3 The Accounting Information System CHAPTER




The Accounting Information System

The Accounting Information System

• The system of: – Collecting and processing transaction data – Communicating financial information to interested parties

Accounting Equation

• Assets = Liabilities + Shareholders’ Equity • The accounting equation must always balance

Accounting Transactions

• Transactions are events that must be recorded in the financial statements • Transaction analysis determines impact on the accounting equation

Transaction Identification Process Illustration 3-1


• An individual accounting record of increases and decreases in a specific Asset, Liability, or Shareholders’ Equity item • Three parts: 1) the title of the account 2) a left or debit side 3) a right or credit side


The T Account Debit TITLE Credit Total Debits

Total the entries to each side If the greater sum is on the left, the account has a debit balance

The T Account TITLE Debit Credit Total Credits

Total the entries to each side If the greater sum is on the right, the account has a credit balance

Normal Balances Shares

Normal Balances

Expanded Accounting Equation Illustration 3-10

Recording Process Illustration 3-11


• Accounting record where the transactions are recorded in chronological order • Types of journals – Cash receipts – Cash disbursements – Sales – Purchases – General


• Journals aid in the recording process by: – Disclosing in one place the complete effect of a transaction – Providing a chronological record of transactions – Helping to prevent or locate errors as debit and credit amounts can be easily compared

General Ledger

• Entire group of accounts maintained by a company • Contains all the asset, liability, and shareholders’ equity accounts • Posting is the process of transferring information from the journals to the general ledger accounts

Chart of Accounts

• A listing of the company’s accounts • The number of accounts in a company’s chart of accounts depends on the size, complexity, and type of business.

• New accounts can be created at any time during the life of the company • See sample chart of accounts on the

Toolkit CD


• The process of transferring journal entries to ledger accounts • Posting should be done on a timely basis • This phase of the recording process accumulates the effects of journalized transactions in the individual accounts

Trial Balance

• List of all the accounts and their balances at a given time • Serves to prove the mathematical equality of debits and credits after posting • Aids in the preparation of financial statements

SIERRA CORPORATION Trial Balance October 31, 2004

Debits Credits Service Revenue 10,000 Rent Expense 900 $28,700 $28,700