# Infosys Infosys 1 The Accounting Information Processing System Infosys 2 DOUBLE

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The Accounting
Information Processing
System
Infosys - 2

DOUBLE-ENTRY
ACCOUNTING MODEL

A        =       L           +        OE
(Assets)       (Liabilities)       (Owners’ Equity)
Infosys - 3

BASIC ACCOUNTING EQUATION
[Corporation]

Assets = Liabilities + Stockholders’ Equity

Contributed              Retained
Capital                Earnings

Net Income (+)             Dividends (-)

Revenues & Gains (+)       Expenses & Losses (-)
Accounting Transactions
Illustration: 1. On October 1, cash of \$10,000 is invested in Sierra Corporation
by investors in exchange for \$10,000 of common stock.

1.   +10,000                                                         +10,000

SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
2. On October 1, Sierra borrowed \$5,000 from Castle Bank by signing a 3-
month, 12%, \$5,000 note payable.

1.   +10,000                                                        +10,000
2.    +5,000                       +5,000

SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
3. On October 2, Sierra purchased office equipment by paying \$5,000 cash to
Superior Equipment Sales Co.

1.   +10,000                                                        +10,000
2.    +5,000                       +5,000
3.    -5,000             +5,000

SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
4. On October 2, Sierra received a \$1,200 cash advance from R. Knox, a
client.

1.   +10,000                                                        +10,000
2.    +5,000                       +5,000
3.    -5,000             +5,000
4.    +1,200                                            +1,200

SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
5. On October 3, Sierra received \$10,000 in cash from Copa Company for

1.   +10,000                                                        +10,000
2.    +5,000                       +5,000
3.    -5,000             +5,000
4.    +1,200                                            +1,200
5.   +10,000                                                                    +10,000

SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
6. On October 3, Sierra Corporation paid its office rent for the month of
October in cash, \$900.

1.   +10,000                                                         +10,000
2.    +5,000                        +5,000
3.    -5,000              +5,000
4.    +1,200                                             +1,200
5.   +10,000                                                                     +10,000
6.      -900                                                                                  -900

SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
7. On October 4, Sierra paid \$600 for a one-year insurance policy that will
expire next year on September 30.

1.   +10,000                                                         +10,000
2.    +5,000                        +5,000
3.    -5,000               +5,000
4.    +1,200                                             +1,200
5.   +10,000                                                                     +10,000
6.      -900                                                                                  -900
7.      -600        +600

SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
8. On October 5, Sierra purchased a three-month supply of advertising
materials on account from Aero Supply for \$2,500.

1.   +10,000                                                             +10,000
2.    +5,000                            +5,000
3.    -5,000                   +5,000
4.    +1,200                                                 +1,200
5.   +10,000                                                                         +10,000
6.      -900                                                                                      -900
7.      -600            +600
8.             +2,500                            +2,500

SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
10. On October 20, Sierra paid a \$500 dividend.

1.    +10,000                                                             +10,000
2.     +5,000                            +5,000
3.     -5,000                   +5,000
4.     +1,200                                                 +1,200
5.    +10,000                                                                         +10,000
6.       -900                                                                                      -900
7.       -600            +600
8.              +2,500                            +2,500
10.      -500                                                                                               -500

SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
11. Employees have worked two weeks, earning \$4,000 in salaries, which
were paid on October 26.

1.    +10,000                                                       +10,000
2.     +5,000                            +5,000
3.     -5,000                   +5,000
4.     +1,200                                              +1,200
5.    +10,000                                                                 +10,000
6.       -900                                                                            -900
7.       -600            +600
8.              +2,500                            +2,500
10.      -500                                                                                    -500
11.    -4,000                                                                           -4,000
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ACCOUNTS
Information Processing Devices
 An “ACCOUNT” is a form used to record
the changes in a particular asset, liability, or
stockholders’ equity item

 In a computerized accounting system, an
“account” would be similar to an individual
data file

