1. THE ACCOUNTING INFORMATION SYSTEM
CHAPTER THREE
THE ACCOUNTING INFORMATION SYSTEM

2. The Account...
An individual accounting record of increases and decreases to any specific
Asset
Liability
Stockholders’ Equity
Revenue
Expense

3. The Ledger Card

4. Using Accounts
Accounts provide an efficient method to categorize transactions.
It is the location where we record activity and maintain a running balance for any particular item.
Each account is maintained on its own ledger card.
All of the ledger cards combined become the General Ledger.
T-account is a mental image. An aid.
Can think of it as a bucket for $ affecting account.

5. Accounts
Where all activity and the resulting balances are kept for everything we want to keep track of.

6. General Ledger Put all of the ledger cards together. Wages Payable
Accounts Payable
Equipment
Office Supplies
Accounts Receivable

7. is a list of a company’s accounts.
Chart of Accounts...
is a list of a company’s accounts.
Jim’s Lemonade
Chart of Accounts
Cash
Accts Receivable
Office Supplies
Equipment
Accounts Payable
Wages Payable
Common Stock
Retained Earnings
Sales - Lemonade
Sales – Catering
Lemon Expense
Insurance Expense
Office Expense

8. Basic Steps in the Recording Process.
When a transaction occurs:
Basic Steps in the Recording Process.
Analyze
Journalize
Post

9. Recording Process Step 1
Analyze each transaction and effect on accounts

10. If you don’t understand what happened
(the transaction)
you cannot account for it!
So. . . This is a pretty good place to start
!!!

11. Accounting Transactions...
are economic events that must be recorded in the financial statements because they affect
assets
liabilities
and/or stockholders’ equity

12. Transaction Analysis
The process of identifying the specific effects of economic events on the accounting equation.
Each transaction has a dual (double-sided) effect on the accounting equation.

13. Recording Process Step 2
Enter transaction information in a journal, a process called journalizing

14. The Journal...
is an accounting record where the transactions are recorded in chronological order.

15. Recording Process Step 3
Copy (post) the journal information to the appropriate accounts in the ledger

16. “T” Accounts
SHAPED
LIKE a “T”
Debit
Credit

17. “T” Accounts
Debit means
Left
Credit means
Right
Debit
Credit

18. “T” Accounts
Abbreviation
for Debit
Abbreviation
for Credit
Dr.
Cr.

19. “T” Accounts
ACCOUNT NAME
CASH
Dr.
Cr.

20. The Ledger Card
Cash
The T Account

21. Every Account has: An Increase Side, and A Decrease Side
But, Some Accounts Increase on the Debit Side
And, Some Accounts Increase on the Credit Side

22. 7 RULES OF
DEBITS AND CREDITS

23. RULE #1 + Increase on Debit Side Decrease on Credit Side Dr. Cr.
ASSET ACCOUNTS
Increase on
Debit Side
Decrease on
Credit Side
Dr.
Cr. +

24. PURCHASED OFFICE SUPPLIES FOR $800 CASH
EXAMPLE:
PURCHASED OFFICE SUPPLIES FOR $800 CASH

25. STEP #1
Name the accounts affected:
OFFICE
SUPPLIES
CASH

26. STEP #2 Determine Classification of Accounts ASSET OFFICE SUPPLIES
CASH
ASSET

27. STEP #3
Now that we know the classification, we can identify increase and decrease sides.
CASH
OFFICE SUPPLIES
DR. +
CR.
DR. +
CR.

28. PURCHASED OFFICE SUPPLIES FOR $800 CASH
Did Office Supplies
Increase or Decrease
in this transaction?

29. INCREASED
OFFICE SUPPLIES
DR.
CR. +
$800

30. PURCHASED OFFICE SUPPLIES FOR $800 CASH
What about Cash?
Increase or Decrease
in this transaction?

31. DECREASED
CASH
DR.
CR. +
$800

32. IN EVERY TRANSACTION DEBITS MUST EQUAL CREDITS
RULE #2
IN EVERY TRANSACTION DEBITS MUST EQUAL CREDITS

33. DEBITS = CREDITS
OFFICE SUPPLIES
CASH
DR.
CR.
DR.
CR. + +
$800
$800

34. RULE #3 + Decrease on Debit Side Increase on Credit Side Dr. Cr.
LIABILITY ACCOUNTS
Decrease on
Debit Side
Increase on
Credit Side
Dr.
Cr. +

35. PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000.
EXAMPLE:
PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000.

36. STEP #1
Name the accounts affected:
ACCOUNTS
PAYABLE
EQUIPMENT

37. STEP #2 Determine Classification of Accounts: LIABILITY ASSET ACCOUNTS
PAYABLE
ASSET
EQUIPMENT

38. STEP #3
Now that we know the classification, we can identify increase and decrease sides.
EQUIPMENT
ACCOUNTS PAYABLE
DR. +
CR.
DR.
CR. +

39. PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000.
Did Equipment
Increase or Decrease
in this transaction?

40. INCREASED
EQUIPMENT
DR.
CR. +
$3000

41. PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000.
Accounts Payable?
Increase or Decrease
in this transaction?

