Textbook Notes (381,101)
CA (168,356)
UTSC (19,304)
MGA (381)
MGAB01H3 (127)
Liang Chen (50)
Chapter 3

Chapter 3 Notes

4 Pages
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Department
Financial Accounting
Course Code
MGAB01H3
Professor
Liang Chen

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Chapter 3 / 01
Chen, Liang
MGTB05, Lec. 03
Chapter 3: The Accounting Information System
Accounting Transactions
- The system of collecting and processing transaction data and collecting financial
information to decision ± makers is known as the accounting information system.
- Depending on the size of the business, not every business may need a formal system
- The accounting information system begins with determining what transaction data should
be collected and processed. Not all events recorded are reported as accounting
transactions (e.g. hiring a new employee)
- An accounting transaction RFFXUVZKHQDVVHWVOLDELOLWLHVRUVKDUHKROGHU¶VHTXLW\LWHPV
change as a result of some economic event
Analyzing Transactions
- For each accounting transaction, at least two accounts must be affected (double ± sided)
- Transaction 1:
1. On October 6, Sierra paid $600 for a one ± year insurance policy effective
October 1 that expires next year on September 30.
Prepaid Insurance (current asset account) 900
Cash (current asset account) 900
You record prepaid insurance in the asset account since this payment is for more
than the current month. Payments of expenses that will benefit more than one
accounting period are identified as prepaid expenses or prepayments
- Transaction 2:
1. On October 2, Sierra paid $900 cash for its office rent for the month of October.
Rent Expense (expense account) 900
Cash (current asset account) 900
Rent would be an expense since its payment is only good for the month
- Transaction 3:
1. On October 2, Sierra received a $1,200 cash advance from R. Knox, a client, for
advertising services that are expected to be completed before November 15.
Cash (current asset account) 1,200
Unearned Service Revenue (current liability) 1,200
Since you have not provided the service, this would be a liability rather than
revenue account
The Account
- An account is an individual accounting record of increases and decreases in a specific
DVVHWOLDELOLW\RUVKDUHKROGHU¶VHTXLW\LWHPHJcash, A/R, service rev., salaries exp...)
- An account has three parts: (1) the title of the account, (2) a left or debit side, and (3) a
right or credit side. Because the alignment of these parts of a account resemble the letter
T, it is referred to as a T account
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Description
Chapter 3 01 Chen, Liang MGTB05, Lec. 03 Chapter 3: The Accounting Information System Accounting Transactions - The system of collecting and processing transaction data and collecting financial information to decision makers is known as the accounting information system. - Depending on the size of the business, not every business may need a formal system - The accounting information system begins with determining what transaction data should be collected and processed. Not all events recorded are reported as accounting transactions (e.g. hiring a new employee) - An accounting transaction 4..:78ZK03,88098OL,-LOL9L08478K,70K4O07806:L9L9028 change as a result of some economic event Analyzing Transactions - For each accounting transaction, at least two accounts must be affected (double sided) - Transaction 1: 1. On October 6, Sierra paid $600 for a one year insurance policy effective October 1 that expires next year on September 30. Prepaid Insurance (current asset account) 900 Cash (current asset account) 900 You record prepaid insurance in the asset account since this payment is for more than the current month. Payments of expenses that will benefit more than one accounting period are identified as prepaid expenses or prepayments - Transaction 2: 1. On October 2, Sierra paid $900 cash for its office rent for the month of October. Rent Expense (expense account) 900 Cash (current asset account) 900 Rent would be an expense since its payment is only good for the month - Transaction 3: 1. On October 2, Sierra received a $1,200 cash advance from R. Knox, a client, for advertising services that are expected to be completed before November 15. Cash (current asset account) 1,200 Unearned Service Revenue (current liability) 1,200 Since you have not provided the service, this would be a liability rather than revenue account The Account - An account is an individual accounting record of increases and decreases in a specific ,8809OL,-LOL9478K,70K4O07806:L9L902 0 J cash, AR, service rev., salaries exp...) - An account has three parts: (1) the title of the account, (2) a left or debit side, and (3) a right or credit side. Because the alignment of these parts of a account resemble the letter T, it is referred to as a T account www.notesolution.com
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