 The specific number of “accounts” to be used
by any company is dependent on the level of
detail required in their financial statements.
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Accounts and Transaction Recording

Financial Accounting Information

Accounts

Permanent Accounts               Temporary Accounts
Assets
Revenues
Liabilities
Expenses
Owners’ Equity
Gains & Losses
• Contrib. Capital
• Retained earnings
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PERMANENT ACCOUNTS
Application of Debits and Credits

A = L + OE
Account Name         Account Name             Account Name
Debit    Credit      Debit     Credit         Debit     Credit

The balances in PERMANENT accounts

are carried over to future accounting periods.
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PERMANENT ACCOUNTS

Application of Debits and Credits

A = L + OE
ASSETS               LIABILITIES               EQUITIES

Debit  Credit for   Debit  Credit for         Debit  Credit for
for   Decrease      for   Increase            for   Increase
Increase            Decrease                  Decrease

The balances in PERMANENT accounts
are carried over to future accounting periods
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TEMPORARY ACCOUNTS
(Subdivisions of Retained Earnings)
Application of debits and credits

EXPENSES, LOSSES
REVENUES & GAINS
& DIVIDENDS

Debit  Credit for           Debit  Credit for
for   Increase              for   Decrease
Decrease                    Increase
Debit and Credit Procedures

If Debits are greater than Credits, the account will have a
debit balance.

Account Name
Debit / Dr.              Credit / Cr.

Transaction #1           \$10,000                    \$3,000                 Transaction #2
Transaction #3              8,000

Balance                  \$15,000

SO 3 Define debits and credits and explain their use in recording business transactions.
Debit and Credit Procedures

If Credits are greater than Debits, the account will have a
credit balance.

Account Name
Debit / Dr.              Credit / Cr.

Transaction #1           \$10,000                    \$3,000                 Transaction #2
8,000                Transaction #3

Balance                                             \$1,000

SO 3 Define debits and credits and explain their use in recording business transactions.
Dr./Cr. Procedures for Assets and Liabilities

Assets
Debit / Dr.     Credit / Cr.
Assets - Debits should
exceed credits.
Normal Balance

Chapter
3-23
Liabilities – Credits should
exceed debits.
Liabilities
Debit / Dr.     Credit / Cr.
The normal balance is on
the increase side.
Normal Balance

Chapter
3-24

SO 3 Define debits and credits and explain their use in recording business transactions.
Dr./Cr. Procedures for Stockholders’ Equity

Stockholders’ Equity                                    Owner’s investments and revenues
Debit / Dr.      Credit / Cr.
increase stockholder’s equity (credit).
Dividends and expenses decrease
Normal Balance
stockholder’s equity (debit).
Chapter
3-25

Common Stock                                  Retained Earnings                                  Dividends
Debit / Dr.       Credit / Cr.                       Debit / Dr.      Credit / Cr.               Debit / Dr.    Credit / Cr.

Normal Balance                                      Normal Balance             Normal Balance

Chapter                                              Chapter                                   Chapter
3-25                                                 3-25                                      3-23

SO 3 Define debits and credits and explain their use in recording business transactions.
Dr./Cr. Procedures for Revenue and Expense

Revenue                                 The purpose of earning revenues
Debit / Dr.      Credit / Cr.
is to benefit the stockholders.
The effect of debits and credits on
Normal Balance

revenue accounts is the same as
their effect on stockholders’
Chapter
3-26

Expense
equity.
Debit / Dr.      Credit / Cr.
Expenses have the opposite
effect: expenses decrease
Normal Balance
stockholders’ equity.
Chapter
3-27

SO 3 Define debits and credits and explain their use in recording business transactions.
Debits and Credits Summary
Liabilities
Debit / Dr.     Credit / Cr.
Normal                                             Normal
Balance                                            Balance
Debit                                              Credit                                                   Normal Balance

Assets                                                                  Chapter

Stockholders’ Equity
3-24

Debit / Dr.         Credit / Cr.
Debit / Dr.      Credit / Cr.

