Intermediate accounting 13th kieso warfield chapter 03

Chapter
3-1


CHAPTER

3

THE ACCOUNTING
INFORMATION
SYSTEM

Intermediate Accounting
13th Edition
Kieso, Weygandt, and Warfield
Chapter
3-2


Learning
Learning Objectives
Objectives
1.

Understand basic accounting terminology.

2.

Explain double-entry rules.

3.

Identify steps in the accounting cycle.

4.

Record transactions in journals, post to ledger
accounts, and prepare a trial balance.

5.

Explain the reasons for preparing adjusting entries.

6.

Prepare financial statement from the adjusted trial
balance.

7.

Prepare closing entries.

Chapter
3-3


The
The Accounting
Accounting Information
Information System
System

Accounting
Information System
Basic terminology
Debits and credits
Accounting equation
Financial statements
and ownership
structure

Chapter
3-4

The Accounting
Cycle
Identifying and recording
Journalizing
Posting
Trial balance
Adjusting entries
Adjusted trial balance
Preparing financial
statements
Closing
Post-closing trial balance
Reversing entries

Financial
Statements for
Merchandisers

Income statement
Statement of retained
earnings
Balance sheet
Closing entries


Accounting
Accounting Information
Information System
System
Accounting Information System (AIS)
Collects and processes transaction data.
Disseminates the information to interested
parties.

Chapter
3-5


Accounting
Accounting Information
Information System
System
Helps management answer such questions as:
How much and what kind of debt is outstanding?
Were sales higher this period than last?
What assets do we have?
What were our cash inflows and outflows?
Did we make a profit last period?

Are any of our product lines or divisions operating at a
loss?
Can we safely increase our dividends to stockholders?
Is our rate of return on net assets increasing?
Chapter
3-6


Basic
Basic Terminology
Terminology

Chapter
3-7

Event

Journal

Transaction

Posting

Account

Trial Balance

Real Account

Adjusting Entries

Nominal Account

Financial Statements

Ledger

Closing Entries

LO 1 Understand basic accounting terminology.


Debits
Debits and
and Credits
Credits
An Account shows the effect of transactions on a
given asset, liability, equity, revenue, or expense
account.
Double-entry accounting system (two-sided
effect).
Recording done by debiting at least one account and
crediting another.
DEBITS must equal CREDITS.
Chapter
3-8

LO 2 Explain double-entry rules.

Debits
Debits and
and Credits
Credits
Account

An arrangement that shows
the effect of transactions on
an account.
Debit = “Left”
Credit = “Right”

An Account can
be illustrated in a
T-Account
form.

Chapter
3-9

Account Name
Debit / Dr.

Credit / Cr.

LO 2 Explain double-entry rules.


Debits
Debits and

and Credits
Credits
If Debit entries are greater than Credit entries,
the account will have a debit balance.
Account Name
Debit / Dr.

Transaction #1

$10,000

Transaction #3

8,000

Balance

Chapter
3-10

Credit / Cr.

$3,000

Transaction #2

$15,000

LO 2 Explain double-entry rules.

Debits
Debits and
and Credits
Credits
If Credit entries are greater than Debit entries,
the account will have a credit balance.
Account Name
Debit / Dr.

Transaction #1

Balance

Chapter
3-11

$10,000

Credit / Cr.

$3,000

Transaction #2

8,000

Transaction #3

$1,000

LO 2 Explain double-entry rules.


Debits
Debits and
and Credits
Credits Summary
Summary
Normal
Normal
Balance
Balance
Debit
Debit

Debit / Dr.

Normal
Normal
Balance
Balance
Credit
Credit

Assets

Credit / Cr.

Normal Balance

Chapter
3-24

Equity

Credit / Cr.

Debit / Dr.

Liabilities

Debit / Dr.

Credit / Cr.

Normal Balance
Normal Balance
Chapter
3-23

Expense
Debit / Dr.

Revenue

Chapter
3-25

Credit / Cr.

Debit / Dr.

Normal Balance

Chapter
3-27

Chapter
3-12

Credit / Cr.

Normal Balance

Chapter
3-26

LO 2 Explain double-entry rules.


Debits
Debits and
and Credits
Credits Summary
Summary
Balance Sheet

Income Statement

Asset = Liability + Equity

Revenue - Expense =

Debit

Credit

Chapter
3-13

LO 2 Explain double-entry rules.


