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Chapter 3

MGMT 30A Chapter Notes - Chapter 3: Trial Balance, Accounts Payable, Cash Register

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Patricia Wellmeyer

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Chapter 3
Accounting information system: system of collecting and processing transaction data and
communicating financial information to decision makings
Accounting transactions: economic events the require recording in the financial statements
Revenue is recorded after the work has been performed
Reveue ieases stokholdes’ euit
Accounts receivable: represents the right to receive payment at a later date
Epeses deease stokholdes’ euit
Divideds: edutio of stokholdes’ euit ut ot a expense, not included in calculation for
et ioe, distiutio of the opa’s assets to its stokholdes
Account: individual accounting record of increases and decreases in a specific asset, liability,
stokholdes’ euit, eveue, o epese ite
Title of the account
Left or debit side
Right or credit side
T-account: the basic form of an account
Debit: left side of an account
Credit: right side of an account
Debit balance: total of the debit amounts exceeds the credits
Credit balance: total credit amounts exceed the debtis
We record increases in cash as debits and decreases in cash as credits
For each transaction, debits must equal credits
Double-entry system: two-sided effect of each transaction is recorded in appropriate accounts,
provides logical method for recording transactions, ensures accuracy of the recorded amounts
and helps to detect errors
Debits: increase assets, decrease liabilities
Credits: decrease assets, increase liabilities
Asset accounts normally show debit balances while liability accounts normally show credit
Sudivisios of stokholdes’ euit:
oo stok: issued to ivetos i ehage fo stokholdes’ ivestet, aout is
increased by credits and decreased by debits
retained earnings: net income that is retained i the usiess, potio of stokholdes’
equity that has been accumulated through the profitable operation of the company,
increased by credits and decreased by debits
dividends: distribution by a corporation to its stockholders (usually cash), reduction of
the stokholdes’ lais o etaied eaigs, iease  deit, deease  edit
revenues: increased by credits and decreased by debits, normally show credit balances
epeses: ieased  deits ad deeased  edits, deease stokholdes’ equity,
normally show debit balances
Assets = Liabilities + Common stock + retained earnings + revenues expenses dividends
The recording process:
1. Analyze each transaction in terms of its effect on the accounts
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