Normal Balance
Normal Balance

Chapter

Expense
3-23

Revenue
Chapter
3-25

Debit / Dr.         Credit / Cr.
Debit / Dr.     Credit / Cr.

Normal Balance
Normal Balance

Chapter
3-27                                                                             Chapter
3-26

SO 3 Define debits and credits and explain their use in recording business transactions.
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The Accounting Cycle
The Accounting Cycle is a series of sequential
steps leading to the financial statements.

During Accounting Period
   Identify transactions or events to be recorded

ANALYSIS OF TRANSACTION IS THE KEY
SUPPORTING DOCUMENTATION = RELIABILITY

   Journalize transactions and events (input)

   Posting from journals to ledger.
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THE FLOW OF ACCOUNTING DATA:
PUTTING THEORY
INTO PRACTICE

Source    Transaction   Transaction   Amounts
Transaction   Documents     Analysis     Entered in   Posted to
Occurs        Prepared   Takes Place     Journal      Ledger
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The Accounting Cycle
At the end of the accounting period:

 Prepare trial balance.
 Control device
 Basis for financial statements

 Prepare financial statements.
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TRIAL BALANCE

 Consists of a listing of each general ledger
account and its balance at the end of period.

– Debit balances in one column and credit balances
in another

 Serves as a convenient means for checking
that the sum of debit account balances equals
the sum of credit account balances.
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Trial Balance - Example
Sample Company
December 31, 1998
Debits        Credits
Cash                         \$     450
Accounts Receivable              1,200
Equipment                        3,800
Accounts Payable                         \$       700
Notes Payable                                  1,450
Capital Stock                                  3,000
Retained Earnings - 1/1/X8                         -
Dividends declared                 50
Revenues                                      11,000
Salary Expense                  5,250
Utility Expense                 3,000
Rent Expense                    2,400
Total                        \$ 16,150    \$ 16,150
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Trial Balance - Example
Sample Company
December 31, 1998
Debits        Credits
Cash                         \$     450
Accounts Receivable              1,200
Equipment                        3,800
Accounts Payable                         \$       700
Notes Payable                                  1,450
Capital Stock                                  3,000
Retained Earnings - 1/1/X8                         -   The General Ledger is
in balance!
Dividends declared                 50
Revenues                                      11,000         DR = CR
Salary Expense                  5,250
Utility Expense                 3,000
Rent Expense                    2,400
Total                        \$ 16,150    \$ 16,150
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Prepare Financial Statements
Sample Company
 The income                  Income Statement
For the Year Ended 12/31/98
statement is
always prepared    Revenues:
Sales          \$   11,000
first.               Interest              200
Total                     \$   11,200
 Includes the
revenues, gains,   Expenses:
Salary              5,250
expenses, and        Utility             3,000
losses from the      Rent
Interest
2,400
65
trial balance.       Depreciation          400
Total                         11,115

Net Income                    \$      85
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Prepare Financial Statements
Retained Earnings Statement
 The retained
For the Year Ended 12/31/98
earnings
statement
Retained Earnings - 1/1/98       \$     -
explains the        Add: Net Income                       85
changes in          Less: Dividends declared             (50)
retained earnings
during the year.    Retained Earnings - 12/31/98     \$ 35
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Prepare Financial Statements
ASSETS:
Cash                                        \$      450
 The balance         Accounts Receivable
Interest Receivable
1,200
200
sheet includes      Equipment                      \$   3,800

the permanent
Less: Accum.Depr.                   (400)
Equipment (net)                               3,400

accounts.              Total Assets                             \$    5,250

LIABILITIES:
 Retained            Accounts Payable                            \$      700

Earnings is taken
Interest Payable                                    65
Notes Payable                                    1,450
from the               Total Liabilities                        \$    2,215

Retained            EQUITY:
Common Stock                                \$    3,000
Earnings            R/E - 12/31/98
Total Equity                              \$
35
3,035
Statement.            Total Liabilities & Equity                \$    5,250
Infosys - 34

WOW!

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