ch.3.docx

3 Pages
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Department
Accounting & Financial Management
Course Code
AFM 291
Professor
Kareen Brown

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Description
CHAPTER 3 THE ACCOUNTING INFORMATION SYSTEM 1. Understand basic accounting terminology • Pg.79 2. Explain double-entry rules • Debit and Credit 3. Identify the steps in the accounting cycle • Identification and measurement of transactions and other events → Journalization → Posting (general ledger-monthly; subsidiary ledger-daily) → Trial Balance preparation → Adjustments on accruals, prepayments, and estimated items → Adjusted trial balance or optional work sheet → Statement of preparation (4 major statements) → Closing (temporary accounts) → Post-closing trial balance (optional) → Reversing entries (optional) 4. Record the transactions in journals, post journal entries to ledger accounts, and prepare a trial balance • General Journal o Have accounts and amounts to be debited and credited, a date, and an explanation • Special Journals o Summarize transactions that have a common characteristics (e.g., cash receipts, sales, purchases, cash payments), saving time doing the various bookkeeping tasks 5. Explain the reasons for preparing adjusting entries (pg.89) • Adjustments achieve a proper matching of revenues and expenses, which is necessary in order to determine the correct net income for the current period • To achieve an accurate statement of the end-of-the-period balances in assets, liabilities, and owners’ equity accounts • Adjustments are needed to ensure that the revenue recognition principle is followed and proper matching occurs • Prepayments: 1. Prepaid Expenses (expenses paid in cash and recorded as assets before they’re used or consumed) 2. Unearned Revenue (revenues received in cash and recorded as liabilities before they are earned) • Accruals 1. Ac
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