The Accounting Information System and the Accounting Cycle

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Chapter 3

• The Accounting Information System and the
  Accounting Cycle

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LEARNING OBJECTIVES

• Chart of Accounts
• JOURNAL ENTRIES!
• T-ACCOUNTS!-Post transactions
• Prepare a Trial Balance
• Understand Accounting Cycle

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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
• Is recognizable by General Ledger Software
• Can be interpreted efficiently by accounting
  professionals
• Accurately reflects the economic activity

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Are you left-handed?
If I ask a class how many people are left-handed
Invariably, several people raise their left
hands!
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Why did these folks raise their left hands?
Because thats how their brains are wired!
Thats their dominant side.
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Lets play some basketball
If these same left-handed people were playing
basketball. Wed expect them to dribble with
their left hands.
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Go up the court on the left side..
And have their strong shot on the left.
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Lets play some Defense.
How would we defend against these left-handed
players? Wed force them to the right!
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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 advantage on
the left-hand side.
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The Accounting word for left is
DEBIT!
Assets are debit-handed ? They are dominant on
the left And weak on the right
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Assets are strong on the left
Strong on Left
Weak on Right
Dominant
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Logical, isnt it?
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So, if Assets
Are on the left-hand side of the equation
And increase on the left
How would you expect Liabilities and Equity to
behave?
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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 advantage on
the right-hand side.
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The Accounting word for right is
CREDIT!
Liabilities and Equity are credit-handed ? They
are dominant on the right And weak on the left
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Liabilities and Equity are strong on the right
Weak on Left
Strong on Right
Dominant
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Lets take a closer look at Equity

Revenues
Contributed Capital
Expenses
Dividends
Income Statement
Statement of Stockholders Equity
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Heres a trick to help you remember the four
components of equity.

• Think of the Owner going for a R I D E
• Revenues
• Investments
• Dividends
• Expenses

Increase Equity
Decrease Equity
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Stockholders RIDE!

Revenues
Investment
Expenses
Dividends
Income Statement
Statement of Stockholders Equity
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An items location in the accounting equation
determines its STRONG side
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The left-hand side of the equation goes up on the
left

the
right-hand side of the equation goes up on the
right!
Increase with Credits
with Credits
Decrease with Debits
Increase with debits
Decrease with Credits
RIDE!
- With Expenses
- With Dividends
with Revenues
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Armed with this knowledge of
Debits and Credits, were ready to start into the
Accounting Cycle. The Accounting Cycle begins
with the analysis of transactions, and Ends with
a Post-Closing Trial Balance.
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The Accounting Cycle
In this Chapter, well cover Steps 1 through 3
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Quality Web Designs
This example is found on page 110 in your text.
For each transaction, we will Analyze the impact
on the accounting equation Apply the rules for
Debits and Credits Prepare the journal entry Post
the Entry to the T accounts.
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Transaction 1)
June 1 Received 50,000 from its shareholders
in exchange for common stock.
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Transaction 2)
June 2 - Paid 1,500 cash for Rent Expense.
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Transaction 3)
June 5 Paid 1,200 for an insurance policy that
begins July 1.
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Transaction 4)
June 10 Performed Services for clients, on
account (developed a web site for them, sent
them a bill), 3,000.
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Transaction 5)
June 14 Received a bill from Comcast for
Internet services for June but will not be paid
until July, 50.
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Transaction 6)
June 18 Paid cash of 645 for operating
expenses, of which 100 was for Advertising and
545 was for Travel, which done in June.
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Transaction 7)
June 24 Received cash of 1,000 from the
customers that were billed on June 10.
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Transaction 8)
June 30 Purchased a printer by signing a Note
Payable due on December 31, 600.
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Posting to T Accounts
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Posting to T Accounts - solution
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The Trial Balance
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The Trial Balance - solution
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Financial Statements (3)
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Financial Statements (3) - solution
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End Chapter 3