Textbook Notes (380,974)
CA (168,304)
UTSC (19,296)
MGA (381)
MGAB01H3 (127)
G.Quan Fun (21)
Chapter 3

Chapter 3 notes

1 Page
121 Views

Department
Financial Accounting
Course Code
MGAB01H3
Professor
G.Quan Fun

This preview shows half of the first page. Sign up to view the full page of the document.
Chapter 3 The Accounting Information System Notes
Accounting Transactions
x accounting information system : the system of collecting and processing transaction data and communicating financial
information to interested parties
x an accounting information system begins with determining what transaction data should be collected and processed
x not all events are recorded and reported as AT, only events that cause changes in A, L, or SE should be recorded
x 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
x 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
x account : an individual accounting record of increases and decreases in a specific asset, liability, or shareholdersequity item
x 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
x debit : the left side of an account
x credit : the right side of an account
x double-entry accounting system : a system that records the dual effect of each transaction in appropriate accounts
Summary of Debit and Credit Effects
x assets are increased by debits, liabilities and shareholders’ equity are increased by credits
Steps in the Recording Process
x 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
x general journal : the book of original entry in which transactions are recorded in chronological order
x 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
x general ledger : book of accounts that contains companys assets, liabilities, shareholders’ equity, revenue, expense accounts
x chart of accounts : a list of company’s accounts and account numbers, which identify where the accounts are in general ledger
Posting
x posting : the procedure of transferring journal entries to the general ledger accounts
x posting should be done in chronological order, that is, all debits and credits of a journal entry should be posted before going on to
the next journal entry
The Trial Balance
x trial balance : a list of general ledger accounts and their balances at a specific time, usually at the end of the each month
Limitations of a Trial Balance
x errors may exist in the trial balance even though the columns agree, due to many reasons
x in the trial balance as long as equal debits and credits are posted, even to the wrong account or in the wrong amount, the total
debits will equal the total credits; however, it is still useful in preparing financial statements
Summary of Study Objectives
1. Analyze the effects of transactions on the accounting equation. Each business transaction has a dual effect on the accounting
equation. For example, if an individual asset is increased, there must be a corresponding decrease in another asset, or an increase
in a specific liability or in shareholders’ equity.
2. Define debits and credits and explain how they are used to record transactions. The term debit and credit mean the same
thing as left and right, respectively. Assets, dividends, and expenses are increased by debits and decreased by credits. The normal
balance of these accounts is a debit balance. Liabilities, common shares, retained earnings, and revenues are increased by credits
and decreased by debits. The normal balance of these accounts is a credit balance.
3. Identify the basic steps in the recording process. The basic steps in the recording process are (a) analyzing each transaction for
its effect on the accounts, (b) entering the transaction information in a general journal, and (c) posting (transferring) the
information in the general journal to the appropriate accounts in the general ledger. These are also the first three steps in the
accounting cycle.
4. Prepare a trial balance. The preparation of a trial balance is the fourth step in the accounting cycle. The trial balance is a list of
accounts and their balances at a specific time. The main purpose of the trial balance is to prove the mathematical equality of
debits and credits after posting. A trial balance also uncovers errors in journalizing and posting and is useful in preparing
financial statements.
www.notesolution.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
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
More Less
Unlock Document


Only half of the first page are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit