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Chapter 3

ADMN 3221H Chapter Notes - Chapter 3: Capital Account, Accounts Receivable, Income Statement

Business Administration
Course Code
ADMN 3221H
Ebadul Islam

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Chapter 3 The Accounting Information System and Measurement Issues
The Accounting Information System and Measurement Issues
Accounting information system the system for collecting and processing
transaction data to make financial information available to interested parties
Basic Terminology
Event the cause of changes of assets, liabilities, and equity
Transaction A transfer or exchange between two or more entities or
Account Where transactions are recorded
o A separate account is used for each asset, liability, revenue, expense,
gain, loss and capital owner’s equity
Permanent accounts all of the asset, liability, and equity accounts that
appear on the balance sheet
o Also known as real accounts
Temporary accounts revenue, expense, and dividend accounts
o Closed at the end of each fiscal year
General ledger a collection of all asset, liability, shareholders’ equity,
revenue, and expense accounts and their respective balances
Subsidiary ledger a ledger that contains the details related to a given
general ledger account
Journal a book of original entry for all transactions
General Journal a chronological listing of transactions expressed as debits
and credits to particular accounts (known as a journal entries)
Special Journals used to summarize transactions with common
characteristics (e.g. cash receipts, sales, purchases)
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Posting when the transaction information entered in the journal is
transferred to the ledger accounts
Trial balance a list of all open accounts in the ledger and their balances
Adjusted trial balance a list of all open accounts in the ledger and their
balances taken immediately after all adjusting entries have been posted
Post-closing trial balance a trial balance taken immediately after closing
entries have been posted
Adjusting entries journal entries made at the end of the accounting period
to ensure that the revenue recognition and matching principles are followed
Closing entries the journal entries that close the temporary accounts in
order to start a new financial reporting period
Reversing entries a journal entry made at the beginning of the next
accounting period that is the exact opposite of the related adjusting journal
entry made in the previous period
Financial statements the principal means through which financial
information is communicated to those outside a company
Statement of financial position shows a company’s financial condition at
the end of a period
o Known as balance sheet under ASPE
Statement of comprehensive income reconciles net income to
comprehensive income
o Known as income statement under ASPE
Statement of cash flows provides information about the cash inflows and
outflows for a specific period of time
Statement of changes in shareholders’ equity – reconciles the balance of
the Retained Earnings account, common shares, and other shareholders’
equity accounts from the beginning to the end of the period
o Statement of retained earning under ASPE
Debits and Credits
Debit the left side of a general ledger account
Credit the right side of a general ledger account
Used to describe where entries are made
Debit balance if debits > credits
Credit balance if credits > debits
Double-entry accounting system system of accounting requiring the
equality of debits and credits when recording transactions, which helps
prove the accuracy of the recorded amounts
When a transaction is in balance, the debits equal the credits
Debits and credits do not mean increases and decreases
To increase the balance of any account, record the amount in the normal
balance column
To decrease the balance of any account, record the amount in the column
opposite to its normal balance
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