42. INCREASED
ACCOUNTS PAYBLE
DR.
CR. +
$3000

43. DEBITS = CREDITS + + EQUIPMENT ACCOUNTS PAYABLE DR. CR. DR. CR. $3000

44. RULE #4 + Dr. Cr. Decrease on Increase on Debit Side Credit Side
CAPITAL ACCOUNT
Decrease on
Debit Side
Increase on
Credit Side
Dr.
Cr. +
JUST LIKE
LIABILITY ACCOUNTS

45. MARY ADAMS, THE OWNER, INVESTED $25,000 IN THE BUSINESS
EXAMPLE:
MARY ADAMS, THE OWNER, INVESTED $25,000 IN THE BUSINESS

46. STEPS #1 & 2 Name and classify the accounts affected: ASSET
OWNER’S EQUITY
ASSET
M. ADAMS, CAPITAL
CASH
DR.
CR.
DR.
CR.

47. STEP #3
Now that we know the classification, we can identify increase and decrease sides.
M. ADAMS, CAPITAL
CASH + +
DR.
CR.
DR.
CR.

48. INCREASED OR DECREASED?
M. ADAMS, CAPITAL
CASH +
DR.
CR.
DR.
CR. +
$25,000
$25,000

49. DEBITS = CREDITS + + CASH M. ADAMS, CAPITAL DR. CR. DR. CR. $25,000

50. DIVIDEND / DRAWING ACCOUNT
RULE #5
DIVIDEND / DRAWING ACCOUNT
Increase on the
Debit Side
Decrease on the
Credit Side
Dr.
Cr. +
JUST LIKE
ASSET ACCOUNTS

51. MARY WITHDREW $1,500 FOR PERSONAL EXPENSES
EXAMPLE:
MARY WITHDREW $1,500 FOR PERSONAL EXPENSES

52. STEPS #1 & #2 Name and classify the accounts affected: ASSET
OWNER’S EQUITY
ASSET
M. ADAMS, DRAWING
CASH
DR.
CR.
DR.
CR.

53. INCREASED OR DECREASED?
M. ADAMS, DRAWING
CASH
DR.
CR.
DR.
CR. + +
$1,500
$1,500

54. DEBITS = CREDITS + + M. ADAMS, DRAWING CASH DR. CR. DR. CR. $1,500

55. RULE #6 + Dr. Cr. Decrease on Increase on Debit Side Credit Side
REVENUE ACCOUNTS
Decrease on
Debit Side
Increase on
Credit Side
Dr.
Cr. +
JUST LIKE
LIABILITY & CAPITAL
ACCOUNTS

56. EXAMPLE:
MARY PERFORMED SERVICES AND RECEIVED $4,500 IN CASH

57. STEPS #1 & #2 Name and classify the accounts affected: ASSET
REVENUE
ASSET
CONSULTING FEES
CASH
DR.
CR.
DR.
CR.

58. STEP #3
Now that we know the classification, we can identify increase and decrease sides.
CONSULTING FEES
CASH
DR.
CR.
DR.
CR. + +

59. INCREASED OR DECREASED?
CONSULTING FEES
CASH
DR.
CR.
DR.
CR. + +
$4,500
$4,500

60. DEBITS = CREDITS + + CASH CONSULTING FEES DR. CR. DR. CR. $4,500

61. EXAMPLE:
MARY PERFORMED $6,000 OF SERVICES ON ACCOUNT

62. DEBITS = CREDITS + + ACCOUNTS RECEIVABLE CONSULT. FEES DR. CR. DR. CR.
$6,000
$6,000
ACCOUNTS
RECEIVABLE
INSTEAD OF
CASH

63. RULE #7 + Dr. Cr. JUST LIKE ASSET ACCOUNTS EXPENSE ACCOUNTS
Increase on the
Debit Side
Decrease on the
Credit Side
Dr.
Cr. +
JUST LIKE
ASSET ACCOUNTS

64. MARY ADAMS PAID HER ASSISTANT $750 IN WAGES
EXAMPLE
MARY ADAMS PAID HER ASSISTANT $750 IN WAGES

65. STEPS #1 & #2 Name and classify the accounts affected: ASSET CASH
EXPENSE
ASSET
WAGES EXPENSE
CASH
DR.
CR.
DR.
CR.

66. STEP #3
Now that we know the classification, we can identify increase and decrease sides.
WAGES EXPENSE
CASH
DR.
CR.
DR.
CR. + +

