Docstoc

The Accounting Information System and the Accounting

Document Sample
The Accounting Information System and the Accounting Powered By Docstoc
					3-1
 THE ACCTG INFO SYSTEM
AND THE ACCTG CYCLE (1 of 2)
® Learning  objectives
® Keeping track of business transactions
® Recording balance sheet account
  transactions—debits and credits
® Journals and the General Ledger
® Recording Income Statement Transactions
                                      3-2
 THE ACCTG INFO SYSTEM
AND THE ACCTG CYCLE (2 of 2)
® The accounting cycle
® Recording, posting, and trial balance
® Financial statement analysis
® Business risk, control, and ethics




                                          3-3
      Learning Objectives
                 (1 of 2)


® Explain the general ledger system
  and use debits and credits to record
  balance sheet transactions
® Use debits and credits to record
  income statement transactions
® Explain the first three steps in the
  accounting cycle and the purpose of
  each step                              3-4
         Learning Objectives
                 (2 of 2)


® Post journal entries to the general
  ledger and prepare a trial balance
® Compute and explain working
  capital and the quick ratio
® Recognize the risks associated with
  using a traditional accounting system

                                          3-5
  Keeping Track of Business
        Transactions
® Enterprise   Resource Planning (ERP)
 systems
  ­A single, integrated information system
   whereby data is entered once and used by
   the entire enterprise
® Traditional   general ledger system
  ­An  accounting system separate from other
   information systems in an enterprise    3-6
  Balance Sheet Accounts and
       Debits & Credits
® Double-entry  bookkeeping
® Debit an credit definitions
® T-accounts
® T-accounts and the accounting equation




                                       3-7
  Double-entry Bookkeeping
® Double-entry    bookkeeping
  ­Financial information record-keeping
   using debit-credit accounting system
  ­All transactions affect at least two
   accounts
    ¬Keeps   the accounting equation in balance
  ­Assets   = Liabs + Equity + Rev - Exp
                                                  3-8
  Debit and Credit Definitions
® Debit   means left.
  ­Positive items on the left side of the
   accounting equation increase with
   debits .
® Credit   means right .
  ­Positive  items on the right side of the
   accounting equation increase with
   credits .                                  3-9
               T-Accounts
® T-Accounts
  ­Represent   a single general ledger account
                   Account
         Debit (Dr.)      Credit (Cr.)



                                            3-10
  T-accounts and the Accounting
             Equation
 Assets     = Liabilities     +               Equity


 Assets         Liabilities   +   Contr Cap        Ret Earn
            =                                  +
Dr.   Cr.       Dr.   Cr.         Dr.   Cr.        Dr.   Cr.
+      -         -    +            -    +           -    +




Since assets increase with debits, why does the bank
credit your account when you make a deposit into
your bank account?                                   3-11
Journals and the General Ledger
 ® Characteristics   of a general ledger
  system
   ­Journals
   ­General    ledger
   ­Posting
   ­Chart   of accounts

                                           3-12
              Journals
                 (1 of 3)

® Place where transactions are initially
  recorded in chronological order
® Why are there several different types
  of journals? What information do
  they record?


                                       3-13
                    Journals
                     (2 of 3)

® Journal   entry
  ­Record   of a single transaction that is
    entered in a company’s journal using
    debits and credits
® Parts   of a journal entry
  ­Date or other form of reference
  ­Debit accounts written first
     ¬Amounts   written in the left column    3-14
                         Journals
                            (3 of 3)

 ® Parts   of a journal entry (continued)
    ­ Credit  accounts written below debit
        accounts and indented
         ¬ Amount   written in the right column
    ­ Brief   explanation of the transaction
 Date            Transaction             Debit     Credit
Feb 2    Land                           200,000
            Notes Payable                         200,000
         Record land purchase on acct
                                                            3-15
            General ledger
® Primary  record of a company’s
  financial information
® Organized by accounts
  ­An account is the basic classification
   unit of accounting
® Accumulate  increases and decreases
 in all accounts
                                            3-16
                Posting
® Process  of transferring financial
  information about accounts from
  journals to the general ledger
® Why aren’t transactions recorded
  directly into the general ledger?
  ­Why  are they first recorded in a
   journal?
                                       3-17
          Chart of accounts
®A list of all of the accounts in a firm’s
 accounting records
 ­Each   account is numbered
     ¬Account numbers correspond to the type
      of account
       ª E.g.,assets use 100’s, liabilities use 200’s,
         equity use 300’s, revenues use 400’s, and
         expenses use 500’s

                                                         3-18
Recording Income Statement
        Transactions
® Expanded  accounting equation with
  T-accounts
® Recording revenue
® Recording expenses




                                       3-19
  Expanded Accounting Equation
        with T-Accounts
 Assets     = Liabilities     +                     Equity

