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Chapter 3

Management and Organizational Studies 3360A/B Chapter Notes - Chapter 3: General Ledger, Trial Balance, Retained Earnings

Management and Organizational Studies
Course Code
MOS 3360A/B
Christina Maco

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The Accounting Information System and Measurement Issues
Accounting Information System
The system used for collecting and processing transaction data to make financial information
available to interested parties
Factors that shape the system
o Type of business
o Kinds of transactions
o Firms size
o Amount of data handled
o Kind of information that management and others need to get from the system
Basic terminology and double-entry rules
o Event
o Account
Permanent accounts
Temporary accounts
o Ledger
General ledger
Subsidiary ledger
o Journal
o Posting
o Trial balance
Adjusted trial balance
Post-closing trial balance
o Journal entries
Adjusting entries
Closing entries
Reversing entries
o Financial statements
Statement of financial position/balance sheet- ASPE
Statement of comprehensive income/ income statement- ASPE
Statement of cash flows
Statement of changes in shareholders equity/ statement of retained earnings- ASPE
o Debiting- the act of entering an amount on the left side
o Crediting- the act of entering an amount on the right side
o Double-entry accounting system-
o All asset and expense accounts are increased on the left and decreased on the right
o All liability and revenue accounts are increased on the right and decreased on the left
Accounting equation
o Assets = liabilities + shareholders' equity
o Assets = liabilities + common shares + retained earnings - dividends + revenues - expenses
The Accounting Cycle and the Recording Process
Identifying and recording transactions and other events
o Analyze transactions & other selected events
o Record
o Item should be recognized if it meets the definition of an element and is measurable

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o Transactions are categorized and collected in accounts
o General journal-
o Special journal-
Cash receipts journal, cash disbursements journal, purchases journal, sales journal,
o General journal entry
Accounts and amounts to be debited (dr.)
Accounts and amounts to be credited (cr.)
A date
An explanation
o The items entered in a general journal must be transferred to the general ledger
o General ledger (monthly)
o Subsidiary ledgers (usually daily)
o The general journal posting is completed when all the posting referenced numbers have
been recorded opposite the account titles in the journal
o Purpose of the reference column
Indicates the ledger account number of account involved
Indicates that the posting has been completed for that item
Trial balance preparation
o Trial balance- list of general ledger accounts and their balances at a specific time
o Purpose is to prove mathematical equality of debits and credits after posting
o To prepare
List the account titles and balances
Total the debit and credit columns
Prove the equality of the 2 columns
o Revenues must be recorded when earned, expenses must be recorded when incurred (not
when payment occurs)
o Adjustments are needed to ensure that the revenue recognition principle is followed and
that proper matching occurs
Required every time financial statements are prepared
o Accruals
Accrued revenues- earned but not yet received in cash/ recorded
Debit adjusting entry (asset)
Credit adjusting entry (revenue)
Accumulate with time or from services that have been performed but not yet
Accrued expenses- incurred but not yet paid in cash/ recorded
Debit adjusting entry (expense)
Credit adjusting entry (liability)
Example: rent, salaries, interest
Interest to be paid is determined by
Notes face value
Interest rate (annual rate)
Length of time the note is outstanding
o Prepayments
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