assets, Liabilities and the Ending Balance from the

Statement of Retained Earnings are reported on the

Balance Sheet

From Statement of

Retained Earnings


45/45

EndChapter 3

Date post:	14-Apr-2018
Category:	Documents
Upload:	bevinj
View:	214 times
Download:	0 times

Financial Accounting Notes 3

Documents