Chapter 3: The Accounting Info System
Analyze the effects of transactions on the accounting equation.
Define debits and credits and explain how they are used to record transactions.
Identify the basic steps in the recording process.
Prepare a trial balance.
• Accounting information system:
– The system of collecting and processing transaction data and communicating
• Can vary widely based on factors such as:
– Type of business and its transactions
– Size of company
– Amount of data
– Information requirements
Accounting Transactions (Continued)
• Transactions are economic events that must be recorded in the financial statements
• Not all events are recorded and reported as accounting transactions:
– Only those that change assets, liabilities or shareholders’ equity Transaction Identification Process
• Transaction analysis determines impact on the accounting equation
Assets = Liabilities + Shareholders’ Equity
• The accounting equation must always balance
– Therefore, each transaction has a dual (double-sided) effect on the equation
• Identify an economic event that would be recorded in the accounting system and one
that would not be recorded.
• An individual accounting record of increases and decreases in a specific asset, liability,
or shareholders’ equity item
• Three parts:
• The title of the account
• A left or debit side
• A right or credit side The T Account
Debits and Credits
• Describe where entries are made in the accounts:
– Debiting: entering an amount on the left side
– Crediting: entering an amount on the right side
• If debit amounts exceed credit amounts, account has a debit balance
• If cre