1. CHAPTER 3 The Accounting Information System ……..…………………………………………………………... Processing CollectingPreparing Data Financial Reports

2. Basic Equation Assets =+ Liabilities Stockholders’ Equity +Common Stock +Retained Earnings -Dividends +Revenues -Expenses

3. THE ACCOUNTING CYCLE Record transactions in journals Record adjustments Close temporary accounts Reversing entries (optional) Financial statements Post in ledgersTrial balance

4. Recording Transactions Brief Exercise 3-1, p.105 May 1Invested $3,000 cash in common stock of welding company. May 3Bought equipment on account for $1,100.

5. May 13Paid $400 to landlord for May rent. May 21Billed Noble Corp. $500 for welding work done.

6. Adjusting Entries Adjust Prepaid Expenses Prepaid insurance (for 2 years) carried-over from the prior year. Adjust for the amount of prepaid insurance used during the year. Prepaid Insurance Beg.2,000

7. Customers prepay for subscriptions throughout the year. Adjust for the subscriptions provided during the year. Unearned Subscr Rev Jan5,600  Dec8,700 Adjust Unearned Revenue

8. Salaries are paid on a biweekly basis. Accrue $7200 salary expense incurred but not yet paid at the end of December. Salary Expense 1/1131,500  12/2736,000 Accrue Expenses

9. Apartments are leased to tenants who pay at the end of the month. One tenant forgets to pay rent of $500 at end of December. Accrue Revenues Rental Income Jan.25,700  Dec.31,200

10. Automobiles On October 1 bought a truck for $28,000 on account. The truck has a 4-year life and the firm expects to use the truck evenly throughout its life. To record depreciation on 12/31. Record Depreciation

11. Closing Entries Salary Expense Insurance Expense Depreciation Exp. Subscription Rev. 120,000 Dividends Income Summary 860,000 3,400 1,130,000 81,200 Retained Earnings