                                  Common          Retained
 Assets         Liabilities   +    Stock          Earnings          Dividends
            =                                 +                -
Dr.   Cr.       Dr.   Cr.         Dr.   Cr.       Dr.   Cr.         Dr.    Cr.
                                   -    +          -    +            +      -
+      -         -    +
                                        Revenues              Expenses
                                   +    Dr.   Cr.
                                                        -     Dr.    Cr.
                                         -     +               +      -
 Why do expenses and dividends increase with debits
 instead of credits? Hint: what effect to dividends and
                                                      3-
 expenses have on retained earnings?                  20
       Recording Revenue
                   (1 of 3)

® Revenue    increases retained earnings
 ­Positive on the right side of the
  accounting equation
 ­Increase with credits
 ­Decrease with debits
® Revenue  is NOT recorded directly
 into the retained earnings account
                                           3-21
          Recording Revenue
                   (2 of 3)

® Types   of revenue accounts
  ­Operating   revenue
    ¬Revenue from normal operations
    ¬Examples: service revenue, sales revenue

  ­Non-operating    revenue
    ¬Revenue  that is not related to company’s
     primary business
    ¬Example: interest revenue
                                                 3-22
         Recording Revenue
                    (3 of 3)

® Example:Pylon Consultants, Inc.
 provides $5,000 of services for cash
  ­What   accounts are affected?
    ¬Do they increase or decrease?
    ¬Do they increase with debits or credits?


   Dr.    Cr.                      Dr.   Cr.

                                                3-23
       Recording Expenses
                     (1 of 3)

® Expenses    decrease retained earnings
  ­Negative on the right side of the
   accounting equation
    ¬Would    be positive on the left side
  ­Increasewith debits
  ­Decrease with credits
® Expenses are NOT recorded directly
 into the retained earnings account          3-24
           Recording Expenses
                         (2 of 3)

® Types   of expense accounts
  ­Operating    expenses
    ¬Costof sales
    ¬Other operating expenses
      ª Examples:   salaries expense, advertising expense
  ­Non-operating       expenses
    ¬Expenses   not related to company’s primary
     business
    ¬Example: interest expense, income tax expense
                                                3-25
         Recording Expenses
                    (3 of 3)

® Example:Pylon Consultants, Inc.
 pays $5,000 for advertising expense
  ­What   accounts are affected?
    ¬Do they increase or decrease?
    ¬Do they increase with debits or credits?


   Dr.    Cr.                      Dr.   Cr.

                                                3-26
    The Accounting Cycle
                (1 of 3)


® Timeline for an accounting period
® Shows what an accounting
  information system must accomplish
  from the beginning to end of an
  accounting period


                                       3-27
        The Accounting Cycle
                        (2 of 3)


®    Steps in the accounting cycle
    ­ Analyze and record transactions in
      journal
    ­ Post journal entries to general ledger
    ­ Prepare unadjusted trial balance
        ­   At end of the accounting period
    ­   Prepare adjusting journal entries
        ­   Post them to general ledger        3-28
         The Accounting Cycle
                         (3 of 3)


®    Steps in the accounting cycle (cont’d)
    5. Prepare an adjusted trial balance
    6. Prepare the financial statements
    7. Prepare closing entries
         ­   Close temporary accounts
         ­   Post temporary accounts to general ledger
    8.   Prepare post-closing trial balance sheet
                                                    3-29
Analyze and Record Transactions
         in Journal (1 of 2)
® Goal is to get financial information
  recorded accurately on a timely basis
® Analyzing transactions
  ­Which   accounts are affected?
           liabilities, equity revenue, expenses?
    ¬Assets,
    ¬Which specific accounts are affected?


                                                    3-
                                                    30
Analyze and Record Transactions
         in Journal (2 of 2)
® Isthe amount of revenue earned
  affected by when the cash is collected?
® What is the relationship between
  expenses and revenue?



                                        3-31
Post Journal Entries to General
             Ledger
® Posting
  ­Transferring  the amounts from journal
   entries to the general ledger accounts?
® Why   is posting important?



                                             3-32
Prepare Unadjusted Trial Balance
® Trial   balance
  ­A list of all accounts in the ledger with
   debit and credit balances
  ­At a given point in time
® Unadjusted    trial balance done before
  adjusting entries prepared and posted
® What errors could be present when
  the trial balance balances?             3-33
          Recording
  Posting and Trial Balance
® Recording  transactions
® Posting transactions to the general
  ledger
® Preparing a trial balance
® Preparing an income statement and
  balance sheet
                                        3-34
      Recording Transactions
                    (1 of 2)

®   Stockholders invested $40,000 cash to
    start Bull Riders, a rodeo training school
®   Paid $2,000 for advertising expenses
®   Paid $2,400 for a 1-year insurance policy
®   Performed $9,000 or rodeo training on
    account
®   Received the electric bill for March. Bill is
    due on April 12                            3-35
     Recording Transactions
                 (2 of 2)

