RSM219H1 Chapter 3 Notes

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University of Toronto St. George
Rotman Commerce
Alexander Edwards- Universityof Toronto( St.George)

RSM219H1 Textbook Notes Chapter 3: The Accounting Information System  Accounting information system: the system of collecting and processing transaction data and communicating financial information to decision- makers. o Some factors that shape these systems are:  The type of business and its transactions  The size of the company  The amount of data  The information that management and others need  An accounting information system begins with determining what relevant transaction data should be collected and processed. o Accounting transaction: occurs when assets, liabilities, or shareholders’ equity items change as a result of some economic event. Transactions: 1. Oct. 1 - $10,000 was invested in Sierra Corporation in exchange for 10,000 common shares. a. Assets – Cash: debit (increase) $10,000 b. Shareholders’ Equity – Common Shares: credit (increase) $10,000 2. Oct. 1 - Sierra Corporation borrowed $5,000 from Scotiabank by signing a note payable. It promised to repay the note, plus 6% interest, in 3 months. a. Assets – Cash: debit (increase) $5,000 b. Liabilities – Notes Payable (increase) $5,000 3. Oct. 1 - Sierra Corporation purchased equipment from Superior Equipment for $5,000. a. Assets – Cash: credit (decrease) $5,000 b. Assets – Equipment: debit (increase) $5,000 4. Oct. 2 - Sierra Corporation is paid $1,200 in advance from R. Knox for advertising services to be performed before November 15 . th a. Assets – Cash: debit (increase) $1,200 b. Liability - Unearned Revenue: credit (increase) $1,200 5. (Pg. 108-109) Oct. 2 – Sierra Corporation paid its office rent for the month of October in cash, $900. a. Assets – Prepaid Rent: debit (increase) $900 b. Assets – Cash: credit (decrease) $900 6. Oct. 3 – Sierra Corporation paid $600 for a one-year insurance policy effective October 1 that expires next year on September 30. a. Assets – Cash: credit (decrease) $600 b. Assets – Prepaid Insurance: debit (increase) $600 7. Oct. 4 – Sierra hired 4 new employees to begin work on Monday, October 8. ** No Effect ** 8. Oct. 9 – Sierra purchased advertising materials on account from Aero Supply Corp. for $2,500. The account is due in 30 days. a. Assets – Advertising Materials: debit (increase) $2,500 b. Liabilities – Accounts Payable: credit (increase) $2,500 9. Oct. 13 – Sierra performed $10,000 of advertising services for Copa Ltd. Sierra sent Copa a bill for those services asking for payment before the end of the month. a. Assets – Accounts Receivable: debit (increase) $10,000 b. Shareholders’ Equity – Service Revenue: credit (increase) $10,000 10.Employees worked two weeks, earning $4,000 in salaries, and were paid on October 19. a. Assets – Cash: credit (decrease) $4,000 b. Shareholders’ Equity – Wages Expense: debit (decrease) $4,000 11.Oct. 26 – Sierra paid a $500 dividend. a. Assets – Cash: credit (decrease) $500 b. Shareholders’ equity – Dividends: debit (decrease) $500 12.Oct. 30 – Copa paid Sierra the amount owing on its account. a. Assets – Cash: debit (increase) $10,000 b. Assets – Accounts Receivable: credit (decrease) $10,000  Account: an individual accounting record of increases and decreases in a specific asset, liability, or shareholders’ equity item. o Consists of 3 parts:  The title of the account  A left or debit side  A right or credit side o When depicted (in the shape of a T), it is referred to as a T account. Title of Account . Debit | Credit (Dr.) | (Cr.) (left) | (right) side | side |  Double-entry accounting system: the dual (two-sided) effect of each transaction is recorded in appropriate accounts. o The sum of all debits must be equal to the sum of all credits all the time.  Shareholders’ Equity can be divided into: o Common Shares o Retained Earnings  Which can be divided into:  Revenue  Expenses
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