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Infosys Infosys 1 The Accounting Information Processing System Infosys 2 DOUBLE

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Infosys Infosys 1 The Accounting Information Processing System Infosys 2 DOUBLE Powered By Docstoc
					                     Infosys - 1

    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
     advertising services performed.




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
                                              Infosys - 14

             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.
                                                  Infosys - 15




Accounts and Transaction Recording

       Financial Accounting Information


                      Accounts

Permanent Accounts               Temporary Accounts
Assets
                                 Revenues
Liabilities
                                 Expenses
Owners’ Equity
                                 Gains & Losses
• Contrib. Capital
• Retained earnings
                                                        Infosys - 16



          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.
                                                             Infosys - 17

             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
                                            Infosys - 18



     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.
                                                 Infosys - 25


           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.
                                                      Infosys - 26



       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
                                       Infosys - 27


           The Accounting Cycle
       At the end of the accounting period:

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

 Prepare financial statements.
                                                Infosys - 28




              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.
                                                       Infosys - 29

  Trial Balance - Example
              Sample Company
           Unadjusted Trial Balance
              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
                                                               Infosys - 30

          Trial Balance - Example
              Sample Company
           Unadjusted Trial Balance
              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
                                                   Infosys - 31

  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
                                                     Infosys - 32


  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
                                                                  Infosys - 33

 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




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