1. Chapter 7 Accounting Information Systems Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2. 7-2 What are the 3 Characteristics of an Accounting Event? Specific to entity Business entity concept Measurable in monetary terms Monetary unit concept Impact the entitys assets, liabilities, and/or owners equity Going concern concept Periodicity concept

3. 7-3 What are the 9 Basic Combinations of Accounting Events? Assets increase, assets decrease Cash used to buy supplies Assets increase, liabilities increase Supplies purchases on account Assets increase, owners equity increase Customer billed for services received Assets decrease, liabilities decrease Supplies previously purchased on account are paid for Assets decreases; owners equity decrease Supplies are used in business

4. 7-4 Basic Combinations Continued Liabilities increase, liabilities decrease A long-term note is used to pay off several small liabilities Liabilities increase, owners equity decrease A bill for utilities is received, but not paid Liabilities decrease, owners equity increase A customer who had previously prepaid for services, has now had those services provided Owners equity increase, owners equity decrease One type of capital stock is exchanged for another type of capital stock (this topic is covered in Chapter 13)

5. 7-5 What are Debits and Credits? Debits and credits arent good or bad, theyre not happy or sad, rather Debit indicates left as in the left side of an account Credit indicates right as in the right side of an account

6. So What is an Account? A place in the accounting records where the information pertaining to a particular asset, liability, or owners equity is maintained. An account has a DEBIT side and a CREDIT side and is often represented by a T account: 7-6 Debit Credit

7. The accounting equation rule Recall: Assets = Liabilities + Owners equity Then, Assets are on the left; assets increase on the LEFT side of the accountwith a DEBIT Therefore, Liabilities and Owners equity which are on the right; increase on the RIGHT side of the accountwith a CREDIT 7-7

8. 7-8 Asset Account Debit Increase Credit Decrease Liability Account Debit Decrease Credit Increase Owners Equity Account Debit Decrease Credit Increase

9. Revenue and Expense Rules Revenues INCREASE net income; net income belongs to owners and INCREASES owners equity; therefore, revenues increase on the CREDIT side. Expenses DECREASE net income; net income belongs to owners and INCREASES owners equity; therefore, since an expense reduces net income, it will increase on the DEBIT side. 7-9 Debit Decrease Credit Increase Debit Increase Credit Decrease

10. 7-10 How do Debits and Credits Apply to the first 8 Basic Combinations? Assets increase, assets decrease DR asset account; CR asset account Assets increase, liabilities increase DR asset account; CR liability account Assets increase, owners equity increase DR asset account; CR owners equity account Assets decrease, liabilities decrease DR liability account; CR asset account

11. 7-11 DR and CR Continued Assets decrease, owners equity decrease DR owners equity account; CR asset account Liabilities increase, liabilities decrease DR liability account; CR liability account Liabilities increase, owners equity decrease DR owners equity account; CR liability account Liabilities decrease, owners equity increase DR liability account; CR owners equity account

12. 7-12 What are Adjusting Entries? Entries made to reflect internal events Revenue accrual Increase revenue, increase asset Revenue deferral Increase revenue, decrease liability Expense accrual Increase expense, increase liability Expense deferral Increase expense, decrease asset

13. 7-13 What are Closing Entries? Zero-out income statement accounts Transfer the balances to owners equity Corporationretained earnings Debit each revenue account for the amount of its balance and credit retained earnings Credit each expense account for the amount of its balance and debit retained earnings The change in retained earnings is the net income (loss) for the period

14. 7-14 What are the Advantages of Computer-Based Transaction Systems? Transactions posted quicklyno journalizing required Detailed listing can be printed at any time Internal controls A wide variety of reports can be generated What are the Advantages of Database Systems? Business events can be recognized in addition to accounting events Reduced operating inefficiencies Elimination of redundant data throughout the company

15. 7-15 What is a Business Event? Any activity that the company wishes to plan and evaluate. Includes accounting events and other events Which of the Following is a Business, but not an Accounting Event? Determine the need for inventory Receive inventory Pay for inventory Sell inventory Answer: determine the need for inventory