6. Paid $1,350 for Miscellaneous expenses
7. Received $6,500 from customers for
   services provided in transaction 4
8. Purchased a mechanical bull machine for
   $3,500 by signing a note payable due on
   December 31


                                        3-36
                  Transaction 1
                        March 1

®   Stockholders invested $40,000 cash to start Bull
    Riders, a rodeo training school
Assets = Liab.            + Cont. Cap. +           R/E

    Date         Transaction         Debit    Credit




                                                       3-37
               Transaction 2
                      March 6

® Paid   $2,000 for advertising expenses

Assets = Liab.          + Cont. Cap. +          R/E

  Date         Transaction      Debit      Credit




                                                    3-38
                Transaction 3
                       March 9

® Paid   $2,400 for a 1-year insurance policy

Assets = Liab.           + Cont. Cap. +       R/E

  Date          Transaction      Debit   Credit




                                                  3-39
              Transaction 4
                    March 14

® Performed   $9,000 or rodeo training on
  account
Assets = Liab.         + Cont. Cap. +       R/E

  Date        Transaction      Debit   Credit




                                                3-
                                                40
              Transaction 5
                    March 18

® Receivedthe electric bill for March. Bill is
  due on April 12
Assets = Liab.         + Cont. Cap. +         R/E

  Date        Transaction        Debit   Credit




                                                  3-41
               Transaction 6
                     March 21

® Paid   $1,350 for Miscellaneous expenses

Assets = Liab.          + Cont. Cap. +       R/E

  Date         Transaction      Debit   Credit




                                                 3-42
             Transaction 7
                   March 24

® Received  $6,500 from customers for
  services provided on March 14 (t/a 4)
Assets = Liab.        + Cont. Cap. +        R/E

  Date       Transaction       Debit   Credit




                                                3-43
              Transaction 8
                    March 28

® Purchaseda mechanical bull machine for
  $3,500 by signing a note payable due on
  December 31
Assets = Liab.         + Cont. Cap. +       R/E

  Date        Transaction      Debit   Credit




                                                3-44
Posting Transactions to General
             Ledger

   Dr.   Cr.   Dr.   Cr.   Dr.   Cr.




   Dr.   Cr.   Dr.   Cr.   Dr.   Cr.




   Dr.   Cr.   Dr.   Cr.   Dr.   Cr.
                                       3-45
Preparing a Trial Balance
Account       Debit   Credit




                               3-46
Preparing an Income Statement
                  (1 of 2)

Revenue

 Total Revenues
Expenses



 Total Expenses
Net income                      3-47
       Preparing a Balance Sheet
                              (2 of 2)
Assets:
Cash
Accounts Receivable
Prepaid Insurance
Total current assets
Office Equipment
     Total Assets
Liabilities and Owners’ Equity
Accounts Payable
Note Payable
Total Current Liabilities
Common Stock
Retained Earnings
     Total Liabilities and Equity
                                         3-48
 Financial Statement Analysis
                      (1 of 2)

® Working   capital
 ­Absolute    measure of liquidity
   ¬Current   ratio is a relative measure of liquidity
        of a company to meet its short-
 ­Ability
  term obligations
 ­Current assets – current liabilities
® How can a company increase its
 working capital?                                   3-49
 Financial Statement Analysis
                         (2 of 2)


® Quick   ratio (acid test)
  ­Relative   measure of liquidity
    ¬More  conservative measure of liquidity than
     the current ratio
    ¬Uses only the most liquid assets in numerator
      ª Easiest   to convert to meet current obligations
     Cash + s-t investments + A/R net
            Current liabilities                            3-
                                                           50
  Business Risk, Control, and
              Ethics
® Three most significant risks associated
 with information systems
  ­Errors in recording an updating information
  ­Unauthorized access to the system
  ­Loss of data



                                            3-51
Errors in Recording and Updating
         Information (1 of 2)
® Input   and processing controls
  ­Ensure only authorized transactions are
   entered into the system
  ­Assure the accuracy of the input and
   processing of the data that are recorded
® Reconciliation   and control reports
  ­Catch   errors in data input and processing
                                            3-52
Errors in Recording and Updating
         Information (2 of 2)
® Documentation   to provide supporting
  evidence for recorded transactions
  ­Keep  errors from occurring and catch
   errors that have occurred




                                           3-53
              Loss of Data
® Lossof data can cripple an
  organization
® Need disaster recovery plan
  ­Data   backup in off-site facility




                                        3-54
Comments or questions about PowerPoint Slides?
      Contact Dr. Richard Newmark at
     University of Northern Colorado’s
   Kenneth W. Monfort College of Business
       richard.newmark@PhDuh.com
                                                 3-55

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:0
posted:6/15/2013
language:Unknown
pages:55
renata.vivien renata.vivien
About