4 Accounting

Information Systems

FINANCIAL
ACCOUNTING
PowerPoint Presentation by
2ND EDITION
Gail B. Wright
Professor of Accounting
BY Bryant University
© Copyright 2007 Thomson South-Western, a part
DUCHAC, REEVE, & WARREN of The Thomson Corporation. Thomson, the Star
Logo, and South-Western are trademarks used
herein under license.

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 LG 1

BUSINESS INFORMATION
SYSTEM

Collects, processes data

Distributes information to
stakeholders

2
 LG 2

EXHIBIT 2

Stakeholders
Accounting Information
Systems
Financial,
operating •Management Reporting Stakeholders
data •Transactions Processing
•Financial Reporting
Stakeholders

3
 LG 2

MANAGEMENT
REPORTING SYSTEM
• Provides internal information for
decision making
– Reports
• Budgets
• Variance analyses

4
 LG 2

TRANSACTION
PROCESSING SYSTEM
• Records, summarizes effects of financial
transactions into accounts
• Divides transactions into cycles
– Revenue cycle
– Purchasing cycle
– Payroll cycle
– Inventory cycle
– Treasury cycle

5
 LG 2

FINANCIAL REPORTING
SYSTEM

• Produces financial statements

– Income statement
– Statement of retained earnings
– Balance sheet
– Statement of cash flows

6
LEARNING GOALS

Describe, illustrate

3 basic elements of
transaction processing
system.

7
 LG 3

THE ACCOUNT

Each account has a

Title
Recording place for debits
Recording place for credits Title
Left side Right side
Debit Credit

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 LG 3

RULES OF DEBIT & CREDIT

• Normal balance of account is side used to
increase
• Asset accounts have debit balances
• Example: cash
CASH
DEBITS
INCREASE

Continued
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 LG 3

RULES OF DEBIT & CREDIT

• Normal balance of account is side used to
increase
• Liability, Equity accounts have credit
balances
• Example: Retained Earnings
RETAINED EARNINGS
CREDITS
INCREASE

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 LG 3

BALANCE SHEET
EQUATION

A = L + E

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 LG 3

RULE 2 OF DEBIT &

CREDIT: Assets
• Asset accounts on left side of equation are
– Increased by debits and
– Have debit balances

ASSET ACCTS
+
DEBIT
BALANCE

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 LG 3

RULE 2 OF DEBIT &

CREDIT: Liability & Equity
• Liability & equity accounts on right side of
equation are
– Increased by credits and
– Have credit balances
LIABILITY & EQUITY ACCTS

+
CREDIT
BALANCE
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 LG 3

RULE 2 OF DEBIT &

CREDIT: Revenue
• Revenue accounts increase equity on right
side of equation are
– Increased by credits and
– Have credit balances
REVENUE ACCOUNTS

+
CREDIT
BALANCE
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 LG 3

RULE 2 OF DEBIT &

CREDIT: Expense
• Expense accounts decrease equity which is
on right side of equation are
– Increased by debits and
– Have debit balances
EXPENSE ACCTS
+
DEBIT
BALANCE

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 LG 3

RULE 3 OF DEBIT &

CREDIT
• For each transaction
– Total debits will equal total credits

TRANSACTION

TOTAL TOTAL
DEBITS CREDITS

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 LG 3

EXHIBIT 3

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 RECORDING
TRANSACTIONS

• Transactions recorded in
– Journals
• Organized by date
– Ledgers Click the
• Organized by account button to
skip
journal
entries

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 LG 3

ENTRY 11/5: Bought Land

SCF BS IS 11/5 Land 20,000

Cash 20,000

Buying land for cash

Click the
Decreases cash flows, investing button to
skip
Has no effect on balance sheet journal
Has no effect on income statement entries

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 LG 3

ENTRY 11/10: Bought Supplies

SCF BS IS 10 Supplies 1,350

Accounts Payable 1,350

Buying supplies on account

Click the
Has no effect on cash flows button to
skip
Increases assets & liabilities journal
entries
Has no effect on income statement
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 LG 3

ENTRY 11/18: Earned Fees

SCF BS IS 18 Cash 7,500

R
Fees Earned 7,500

Received cash for fees earned

Increases cash flows from operations Click the
button to
Increases assets & equity skip
journal
Increases revenue entries

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 LG 3

ENTRY 11/30: Paid Expenses

SCF BS IS 30 Wages 2125
E
Rent 800
Utilities 450
Misc. 275
Cash 3,650

Paid cash for expenses

Click the
Decreases cash flow operations button to
skip
Decreases assets & equity journal
entries
Increases expenses on income statement
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 LG 3

ENTRY 11/30: Paid Account

SCF BS IS 30 Accounts payable 950

Cash 950

Paid cash to satisfy accounts payable

Click the
Decreases cash flow operations button to
skip
Decreases assets, liabilities journal
entries
Has no effect on income statement

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 LG 3

ENTRY 11/30: Paid Dividend

SCF BS IS 30 Dividend 2,000

Cash 2,000

Paid cash dividends

Decreases cash flow financing
Decreases assets, equity
Has no effect on income statement

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 LG 3

EXHIBIT 7

Trial balance lists accounts, balances in debit,

credit columns to check recording process.

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LEARNING GOALS

Describe, illustrate

4 basic elements of
financial reporting
system.

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 LG 4

END OF YEAR: 12/31/2007

• Transactions for December recorded
– Journals, ledgers
• Trial balance for December transactions
• Adjustments recorded
– Supplies, insurance used
– Revenue earned
– Wages owed
– Depreciation

Continued
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 LG 4

END OF YEAR: 12/31/2007

• Adjusted trial balance

– Final check before financial statements
• Prepare financial statements See
– Income statement Exhibit 12
p. 166-167
– Statement retained earnings
– Balance sheet
– Statement cash flows

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 LG 4

AFTER FINANCIAL
STATEMENTS
• Closing entries
– Transfer balances of temporary (revenue,
expense, dividends) accounts to retained
earnings
– Zero balances of temporary accounts to carry
forward
• Post-closing trial balance
– Final check for asset, liability, equity account
balances

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 LG 5

ACCOUNTING CYCLE
1. Transactions analyzed, recorded in
journals
2. Transactions posted to ledgers
3. Unadjusted trial balance prepared
4. Adjustment data assembled, analyzed
5. Adjusting entries prepared, recorded in
journal
Continued
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 LG 5

ACCOUNTING CYCLE
6. Adjusting entries posted to ledger
7. Adjusted trial balance prepared
8. Financial statements prepared
9. Closing entries recorded in journal
10. Closing entries posted to ledgers
11. Post-closing trial balance prepared

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A pint cannot hold a quart. If it is
holding a pint, it is doing the best it
can.

Plan to be spontaneous tomorrow.

S. Wright

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