1. Chapter 02 The Accounting Information System McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Roles of Financial Accounting oMeasure business activities of the company. oCommunicate those measurements to external parties for decision-making purposes. 2-2

3. Part A Measuring Business Activities 2-3

4. LO1 Identify the Basic Steps in Measuring External Transactions oMost business enterprises use a computerized accounting system due to the sheer volume of data they must process. oComputerized data processing is fast, accurate, and affordable. oKnowledge of manual accounting information system will provide an essential understanding of the basic model that underlies the computerized programs. 2-4

5. Classification of Business Activities EXTERNAL TRANSACTIONS With a separate economic entity With in the company INTERNAL TRANSACTIONS Do not include a separate economic entity 2-5

6. LO2 Analyze the Impact of External Transactions on the Accounting Equation Each transaction will have a dual effect. If an economic event increases one side of the equation, then it also increases the other side of the equation by the same amount. 2-6

7. Effects of transactions on the Expanded Accounting Equation 2-7

8. Summary of All Ten External Transactions of Eagle Golf Academy 2-8

9. PART B Debits and Credits 2-9

10. LO3 Assess Whether the Impact of External Transactions Results in a Debit or Credit to an Account Balance Debit and Credit Effects on Accounts in the Accounting Equation 2-10

11. Debit and Credit Effects on Accounts in the Expanded Accounting Equation 2-11

12. LO4 Record Transactions Using Debits and Credits A journal provides a chronological record of all transactions affecting a firm. 2-12

13. LO5 Post Transactions to T-accounts in the General Ledger oThe process of transferring the debit and credit information from the journal to individual accounts in the general ledger is called posting. oA T-account is a simplified form of a general ledger account with space at the top for the account title and two sides for recording debits and credits. ACCOUNT TITLE DEBITCREDIT 2-13

14. LO6 Prepare a Trial Balance oA trial balance is a list of all accounts and their balances at a particular date, showing that total debits equal total credits. oAnother purpose of the trial balance is to assist us in preparing adjusting entries (for internal transactions). oIt is not a published financial statement to be used by external parties, there is no required order for listing accounts in the trial balance. oThe trial balance is used for internal purposes only and provides a check on the equality of the debits and credits. 2-14

15. End of chapter 02 2-15