4 Accounting
Information Systems
FINANCIAL
ACCOUNTING
2ND
EDITION
BY
DUCHAC, REEVE, & WARREN
PowerPoint Presentation by
Gail B. Wright
Professor of Accounting
Bryant University
© Copyright 2007 Thomson South-Western, a part
of The Thomson Corporation. Thomson, the Star
Logo, and South-Western are trademarks used
herein under license.
1
LG 1
BUSINESS INFORMATION
SYSTEM
Collects, processes data
Distributes information to
stakeholders
2
LG 2
EXHIBIT 2
Stakeholders
Financial,
operating
data
Accounting Information
Systems
•Management Reporting
Stakeholders
•Transactions Processing
•Financial Reporting
Stakeholders
3
LG 2
MANAGEMENT
REPORTING SYSTEM
• Provides internal information for
decision making
– Reports
• Budgets
• Variance analyses
4
LG 2
TRANSACTION
PROCESSING SYSTEM
• Records, summarizes effects of financial
transactions into accounts
• Divides transactions into cycles
–
–
–
–
–
Revenue cycle
Purchasing cycle
Payroll cycle
Inventory cycle
Treasury cycle
5
LG 2
FINANCIAL REPORTING
SYSTEM
• Produces financial statements
–
–
–
–
Income statement
Statement of retained earnings
Balance sheet
Statement of cash flows
6
LEARNING GOALS
3
Describe, illustrate
basic elements of
transaction processing
system.
7
LG 3
THE ACCOUNT
Each account has a
Title
Recording place for debits
Title
Recording place for credits
Left side
Debit
Right side
Credit
8
LG 3
RULES OF DEBIT & CREDIT
• Normal balance of account is side used to
increase
• Asset accounts have debit balances
• Example: cash
CASH
DEBITS
INCREASE
Continued
9
LG 3
RULES OF DEBIT & CREDIT
• Normal balance of account is side used to
increase
• Liability, Equity accounts have credit
balances
• Example: Retained Earnings
RETAINED EARNINGS
CREDITS
INCREASE
10
LG 3
BALANCE SHEET
EQUATION
A = L + E
11
LG 3
RULE 2 OF DEBIT &
CREDIT: Assets
• Asset accounts on left side of equation are
– Increased by debits and
– Have debit balances
ASSET ACCTS
+
DEBIT
BALANCE
12
LG 3
RULE 2 OF DEBIT &
CREDIT: Liability & Equity
• Liability & equity accounts on right side of
equation are
– Increased by credits and
– Have credit balances
LIABILITY & EQUITY ACCTS
+
CREDIT
BALANCE
13
LG 3
RULE 2 OF DEBIT &
CREDIT: Revenue
• Revenue accounts increase equity on right
side of equation are
– Increased by credits and
– Have credit balances
REVENUE ACCOUNTS
+
CREDIT
BALANCE
14
LG 3
RULE 2 OF DEBIT &
CREDIT: Expense
• Expense accounts decrease equity which is
on right side of equation are
– Increased by debits and
– Have debit balances
EXPENSE ACCTS
+
DEBIT
BALANCE
15
LG 3
RULE 3 OF DEBIT &
CREDIT
• For each transaction
– Total debits will equal total credits
TRANSACTION
TOTAL
DEBITS
TOTAL
CREDITS
16
LG 3
EXHIBIT 3
17
RECORDING
TRANSACTIONS
• Transactions recorded in
– Journals
• Organized by date
– Ledgers
• Organized by account
Click the
button to
skip
journal
entries
18
LG 3
ENTRY 11/5: Bought Land
SCF
BS
IS
11/5 Land
20,000
Cash
20,000
Buying land for cash
Decreases cash flows, investing
Has no effect on balance sheet
Has no effect on income statement
Click the
button to
skip
journal
entries
19
LG 3
ENTRY 11/10: Bought Supplies
SCF
BS
IS
10 Supplies
Accounts Payable
Buying supplies on account
Has no effect on cash flows
Increases assets & liabilities
Has no effect on income statement
1,350
1,350
Click the
button to
skip
journal
entries
20
LG 3
ENTRY 11/18: Earned Fees
SCF
BS
IS
18 Cash
R
Fees Earned
7,500
7,500
Received cash for fees earned
Increases cash flows from operations
Increases assets & equity
Increases revenue
Click the
button to
skip
journal
entries
21
LG 3
ENTRY 11/30: Paid Expenses
SCF
BS
IS
30
E
Wages
2125
Rent
800
Utilities
450
Misc.
275
Cash
Paid cash for expenses
Decreases cash flow operations
Decreases assets & equity
Increases expenses on income statement
3,650
Click the
button to
skip
journal
entries
22
LG 3
ENTRY 11/30: Paid Account
SCF
BS
IS
30 Accounts payable
Cash
950
950
Paid cash to satisfy accounts payable
Decreases cash flow operations
Decreases assets, liabilities
Has no effect on income statement
Click the
button to
skip
journal
entries
23
LG 3
ENTRY 11/30: Paid Dividend
SCF
BS
IS
30 Dividend
Cash
2,000
2,000
Paid cash dividends
Decreases cash flow financing
Decreases assets, equity
Has no effect on income statement
24
LG 3
EXHIBIT 7
Trial balance lists accounts, balances in debit,
credit columns to check recording process.
25
LEARNING GOALS
4
Describe, illustrate
basic elements of
financial reporting
system.
26
LG 4
END OF YEAR: 12/31/2007
• Transactions for December recorded
– Journals, ledgers
• Trial balance for December transactions
• Adjustments recorded
–
–
–
–
Supplies, insurance used
Revenue earned
Wages owed
Depreciation
Continued
27
LG 4
END OF YEAR: 12/31/2007
• Adjusted trial balance
– Final check before financial statements
• Prepare financial statements
–
–
–
–
Income statement
Statement retained earnings
Balance sheet
Statement cash flows
See
Exhibit 12
p. 166-167
28
LG 4
AFTER FINANCIAL
STATEMENTS
• Closing entries
– Transfer balances of temporary (revenue,
expense, dividends) accounts to retained
earnings
– Zero balances of temporary accounts to carry
forward
• Post-closing trial balance
– Final check for asset, liability, equity account
balances
29
LG 5
ACCOUNTING CYCLE
1. Transactions analyzed, recorded in
journals
2. Transactions posted to ledgers
3. Unadjusted trial balance prepared
4. Adjustment data assembled, analyzed
5. Adjusting entries prepared, recorded in
journal
Continued
30
LG 5
ACCOUNTING CYCLE
6. Adjusting entries posted to ledger
7. Adjusted trial balance prepared
8. Financial statements prepared
9. Closing entries recorded in journal
10. Closing entries posted to ledgers
11. Post-closing trial balance prepared
31
A pint cannot hold a quart. If it is
holding a pint, it is doing the best it
can.
Plan to be spontaneous tomorrow.
S. Wright
32