Textbook Notes (368,164)
Canada (161,688)
MGAB01H3 (126)
G.Quan Fun (21)
Chapter 3

Chapter 3 notes

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Financial Accounting
G.Quan Fun

Chapter 3 The Accounting Information System Notes Accounting Transactions N accounting information system : the system of collecting and processing transaction data and communicating financial information to interested parties N an accounting information system begins with determining what transaction data should be collected and processed N not all events are recorded and reported as AT, only events that cause changes in A, L, or SE should be recorded N accounting transaction : an economic event that is recorded in the financial statements because it involves an exchange that effects assets, liabilities, or shareholders equity Summary of Transactions N firstly, each transaction must be analyzed for its effect on the three main components of the accounting equation (assets, liabilities, and shareholders equity) and, secondly, the two sides of the equation must always be equal The Account N account : an individual accounting record of increases and decreases in a specific asset, liability, or shareholders equity item N T account : basic form of an account, with a debit (left) side and a credit (right) side showing effect of transactions on account Debits and Credits N debit : the left side of an account N credit : the right side of an account N double-entry accounting system : a system that records the dual effect of each transaction in appropriate accounts Summary of Debit and Credit Effects N assets are increased by debits, liabilities and shareholders equity are increased by credits Steps in the Recording Process N the basic steps in the recording process are: 1. analyze each transaction for its effect on the accounts 2. enter the transaction information in a general journal (book of original entry) 3. transfer the information from the general journal to the appropriate accounts in the general ledger (book of accounts) The Journal N general journal : the book of original entry in which transactions are recorded in chronological order N the general journal makes several contributions to the recording process: 1. it discloses complete effect of transaction in one place, including explanation and identification of source document 2. it provides a chronological record of transactions 3. it helps to prevent and locate errors, because debit and credit amounts for each entry can be quickly compared The Ledger N general ledger : book of accounts that contains companys assets, liabilities, shareholders equity, revenue, expense accounts N chart of accounts : a list of
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