Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
INTRODUSTION:
 Accounting information system (AIS).
o Collects and processes transaction data.
o Disseminates the information to interested parties
 Helps management answer such questions as.
o How much and what kind of debt is outstanding?
o Were sales higher this period than last?
o What assets do we have?
o What were our cash inflows and outflows?
o Did we make a profit last period?
o Are any of our product lines or divisions operating at a loss?
o Can we safely increase our dividends to shareholders?
o Is our rate of return on net assets increasing?
The Accounting Cycle:
1- Identify and Recording Transactions (Journalization):
There are two methods used for recording
a. Accounting equation method (Old Method)
Assets = Liabilities + Equity
b. Double entry Method (New Method)
which stated that:“ The accounting transaction has two parts one is Debit and the other is credit with same
amount “
Page 1 of 12
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
Determining the debit and Credit
The Accounting consists of 6 types of accounts ( 3 Debit and 3 Credit )
Assets
Expenses
Dividends
Normal Balance
Debit
If Increased
If Decreased
Debit
Liabilities
Revenues
E ( SC+RE)
Credit
Normal Balance
Credit
If Increased
Credit
If Decreased
Debit
Example:
September 1: Shareholders invested $15,000 cash in the corporation in exchange for
ordinary shares
2- Posting to Ledger:
Two Figure of Ledger:
1- Three columns Accounts.
Page 2 of 12
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
2- T- Account.
Dr.
Share Capital
Cash-Account
15,000
Cr.
3- Summarizing in trial Balance:
A Closer Look on recording Process:
A) When Cash is Paid (Assets – Expenses – Prepaid expenses)
1. Paid $500 Cash for Supplies.
Date
2
Supplies
Cash
Accounts
2. Paid $600 Cash for current month rent.
Date
Accounts
3
Rent expenses
Cash
3. Paid $600 Cash for next month rent.
Date
Accounts
4
Prepaid rent
Cash
Page 3 of 12
Dr.
Cr.
500
5000
Dr.
Cr.
600
600
Dr.
Cr.
600
600
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
B) When Cash is received (Revenue – Unearned revenue)
1. Received $10,000 Cash for services performed
Date
Accounts
1
Cash
Services revenue
Dr.
10,000
2. Received $10,000 Cash for services will be performed.
Date
Accounts
1
Cash
Unearned Services revenue
Dr.
10,000
10,000
Cr.
10,000
C) When inventory is purchased or sold
1. Purchased merchandise inventory for $10,000 terms 2/10, n30
Date
Accounts
1
Inventory
Accounts payable
2. Sale of inventory costing $4,000 for $6,000 terms 3/15, n 45
Date
Accounts
2
Accounts Receivable
Sales revenue
Cost of goods sold
Inventory
Cr.
Dr.
10,000
Cr.
10,000
Dr.
6,000
Cr.
6,000
4,000
4,000
D) Other transactions
1. Purchased Equipment for $20,000 paying $5,000 cash and the balance on Note payable
Date
Accounts
Dr.
Cr.
1
Equipment
20,000
Cash
5,000
Note payable
15,000
2. Supplies used during the year was $200.
Date
Accounts
2
Supplies expenses
Supplies
Page 4 of 12
Dr.
Cr.
200
200
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
4- Adjusting entries:
Deferrals ‫مؤجل‬
Accruals ‫مستحق‬
1. Prepaid expenses: ‫مصروف مقدم‬
3. Accrued Expenses ‫مصروف مستحق‬
Expenses paid in cash and recorded as assets
Expenses incurred but not yet paid in cash or
before they are used or consumed.
recorded
Converting assets into expenses
Recording this expenses
2. Unearned Revenue: ‫ايراد مقدم‬
4. Accrued Revenue ‫ايراد مستحق‬
Revenue received in cash and recorded as
Revenue earned but not yet received in cash of
liabilities before they are earned.
recorded.
Converting Liabilities into Revenue
Recording this Revenue
Needs of adjusting entries:
Adjusting entries are needed to ensure that the revenue recognition and expense recognition
are followed.
As a result we have to make the following:
1. Convert some assets into expenses. (Prepayments)
2. Convert Some Liabilities into revenue. (Unearned )
3. Record any Unrecorded expenses ( Accrued expenses)
4. Record any Unrecorded revenues (Accrued revenues)
 Converting Some assets into expenses:
(1) Supplies
(2) Prepaid
(3) Depreciation
(4) Bad debt
(1) Supplies
Journal Entries
Adjusting Entries
On Jan 1, 2011, XYZ Purchased Supplies for At December 31, 2011. Only $200 of supplies
$500 Cash
still on hand.
01/01 Supplies
500
31/12 Supplies expenses
300
Cash
500
Supplies
300
Exercise:
XYZ Corporation
Trial Balance
December 31, 2011
Accounts
Cash
Supplies
Dr.
10,000
1,200
Cr.
Additional Information:
Supplies used during the year were $400.
Page 5 of 12
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
Instructions:
Prepare the required adjusting entry at December 31, 2011.
Date
Dec 31
Accounts
Dr.
Supplies Expenses
Supplies
Cr.