The
The Accounting
Accounting Equation
Equation
Relationship among the assets, liabilities and
stockholders’ equity of a business:
Illustration 3-3

The equation must be in balance after every transaction.
For every Debit there must be a Credit.
Chapter
3-14

LO 2 Explain double-entry rules.

Double-Entry
Double-Entry System
System Illustration
Illustration
1. Owners invest $40,000 in exchange for common
stock.
Assets

+ 40,000

Chapter
3-15

=

Liabilities

+

Stockholders’
Stockholders’
Equity
Equity

+ 40,000

LO 2 Explain double-entry rules.


Double-Entry

Double-Entry System
System Illustration
Illustration
2. Disburse $600 cash for secretarial wages.

Assets

- 600

Chapter
3-16

=

Liabilities

+

Stockholders’
Stockholders’
Equity
Equity

- 600

(expense)

LO 2 Explain double-entry rules.

Double-Entry
Double-Entry System
System Illustration
Illustration
3. Purchase office equipment priced at $5,200, giving
a 10 percent promissory note in exchange.
Assets

+ 5,200

Chapter
3-17

=

Liabilities

+

Stockholders’
Stockholders’
Equity
Equity

+ 5,200

LO 2 Explain double-entry rules.


Double-Entry

Double-Entry System
System Illustration
Illustration
4. Received $4,000 cash for services rendered.

Assets

+ 4,000

Chapter
3-18

=

Liabilities

+

Stockholders’
Stockholders’
Equity
Equity

+ 4,000
(revenue)

LO 2 Explain double-entry rules.


Double-Entry

Double-Entry System
System Illustration
Illustration
5. Pay off a short-term liability of $7,000.

Assets

- 7,000

Chapter
3-19

=

Liabilities

+

Stockholders’
Stockholders’
Equity
Equity

- 7,000

LO 2 Explain double-entry rules.


Double-Entry
Double-Entry System

System Illustration
Illustration
6. Declared a cash dividend of $5,000.

Assets

=

Liabilities

+ 5,000

Chapter
3-20

+

Stockholders’
Stockholders’
Equity
Equity

- 5,000

LO 2 Explain double-entry rules.


Double-Entry
Double-Entry System
System Illustration

Illustration
7. Convert a long-term liability of $80,000 into
common stock.
Assets

=

Liabilities

- 80,000

Chapter
3-21

+

Stockholders’
Stockholders’
Equity
Equity

+ 80,000

LO 2 Explain double-entry rules.


Double-Entry
Double-Entry System
System Illustration
Illustration

8. Pay cash of $16,000 for a delivery van.

Assets

=

Liabilities

+

Stockholders’
Stockholders’
Equity
Equity

- 16,000
+ 16,000
Note
Notethat
thatthe
theaccounting
accountingequation
equationequality
equalityisis
maintained
maintainedafter
afterrecording
recordingeach
eachtransaction.
transaction.

Chapter
3-22

LO 2 Explain double-entry rules.


Financial
Financial Statements
Statements and
and Ownership
Ownership Structure
Structure
Ownership structure dictates the types of accounts
that are part of the equity section.
Proprietorship
Proprietorship
or
or
Partnership
Partnership

Chapter
3-23

Corporation
Corporation



Capital Account



Common Stock



Drawing Account



Additional Paid-in
Capital



Dividends Declared



Retained Earnings

LO 2 Explain double-entry rules.


Financial
Financial Statements
Statements and
and Ownership
Ownership Structure

Structure
Illustration 3-4

Balance Sheet
Stockholders’ Equity
Common
Common Stock
Stock

(Investment
(Investment
by
by stockholders)
stockholders)

Dividends

Retained
Retained Earnings
Earnings

(Net
(Net income
income retained
retained in
in business)
business)

Net income or Net loss
(Revenues

(Revenues less
less expenses)
expenses)

Income
Income Statement
Statement

Statement of Retained Earnings
Chapter
3-24

LO 2 Explain double-entry rules.


The
The Accounting
Accounting Cycle
Cycle
Illustration 3-6

Transactions
9. Reversing entries

1. Journalization

8. Post-closing trail balance

2. Posting

7. Closing entries

3. Trial balance

6. Financial Statements

Work
Sheet

4. Adjustments

5. Adjusted trial balance
Chapter
3-25

LO 3 Identify steps in the accounting cycle.