Chapter 3.1

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Published on 28 Oct 2010
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Chapter 3
Accounting Transactions
The system of collecting and processing transaction data and communicating financial information to
decision-makers is known as the accounting information system. Some factors that shape these systems
are the type of business and its transactions, the size of the company, the amount of data, and the
information that management and others need.
accounting transaction occurs when assets, liabilities, and shZ}o[µ]Ç]uZvPµo
of some economic event.
Analyzing transactions
An important aspect that should be noted is that accounting has to affect at least two or more accounts.
Transactions that affect three or more are called compound entries. The following are examples of
common transactions (refer to the scenarios in page 105):
1) Cash was invested for common shares Æ Dr cash, Cr common shares
2) Issue of note payable Æ Dr cash, Cr notes payable
3) Purchase of office equipment ÆDr office equipment, Cr cash
4) Receipt of cash in advance from customers Æ Dr cash, Cr unearned revenue
5) Payment of rent Æ Dr rent expense, Cr cash
6) Purchase of insurance Æ Dr prepaid insurance, Cr cash
7) Hiring of new employee Æ no transaction
8) Purchase of supplies on account Æ Dr Advertising supplies, Cr Accounts payable
9) Services performed on account Æ Dr Accounts receivable, Cr Revenue
10) Payment of salaries Æ Dr Salaries expense, Cr Cash
11) Payment of dividend Æ Dr Dividends, Cr Cash
12) Collection of account Æ Dr Cash, Cr Accounts receivable
The Account
An account is an individual accounting record of increases and decreases in a specific asset, liability, or
shareholders[ equity item. An account has three parts: the title of the account, debit side, a credit side.
T-accounts are used as an accounting tool to help illustrate this idea of debit/credit theory.