400
400
(2) Prepaid
Trial Balance
XYZ Corporation
December 31, 2011
Cash
10,000
Supplies
1,200
Prepaid Insurance
3,600
Insurance Expenses =
𝑃𝑟𝑒𝑝𝑎𝑖𝑑 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑌𝑒𝑎𝑟𝑠
Adjusting Entries
Insurance Policy was purchased for 3 years on
October 1, 2011.
31/12 Insurance expenses
300
Prepaid Insurance
300
(3,600÷3) × 3/12
×
𝑀𝑜𝑛𝑡ℎ𝑠
12
(3) Depreciation
Trial Balance
XYZ Corporation
December 31, 2011
Cash
10,000
Supplies
1,200
Prepaid Insurance
3,600
Equipment
8,000
Depreciation Expenses =
Depreciation Expenses =
Adjusting Entries
Equipment was purchase on March 31, it has a
useful life of 5 years with no salvage value.
31/12 Depreciation expenses 1,200
Accumulated / Dep
1,200
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑎𝑠𝑠𝑒𝑡𝑠−𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒
𝑈𝑠𝑒𝑓𝑢𝑙 𝐿𝑖𝑓𝑒
$8,000 − $ 0
5 𝑦𝑒𝑎𝑟𝑠
×
𝑀𝑜𝑛𝑡ℎ𝑠
12
Dep. Exp. = (Cost – SV)x Rate
9
× 12 = $1,200
After recording depreciation the Statement of financial position will be as follow:
Plant assets:
Equipment
(-) Accumulated depreciation
8,000
1,200
6,800
Page 6 of 12
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
(4) Bad debt expenses:
Trial Balance
XYZ Corporation
December 31, 2011
Cash
10,000
Supplies
1,200
Prepaid Insurance
3,600
Equipment
8,000
Accounts Receivable
15,000
Allowance for Doubtful Acc
Adjusting Entries
Bad debt expenses is expected to be 20% of
accounts receivable.
31/12 Bad Debt Exp
2,000
A.F.D.A
2,000
Bad Debt = (A/R x Rate ) – A.F.D.A
1,000 Bad Debt = (15,000 x 20%) - $1000 = $2,000
# Bad debt = Sales x Rate
 Converting Some Liabilities into Revenues.
Trial Balance
Adjusting Entries
XYZ Corporation
$1,000 of unearned Services has been earned
December 31, 2011
Cash
10,000
31/12 Unearned Services
1,000
Supplies
1,200
Services Revenue
1,000
Prepaid Insurance
3,600
Equipment
8,000
Unearned Services
3,000
 To Record any Unrecorded expenses ( Accrued expenses)
Trial Balance
XYZ Corporation
December 31, 2011
Cash
10,000
Supplies
1,200
Prepaid Insurance
3,600
Equipment
8,000
Unearned Services
Note Payable
Salaries Payable
Adjusting Entries
Note Payable was issued on November 1, for
6 month at 12% interest rate.
31/12 Interest Expenses
1,000
Interest Payable
1,000
3,000
20,000
0
Interest Expenses = Note Payable × interest rate × (Month/12)
 To Record any Unrecorded Revenues ( Accrued Revenues)
1. $6000 of services performed to clients are not recorded.
2. On April 30, a ten-month, 9% note for €20,000 was received from a customer.
Page 7 of 12
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
5- Adjusted Trial Balance:
Shows the balance of all accounts, after adjusting entries, at the end of the accounting period.
Exercise:
The following trial balance was taken from the books of Fisk Corporation on December 31,
2010.
Account
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Prepaid Insurance
Sales revenue
Share capital - Ordinary
Totals
Debit
$ 12,000
40,000
Credit
$ 1,800
4,800
12,000
43,000
$56,800
$56,800
At year end, the following items have not yet been recorded.
a. Insurance expired during the year, $2,000.
b. Estimated bad debts, 10% of gross sales.
Instructions
(a) Prepare the necessary adjusting entries.
a. Insurance Expense ...............................................................
Prepaid Insurance ........................................................
b. Bad Debt Expense ($12,000 x 10%) ......................................
Allowance for Doubtful Accounts ..................................
2,000
2,000
1,200
1,200
(b) Prepare the adjusted trial balance.
Account
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Prepaid Insurance
Sales revenue
Share capital - Ordinary
Insurance Expenses
Bad debt Expenses
Totals
Page 8 of 12
Debit
$ 12,000
40,000
Credit
$ 3,000
2,800
12,000
43,000
2,000
1,200
$58,000
$58,000
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
6- Financial Statements:
SCIENTIFIC PRODUCTS INC.
