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The Accounting Information System and the Accounting Cycle

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Chapter 2 The Accounting Information System and the Accounting Cycle Transaction 7) June 24 Received cash of $1,000 from the customers that were billed on June 10. – PowerPoint PPT presentation

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Title: The Accounting Information System and the Accounting Cycle


1
Chapter 2
  • The Accounting Information System and the
    Accounting Cycle

2
LEARNING OBJECTIVES
  • Chart of Accounts
  • JOURNAL ENTRIES!
  • T-ACCOUNTS!-Post transactions
  • Prepare a Trial Balance
  • Understand Accounting Cycle

3
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

4
Are you left-handed?
If I ask a class how many people are left-handed
Invariably, several people raise their left
hands!
5
Why did these folks raise their left hands?
Because thats how their brains are wired!
Thats their dominant side.
6
Lets play some basketball
If these same left-handed people were playing
basketball. Wed expect them to dribble with
their left hands.
7
Go up the court on the left side..
And have their strong shot on the left.
8
Lets play some Defense.
How would we defend against these left-handed
players? Wed force them to the right!
9
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.
10
The Accounting word for left is
DEBIT!
Assets are debit-handed ? They are dominant on
the left And weak on the right
11
Assets are strong on the left
Strong on Left
Weak on Right
Dominant
12
Logical, isnt it?
13
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?
14
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.
15
The Accounting word for right is
CREDIT!
Liabilities and Equity are credit-handed ? They
are dominant on the right And weak on the left
16
Liabilities and Equity are strong on the right
Weak on Left
Strong on Right
Dominant
17
Lets take a closer look at Equity

Revenues
Contributed Capital
Expenses
Dividends
Income Statement
Statement of Stockholders Equity
18
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
19
Stockholders RIDE!

Revenues
Investment
Expenses
Dividends
Income Statement
Statement of Stockholders Equity
20
An items location in the accounting equation
determines its STRONG side
21
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
22
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.
23
The Accounting Cycle
In this Chapter, well cover Steps 1 through 3
24
Journalizing Transactions
End Chapter 2 Begin Chapter 3
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.
25
A FIVE-COLUMN JOURNAL
page 57
26
Source Documents - CHECKS
page 58
27
OTHER SOURCE DOCUMENTS
page 59
28
Transaction 1)
June 1 Received 50,000 from its shareholders
in exchange for common stock.
Date Account Titles and Descriptions Debit Credit


To record _________________________________________
Date Account Titles and Descriptions Debit Credit
1 6/1/2007 Cash 50,000  
    Common Stock   50,000
    To record Stockholders' contribution.    
29
Transaction 2)
June 2 - Paid 1,500 cash for Rent Expense.
Date Account Titles and Descriptions Debit Credit
2
 
       
Date Account Titles and Descriptions Debit Credit
2 6/2/2007 Rent Expense 1,500  
    Cash   1,500
    To record payment of rent (for current month).    
30
Transaction 3)
June 5 Paid 1,200 for an insurance policy that
begins July 1.
Date Account Titles and Descriptions Debit Credit



Date Account Titles and Descriptions Debit Credit
2 6/5/2007 Prepaid Insurance 1,200  
    Cash   1,200
    To record payment for Future Insurance.    
31
Transaction 4)
June 10 Performed Services for clients, on
account (developed a web site for them, sent
them a bill), 3,000.
Date Account Titles and Descriptions Debit Credit



Date Account Titles and Descriptions Debit Credit
4 6/10/2009 Accounts Receivable 3,000  
    Service Revenue   3,000
    Performed Services for clients, on account (developed a web site for them, sent them a bill), 3,000    
32
Transaction 5)
June 14 Received a bill from Comcast for
Internet services for June but will not be paid
until July, 50.
Date Account Titles and Descriptions Debit Credit



Date Account Titles and Descriptions Debit Credit
5 6/14/2009 Utility Expense (Or Internet Expense) 50  
    Accounts Payable   50
    To record payment of Comcast bill (for current month).    
33
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.
Date Account Titles and Descriptions Debit Credit
6 6/18/2007 Advertising Expense 100  
    Travel Expense 545  
    Cash   645
    To record payment of expenses.    
Date Account Titles and Descriptions Debit Credit



34
Transaction 7)
June 24 Received cash of 1,000 from the
customers that were billed on June 10.
Date Account Titles and Descriptions Debit Credit
7 6/24/2007 Cash 1,000  
    Accounts Receivable   1,000
    To record collection of Accounts Receivable    

Date Account Titles and Descriptions Debit Credit



35
Transaction 8)
June 30 Purchased a printer by signing a Note
Payable due on December 31, 600.
Date Account Titles and Descriptions Debit Credit
8 6/30/2007 Equipment 600  
    Notes Payable   600
    To record purchase of printer, payment due 12/31/07.    
Date Account Titles and Descriptions Debit Credit



36
Posting to T Accounts

CASH CASH ACCOUNTS RECEIV. ACCOUNTS RECEIV. Prepaid Insurance Prepaid Insurance
     
     
     
     
           
     


Equipment Equipment Accounts Payable Accounts Payable Notes Payable Notes Payable
     
     
     
     
           
     


Common Stock Common Stock Service Revenue Service Revenue Utilities Expense Utilities Expense
     
