Chapter ACCT 201 2 Accounting Information System ACCT

Chapter ACCT 201 2 Accounting Information System ACCT 201 UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee

Chapter ACCT 201 2 Accounting Information System ACCT 201 First. . . A brief review of Day #2 Topics.

ACCT 201

ACCT 201 Debits and Credits ACCT 201 The debit/credit convention or coding system is very simple. Do not make it difficult because you cannot accept its simplicity. ACCT 201

ACCT 201 Debits ACCT 201 Debit comes from Latin and merely means “left, ” or the “lefthand” side of an account. Abbreviated “DR. ” ACCT 201

Account Title Left Side Debit Side We need to stop here and change our way of thinking!

Symbolically, let’s erase that memory C: memorydebiterase *. * All files in directory will be deleted Are you sure (Y/N)?

ACCT 201 Credits ACCT 201 Credit also comes from the Latin, and means “right, ” or the “righthand” side of an account. Abbreviated “CR. ” ACCT 201

Account Title Right Side Let’s stop here and modify our thinking – at least for this class! Credit Side

Symbolically, let’s erase that memory C: memorycrediterase *. * All files in directory will be deleted Are you sure (Y/N)?

ACCT 201 Assets The algebraic relationship in the fundamental accounting model. Liabilities ACCT 201 Owners’ Equity

ACCT 201 Account Title ACCT 201 Debit Credit ACCT 201 Always

Assets DR CR Liabilities DR CR Owners’ Equity DR CR

ACCT 201 The Second Equality. . . ACCT 201 Debits Credits ACCT 201 The algebraic relationship between account increases and decreases.

Debit-Credit Rules. . . Account Inc. Dec. Assets Debit Credit Liabilities Credit Debit Owners’ Equity Credit Debit Revenue Credit Debit Expenses Debit Credit

Debit-Credit Rules. . . Debits Credits Increase Assets Expenses Liabilities Equity Revenue Decrease Liabilities Equity Revenue Assets Expenses

ncrease ebits xpenses ssets

evenues quity iabilities ncrease redits

Steps in Processing Transactions Assets Step 1: Examine source documents. Step 5: Prepare a trial balance. = Liabilities + Equity Step 2: Analyze transactions. Step 4: Record the journal information in a ledger. Step 3: Record transactions in a journal.

ACCT 201 General Journal Date Jan Description 6 Art Supplies PR Page 1 Debit Credit 1, 800 ACCT 201 Office Supplies Accounts Payable Purchase of art and office supplies on credit 800 2, 600

General Journal for Fast. Forward ŒTransaction Date Transaction explanation Titles of Affected Accounts Dollar amount of debits and credits

Balance Column Ledger T-accounts are useful illustrations, but balance column ledger accounts are used in practice.

Posting Journal Entries - Example 1 Identify the account.

Posting Journal Entries - Example 2 Enter the date.

Posting Journal Entries - Example Enter the amount. 3

Posting Journal Entries - Example Enter the journal reference. 4

Posting Journal Entries - Example Compute the balance. 5

Posting Journal Entries - Example Enter the ledger reference. 6

Chapter ACCT 201 2 Accounting Information System ACCT 201 Text Section: Trial Balance (p. 63)

ACCT 201 P 2 Learning Objective ACCT 201 Prepare and explain the use of a trial balance. ACCT 201 Procedural

ACCT 201 Trial Balance ACCT 201 A Trial Balance is a listing of all accounts and their balances at a point in time. ACCT 201

Chapter ACCT 201 2 Accounting Information System ACCT 201 Text Section: Unadjusted Financial Statements (p. 68)

ACCT 201 P 3 Learning Objective ACCT 201 Prepare unadjusted financial statements from business transactions. Procedural

ACCT 201 Income Statement ACCT 201 A statement showing revenues and expenses for a period of time. Revenues = Inflows of assets in exchange for products and services provided to customers. ACCT 201 Expenses = Outflows or the using up of assets that result from providing products and services to customers.

Exh. 2. 19

ACCT 201 Statement of Retained Earnings ACCT 201 A statement showing additions to (net income) and deductions from (net loss, dividends) the Retained Earnings account. ACCT 201

Exh. 2. 19

ACCT 201 Balance Sheet ACCT 201 A statement showing the balances in asset, liability, and equity accounts at a point in time. ACCT 201

Exh. 2. 19

ACCT 201 Statement of Cash Flows ACCT 201 A statement showing the sources and uses of funds relating to the Operating Investing, and ACCT 201 Financing Activities of a company.

Exh. 2. 19

Formatting Conventions Generally, dollar signs ($) are not used in the journals or ledgers. Rounding Round numbers in financial statements to the nearest dollar.

Chapter ACCT 201 2 Accounting Information System ACCT 201 Text Section: Decision Analysis (p. 70)

ACCT 201 A 2 Learning Objective ACCT 201 Analyze the impact of transactions on accounts and financial statements. Analytical

ACCT 201 A 3 Learning Objective ACCT 201 Compute return on equity and use it to analyze company performance. Analytical

ACCT 201 Using the Information Return on Equity ACCT 201 Ø Describes the relationship between net income for the period and average equity. ACCT 201 Ø Helps an owner judge the compnay’s profitability compared to other business or personal opportunities.

ACCT 201 A 4 Learning Objective ACCT 201 Compute the debt ratio and describe its use in analyzing company performance. Analytical

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