INCOME STATEMENT
FOR THE PERIOD ENDING DECEMBER 31, 2011
Sales Revenue
(-) Sales Returns and Allowance
(-) Sales Discount
(=) NET SALES
(-) Cost of Goods Sold
(=) GROSS PROFIT
(-) Selling Expenses
Sales Salaries and Commissions
Sales office Salaries
Travel and entertainment
Advertising expenses
Fright and transportation-out, Shipping supplies
Depreciation of sales equipments
100,000
(15,000)
(5,000)
80,000
(30,000)
50,000
-1,000
-2,000
-1,000
-2,000
-3,000
-1,000
(10,000)
(-)
Administrative Expenses
Officers' salaries or Office salaries
Legal and professional services
Utilities expenses, Insurance expenses
Depreciation expenses of Building, office equipment
Stationary, Supplies, and postage
Miscellaneous office expenses
-3,000
-1,000
-3,000
-3,000
-2,000
-4,000
(16,000)
Other Income and expenses
Dividends revenue or Rental revenue
Gain on sale of Equipment
Loss on sale of Land
(=)
(-)
(=)
(-)
(=)
9,000
3,000
-6,000
6,000
30,000
(5,000)
25,000
(5,000)
20,000
INCOME FROM OPERATIONS
Interest expenses on bonds and notes
INCOME BEFORE INCOME TAX
Income tax expenses (25,000 x 20%)
NET INCOME
Attributable to:
Shareholders of Scientific Product Inc.
Non-controlling interest
Earnings per share:
($20,000 ÷ 100,000 ordinary shares)
Page 9 of 12
12,000
8,000
$0.2
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
(+)
(-)
(=)
Intermediate Accounting 01-KW
SCIENTIFIC PRODUCTS INC.
RETAINED EARNINGS STATEMENT
FOR THE PERIOD ENDING DECEMBER 31, 2011
Retained earnings, January 1
Net Income
Dividends
Retained earnings, December 31
160,200
20,000
-30,200
150,000
SCIENTIFIC PRODUCTS INC.
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2011
Assets
Non-Current assets:
Long term investments
Investments in held to maturity Securities
Non consolidated subsidiaries
20,000
145,000
165,000
Property Plant and equipment
Land
Building
Equipment
Furniture
(-) Accumulated depreciation
125,000
200,000
150,000
50,000
-40,000
360,000
485,000
Intangible assets
Capitalization development costs
Goodwill
Patent
Franchise, net of amortization
Trade Mark - Trade names
5,000
6,000
7,000
8,000
9,000
35,000
685,000
Total Non-Current assets
Current assets
Inventories
Accounts receivable
(-) Allowance for doubtful accounts
Prepaid expenses
Short term investments (trade securities)
Cash and cash equivalents
Total Current assets
Total assets
Page 10 of 12
30,000
45,000
-15,000
30,000
20,000
15,000
35,000
130,000
815,000
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
Equity and Liabilities
Owner's Equity
Controlling interest
Share capital - preference
Share capital - ordinary
Share premium - preference
Share premium - ordinary
Retained earnings
Accumulated other comprehensive income
Less: Treasury shares
Equity attributable to owners
Minority interest
Total Equity
Non-Current Liabilities
Bond Liabilities due January 31, 2020
Provision related to pensions
Long term note payable
300,000
400,000
10,000
25,000
150,000
450,000
100,000
335,000
125,000
460,000
125,000
75,000
50,000
250,000
Current Liabilities
Notes payable
Accounts payable
Interest payable
salary and wages payable
Provisions related to warranties
Deposits received from customers
Total Equity and Liabilities
Page 11 of 12
50,000
20,000
15,000
5,000
12,000
3,000
105,000
815,000
By: Ehab Abdou (97672930)
Ch 03:
Accounting Information System
Intermediate Accounting 01-KW
7- Closing Entries:
Accounting consists of 6 types of accounts may be divided into debit and credit and may be also divided
into Permanent and Temporary
Permanent ‫دائمة‬
:‫هي حسابات مستمرة وال تنتهي قيمتها بنهاية الفترة المحاسبية وهي‬
Assets
Liabilities
Stockholder's Equity
Temporary ‫مؤقتة‬
‫هييي حسييابات ي ييف لقفالهييا يييي هاييية اييي يتييرة محاسييبية لي ييبح‬
:‫رصيدها = صفر يي بداية الفترة التالية وهي‬
Revenues
Expenses
Dividends
1- Closing Revenues:
Date
Description
Sales Revenue
…… Revenue
Income Summary
Dr.
100,000
10,000
110,000
2- Closing Expenses:
Date
Description
Income Summary
Cost of goods sold
Sales returns and allowance
Sales Discount
……….. Expenses
……….. Expenses
3- Closing Dividends:
Date
Retained Earning
Dividends
Dr.
77,000
Cr.
60,000
10,000
5,000
1,000
1,000
Description
4- Closing Net Income Or Net Loss :
Date
Description
Dr.
Income summary
33,000
Retained Earning
Cr.
Dr.
12,000
Cr.
12,000
Cr.
33,000
Date
Description
Retained Earning
Income summary
Dr.
0000
Cr.
0000
8-Post Closing Trial Balance :
Is a trial balance contains only permanent accounts (assets, liabilities, Equity)
9-Reversing entries :
At the beginning of each accounting period, some accountants use reversing entries to cancel out the
adjusting entries that were made to accrue revenues and expenses at the end of the previous
accounting period. Reversing entries make it easier to record subsequent transactions by eliminating the
need for certain compound entries.
Page 12 of 12
By: Ehab Abdou (97672930)