67. INCREASED OR DECREASED?
WAGES EXPENSE
CASH
DR.
CR.
DR.
CR. + +
$750
$750

68. DEBITS = CREDITS
WAGES EXPENSE
CASH
DR.
CR.
DR.
CR. + +
$750
$750

69. Whichever side you increase is the NORMAL balance!

71. Expansion of Basic Equation
Retained Earnings
Assets
Liabilities
Equity
Dr Cr
+ -
Dr Cr
- +
Dr Cr
- +
Dr Cr
- +
Revenue
Expenses
Dividends
Dr Cr
- +
Dr Cr
+ -
Dr Cr
+ -
Accounting Education Drives = Large Rich Enterprises
Assets
Expenses
Dividends
Liabilities
Revenues
Equity

72. What is the normal balance for the following accounts?
Review
What is the normal balance for the following accounts?
Cash
Debit
Accounts Payable
Credit
Accounts Receivable
Debit
Service Revenue
Credit
Common Stock
Credit
Salaries Expense
Debit

73. What is the normal balance for the following accounts?
Review
What is the normal balance for the following accounts?
Dividends
Debit
Building
Debit
Taxes Payable
Credit
Unearned Revenus
Credit
Prepaid Insurance
Debit
Rent Expense
Debit

74. Account Titles and Explanations
GENERAL JOURNAL
Account Titles and Explanations
Oct. 1 Cash , Common Stock , Issued common stock for cash
Date
Debit Credit  
Cash , Notes Payable , Issued 3-month, 12% note payable for cash 
Office Equipment , Cash , Purchased office equipment for cash

75. Posting Entries Account CASH Account COMMON STOCK GENERAL JOURNAL
Oct. 1 Cash , Common Stock ,000
Issued common stock for cash
GENERAL JOURNAL
Acct 1010
Account CASH
Date
Balance
ref
Debit
Credit
Debit
Credit
Account COMMON STOCK
Acct 3010
Date
Balance
ref
Debit
Credit
Debit
Credit

76. Posting Entries Account CASH Account COMMON STOCK GENERAL JOURNAL
Oct. 1 Cash , Common Stock ,000
Issued common stock for cash
GENERAL JOURNAL
Acct 1010
Account CASH
Date
Balance
ref
Debit
Credit
Debit
Credit
Oct 1
gj 1
10,000
10,000
Account COMMON STOCK
Acct 3010
Date
Balance
ref
Debit
Credit
Debit
Credit
Oct 1
gj 1
10,000
10,000

77. TRIAL BALANCE List of all accounts with a balance
Including their balances
Total all debits and all credits
Prove debits equal credits
Used as an aid in preparing financial statements

78. Jessica Jane’s Campus Delivery Trial Balance June 30, 20--
Account Title
Debit Balance
Credit Balance
HEADING should include:
Name of the Company
Title of Document “Trial Balance”
Date of the Trial Balance

79. Jessica Jane’s Campus Delivery Trial Balance June 30, 20--
Account Title
Debit Balance
Credit Balance
Cash
Accounts Receivable
Supplies
80 00
Prepaid Insurance
Delivery Equipment
All Asset accounts
listed first

80. Jessica Jane’s Campus Delivery Trial Balance June 30, 20--
Account Title
Debit Balance
Credit Balance
Cash
Accounts Receivable
Supplies
80 00
Prepaid Insurance
Delivery Equipment
Accounts Payable
Liabilities are
shown next

81. Jessica Jane’s Campus Delivery Trial Balance June 30, 20--
Account Title
Debit Balance
Credit Balance
Cash
Accounts Receivable
Supplies
80 00
Prepaid Insurance
Delivery Equipment
Accounts Payable
Jessica Jane, Capital
Jessica Jane, Drawing
Now the Owner’s Equity
Accounts

82. Jessica Jane’s Campus Delivery Trial Balance June 30, 20--
Account Title
Debit Balance
Credit Balance
Cash
Accounts Receivable
Supplies
80 00
Prepaid Insurance
Delivery Equipment
Accounts Payable
Jessica Jane, Capital
Jessica Jane, Drawing
Delivery Fees
Then the Revenue Account

83. Jessica Jane’s Campus Delivery Trial Balance June 30, 20--
Account Title
Debit Balance
Credit Balance
Cash
Accounts Receivable
Supplies
80 00
Prepaid Insurance
Delivery Equipment
Finally, the Expenses
Accounts Payable
Jessica Jane, Capital
Jessica Jane, Drawing
Delivery Fees
Wages Expense
Rent Expense
Telephone Expense
50 00

84. Jessica Jane’s Campus Delivery Trial Balance June 30, 20--
Account Title
Debit Balance
Credit Balance
Cash
It Balances!!!
Debits = Credits
Accounts Receivable
Supplies
80 00
Prepaid Insurance
Delivery Equipment
Accounts Payable
Jessica Jane, Capital
Jessica Jane, Drawing
Delivery Fees
Wages Expense
Rent Expense
Telephone Expense
50 00