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Chapter 3

Management and Organizational Studies 3360A/B Chapter Notes - Chapter 3: Double-Entry Bookkeeping System, General Ledger, Trial Balance


Department
Management and Organizational Studies
Course Code
MOS 3360A/B
Professor
Stacey Hann
Chapter
3

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Chapter 3 The Accounting Information System and Measurement Issues
Part I
Accounting Information System
Accounting information system the system for collecting and processing transaction
data to make financial information available to interested parties
Varies from business to business
Basic Terminology and Double-Entry Rules
Event something of consequence that happens, which is generally the source of
changes in asset, liability, and equity balances
o May be internal or external
Transaction the act of buying and selling for profit in the short term
Account an individual accounting record of increases and decreases in a specific asset,
liability, or shareholder’s equity item
Temporary account revenue, expense, and dividend account (closed at end of fiscal
year)
o Also known as nominal account
Permanent account all of the asset, liability, and equity accounts
o Appears on the balance sheet
o Also known as real account
General Ledger a collection of all assets, liability, shareholder’s equity, revenue,
expense accounts and their respective balances
Subsidiary Ledger a ledger that contains the details related to a given general ledger
account
Journal the book of original entry where transactions and selected other events are
initially recorded
Posting the process whereby items entered in a general journal must be transferred to
the general ledger
Trial Balance a list of all open accounts in the ledger and their balances
Adjusted Trial Balance a list of all open accounts in the ledger and their balances
taken immediately after all adjusting entries have been made
Post-closing Trial Balance a trial balance taken immediately after closing entries have
been posted
Debit refers the left side of the general ledger account and credit refers to the right side of
the general ledger account
“An account will have a debit balance if debit amounts are more than credit amounts”
and vice versa
Double entry accounting system of accounting requiring the equality of debits and
credits when recording transactions
o “Total debits ($) should always equal total credits ($)”
Both ASPE and IFRS require the use of accrual accounting
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Accounting Equation
   
The Accounting Cycle and the Recording Process
1. Identification and measurement of transactions and other events
2. Journalizing
3. Posting
4. Trial balance preparation
5. Adjustments
6. Adjusted trial balance
7. Statement preparation
8. Closing
9. Post-closing trial balance
10. Reversing entries
Identifying and Recording Transactions and Other Events
An item should be recognized in the financial statements if it meets the definition of an
element (e.g. assets, liability, revenue) and is measurable
Journalizing
The simplest journal form is a chronological listing of transactions and other events that
expresses the transactions and events as debits and credits to particular accounts
Thus we first use a general journal
IMPORTANT unless it specifically says “paid with cash” the company paid on
account
Debits are entered first followed by credits
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