1. Financial Accounting: Tools for Business Decision Making
Kimmel, Weygandt, Kieso, Trenholm
KIMMEL
Prepared by:
Barbara Trenholm
University of New Brunswick

2. Chapter 3 The Accounting Information System
After studying Chapter 3, you should be able to:
Analyse the effect of business transactions on the basic accounting equation.
Explain what an account is and how it helps in the recording process.
Define debits and credits and explain how they are used to record business transactions.
Identify the basic steps in the recording process.

3. Chapter 3 The Accounting Information System
After studying Chapter 3, you should be able to:
Explain what a journal is and how it helps in the recording process.
Explain what a ledger is and how it helps in the recording process.
Explain what posting is and how it helps in the recording process.
Explain the purposes of a trial balance.

4. The Accounting Information System
The system of
Collecting and processing transaction data
Communicating financial information to interested parties

5. Accounting Equation Assets = Liabilities + Shareholders’ Equity
The accounting equation must always balance

6. Accounting Transactions
Transactions are events that must be recorded in the financial statements
Transaction analysis determines impact on the accounting equation

7. Illustration 3-1
Is the financial position (assets, liabilities, and shareholders’ equity) of the company changed?

8. Account
An individual accounting record of increases and decreases in a specific Asset, Liability, or Shareholders’ Equity item

9. Account Three parts 1) the title of the account
2) a left or debit side
3) a right or credit side

10. The T-Account
TITLE
DEBIT
CREDIT

11. Total the Entries to Each Side
Total Debits
Total Credits
TITLE
Debit
Credit
If the greater sum is on the left, the account has a debit balance

12. Total the Entries to Each Side
Total Debits
Total Credits
TITLE
Debit
Credit
If the greater sum is on the right, the account has a credit balance

13. Whichever side you increase is the normal side!

14. Normal Balances
Shares

15. Normal Balances

16. Expanded Accounting Equation
Illustration 3-15
Expanded Accounting Equation
Page 109 in book

17. Recording Process Analyse each transaction
Enter each transaction in a journal
Transfer journal information to ledger accounts

18. Journal
Accounting record where the transactions are recorded in chronological order
Types of journals
Cash receipts
Cash disbursements
Sales
Purchases
General

19. Journals Journals aid in the recording process by
Disclosing in one place the complete effect of a transaction
Providing a chronological record of transactions
Helping prevent or locate errors because debit and credit amounts can be easily compared

20. Account Titles and Explanations
GENERAL JOURNAL
Account Titles and Explanations
Oct. 1 Cash , Common Shares , (Invested cash in business)
Illustration 3-17
Date
Debit Credit
1 Cash , Notes Payable , (Issued 3-month, 12% note payable for cash)
2 Office Equipment , Cash , (Purchased office equipment for cash)

21. General Ledger Entire group of accounts maintained by a company
Contains all the asset, liability, and shareholders’ equity accounts

22. The General Ledger
Illustration 3-18

23. Posting
Transferring information from the journals to the general ledger accounts

24. Account Titles and Explanations
Posting Entries
GENERAL JOURNAL
Account Titles and Explanations
Oct. 1 Cash , Common Shares ,000
Acct 1010
Account CASH
Date
Balance
ref
debit
credit
debit
credit
Oct 1
gj 1
10,000
10,000
Account COMMON SHARES
Acct 3010
Date
Balance
ref
debit
credit
debit
credit
Oct 1
gj 1
10,000
10,000

25. Trial Balance
List of all the accounts and their balances at a given time
Serves to prove the mathematical equality of debits and credits after posting
Aids in the preparation of
financial statements

26. SIERRA CORPORATION Trial Balance October 31, 2001 Debit Credit
Illustration 3-33
Debit Credit
Cash $15,200
Advertising Supplies ,500
Prepaid Insurance
Office Equipment ,000
Notes Payable $ 5,000
Accounts Payable ,500
Unearned Service Revenue ,200
Common Shares ,000
Dividends
Service Revenue ,000
Salaries Expense ,000
Rent Expense
$28,700 $28,700

27. Decision Checkpoints Has an accounting transaction occurred?
How do you determine that debits equal credits?

28. COPYRIGHT
Copyright © 2001 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by CANCOPY (Canadian Reprography Collective) is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his / her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.