     
     
     
           
     


Advertising Expense Advertising Expense Travel Expense Travel Expense Rent Expense Rent Expense
     
     
     
     
           
     

37
Posting to T Accounts - solution
CASH CASH ACCOUNTS RECEIV.   Prepaid Insurance Prepaid Insurance
50,000 3,000 1,000 1,200
1,000 1,500    
  1,200    
  645    
           
47,655 2,000 1,200


Equipment Equipment Accounts Payable   Notes Payable  
600   50   600
     
     
     
           
600 50 600


Common Stock Common Stock Service Revenue   Utilities Expense Utilities Expense
  50,000   3,000 50
     
     
     
           
50,000   3,000 50


Advertising Expense Advertising Expense Travel Expense Travel Expense Rent Expense Rent Expense
100 545 1,500
     
     
     
         
100 545 1,500
38
The Trial Balance
____________________________________
TRIAL BALANCE
As of _______________________________

Account Debit Credit
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
Total    
39
The Trial Balance - solution
Quality Web Design SOLUTION
TRIAL BALANCE  
As of June 30, 2007  

Account Debit Credit
Cash 47,655  
Accounts Receivable 2,000  
Prepaid Insurance 1,200  
Equipment 600  
Accounts Payable   50
Notes Payable   600
Common Stock   50,000
Service Revenue   3,000
Utilities Expense 50  
Advertising Expense 100  
Travel Expense 545  
Rent Expense 1,500  
     
     
     
     
     
Total 53,650 53,650
40
Financial Statements (3)
Quality Web Design Quality Web Design Quality Web Design
Income Statement Income Statement Income Statement
_____________________________________ _____________________________________ _____________________________________ _____________________________________ _____________________________________

REVENUES REVENUES


EXPENSES EXPENSES



 

NET INCOME NET INCOME  


Quality Web Design Quality Web Design Quality Web Design
Statement of Retained Earnings Statement of Retained Earnings Statement of Retained Earnings Statement of Retained Earnings
_____________________________________ _____________________________________ _____________________________________ _____________________________________ _____________________________________ _____________________________________



 
Retained Earnings - ending balance Retained Earnings - ending balance Retained Earnings - ending balance Retained Earnings - ending balance  


Quality Web Design Quality Web Design Quality Web Design
Balance Sheet Balance Sheet
___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________

ASSETS       LIABILITIES LIABILITIES



STOCKHOLDERS' EQUITY STOCKHOLDERS' EQUITY STOCKHOLDERS' EQUITY




TOTAL ASSETS TOTAL ASSETS   TOTAL LIABs STOCK. EQUITY TOTAL LIABs STOCK. EQUITY TOTAL LIABs STOCK. EQUITY  

41
Financial Statements (3) - solution
Quality Web Design Quality Web Design Quality Web Design   SOLUTION SOLUTION
Income Statement Income Statement Income Statement      
For the month ended June 30, 2007 For the month ended June 30, 2007 For the month ended June 30, 2007 For the month ended June 30, 2007 For the month ended June 30, 2007  

REVENUES REVENUES
Service Revenue Service Revenue 3,000

EXPENSES EXPENSES
Utilities Expense Utilities Expense 50
Advertising Expense Advertising Expense 100
Travel Expense Travel Expense 545
Rent Expense Rent Expense 1,500 2,195

NET INCOME NET INCOME 805


Quality Web Design Quality Web Design Quality Web Design
Statement of Retained Earnings Statement of Retained Earnings Statement of Retained Earnings Statement of Retained Earnings
For the month ended June 30, 2007 For the month ended June 30, 2007 For the month ended June 30, 2007 For the month ended June 30, 2007 For the month ended June 30, 2007

Retained Earnings - beginning balance Retained Earnings - beginning balance Retained Earnings - beginning balance Retained Earnings - beginning balance -
Net Income for the year Net Income for the year Net Income for the year 805
Less Dividends Less Dividends -
Retained Earnings - ending balance Retained Earnings - ending balance Retained Earnings - ending balance Retained Earnings - ending balance 805


Quality Web Design Quality Web Design Quality Web Design
Balance Sheet Balance Sheet
AS OF June 30, 2007 AS OF June 30, 2007 AS OF June 30, 2007

ASSETS       LIABILITIES LIABILITIES    
Cash 47,655 Accounts Payable Accounts Payable 50
Accounts Receivable Accounts Receivable 2,000 Notes Payable Notes Payable 600
Prepaid Insurance Prepaid Insurance 1,200 Total Current Liabilities Total Current Liabilities Total Current Liabilities 650
Total Current Assets Total Current Assets 50,855 STOCKHOLDERS' EQUITY STOCKHOLDERS' EQUITY STOCKHOLDERS' EQUITY
Common Stock Common Stock 50,000
Equipment Equipment 600 Retained Earnings Retained Earnings 805
Total Stockholders' Equity Total Stockholders' Equity Total Stockholders' Equity 50,805

TOTAL ASSETS TOTAL ASSETS 51,455 TOTAL LIABs STOCK. EQUITY TOTAL LIABs STOCK. EQUITY TOTAL LIABs STOCK. EQUITY 51,455


42
End Chapter 3
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