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Lecture 3

BU387 Lecture 3: Chapter 3 Notes

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Floria Niu

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Chapter 3 – The Accounting Information System and Measurement Issues Accounting Information system – a system for collecting and processing transaction data to make financial information available to interested parties Debits – lefts Credits – right Double entry accounting system – system where each transaction has at least one debit and at least one credit and debits must equal credits Assets = Liabilities + Common shares + retained earnings – Dividends + Revenues - Expenses Permanent account – asset, liability, and equity accounts (b/s) are left open Temporary account – revenue, expense, and dividend accounts are closed periodically The Accounting Cycle • 1.) Analyze the transaction – figuring out what to record, e.g “purchased supplies for $50 cash” • 2.) journalizing the transaction (general journal, cash receipts journal, sales journal, cash disbursement journal) • 3.) posting the transaction to general ledge accounts (General ledger usually monthly, subsidiary ledges usually daily) – such as T accounts • 4.) prepare the unadjusted trail balance – is a list of general ledger accounts and their balance at a specific time • 5.) adjusting journal entries (accruals, prepayments, estimated items) o Prepaid expense – expenses paid in cash and recorded as assets before they are used or consumed o Unearned revenue – revenues received in cash and recorded as liabilities before they are earned o Ac
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