ACC 303 Chapter 2: The Accounting Information System

Accounting Information System

Collects and processes transaction data and then disseminates the information in financial statements to interested parties.

Principles of an efficient and effective accounting information system

1: Cost-Effectiveness. Benefits of info provided outweigh the costs of providing it.

2: Useful Output. Provides understandable, relevant, reliable, timely, and accurate information.

3: Flexibility. Flexible enough to accommodate a variety of users and changing information needs.

General Ledger Accounting Systems

Software programs that integrate the various accounting functions related to sales, purchases, receivables, payables, cash receipts and disbursements.

ERP systems.

Enterprise Resource Planning systems. Used by companies with 500+ employees and who earn 500 million or more in sales. Integrates all aspects of an organization.

Manual Accounting Systems

Someone performs each of the accounting cycle’s steps by hand. Used by many small businesses.

Debit and Credit

Or Dr. and Cr.. Debits are on the left, credits are on the right. An accounts balance is based on which side is bigger.

Double-Entry Accounting System

A company records each transaction with equal debits and credits, leading to an equal end sum of both accounts.

Accounting Equation

Assets = Liabilities + Stockholder's’ Equity

Financial Statements and Ownership Structure

Income Statement
Revenue - Expenses = Net Income / Net Loss.

Retained Earnings Statement
Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings.

Balance Sheet
Lists assets, liabilities, stockholders equity.
As part of SE, Common Stock and Retained Earnings.

Accounting Cycle Steps 1-5

1: Analyze business transactions.
2: Journalize the transactions of the period in appropriate journals.
3: Post from the journals to the ledger.
4: Prepare an unadjusted trial balance.
5: Prepare adjusting journal entries and post to the ledger(s).

Accounting Cycle Steps 6-9 (Nice)

6: Prepare a trial balance after adjusting (Adjusted Trial Balance)
7: Prepare the financial statements from the adjusted trial balance.
8: Prepare closing journal entries and post to the ledger(s).
9: Prepare a post-closing trial balance (Optional).

Transactions

A business’ economic events. External transactions are between the company and an outside enterprise. Internal Transactions are entirely within one company.

Steps 1-3: The Recording Process

1: Analyze Transaction

2: Enter transaction.

3: Transfer from journal to ledger.

Journalizing

A complete entry consists of:

1: The date of transaction.

2: The accounts and amounts to be debited and credited.

3: A brief explanation of the transaction.

Ledger

Provides the balance in each of the accounts. Keeps track of the changes.

Every company has a general ledger, which includes all assets, liabilities, and stockholders’ equity accounts. Assume all ledgers to be general ledgers unless stated otherwise.

Chart of Accounts

Lists all accounts and sorts location in the ledger by account numbers. Usually begins with balance sheet accounts, follows with income statement accounts.

Recording Process

1: Basic Analysis (Items increased)
2: Equation Analysis (Convert into math)
3: Debt Credit Analysis (Debit and credit appropriate accounts.)
4: Journal Entry (Self explanatory)
5: Posting to Ledger (Debit and credit the appropriate accounts.)

Trial Balance

A list of accounts and their balances at a given time. Prepared at the end of the accounting period. Lists accounts in order of appearance in the ledger.

Lists account titles and their balances and proves the equality between debits and credits.

Adjusting Entries

Part of the fifth step. Adjusts account balances to be accurate by the end of the period.

Deferrals

1: Prepaid Expenses: Expenses paid in cash before they are used or consumed.

2: Unearned Revenue: Cash received before services are performed.

Accruals

1: Accrued Revenues: Revenues for services performed but not yet received in cash or recorded.

2: Accrued Expenses: Expenses incurred but not yet paid in cash or recorded.

Prepaid Expenses

Assets paid for and recorded before a company uses them. Costs expire over time or by consumption. Expiration does not require daily entries. Examples include supplies and insurance.

Depreciation Adjustment

Same method of reduction as other depreciation methods. Learn and master the math soon and quickly you buffoon.