An accounting information system consists
accounts used to record business transactions.
Accounts are
record-keeping devices used to track the financial impact of business transactions
Assets are
resources that a company owns and can use to generate future economic benefits
Liabilities are
obligations that a company owes and must pay in the future.
Equity represents
The net worth of a company, after all liabilities have been settled.
Revenues are
Amounts generated by a company in the normal course of business through sales of goods and/or services.
Expenses
Amounts incurred by a business in the normal course of business in order to generate revenues
Incurred means
a particular EXPENSE has been recognized and recorded
ASSETS PROVIDE
A FUTURE BENEFIT
Accounts Receivable
represent amounts due from customers for goods sold or services provided to them by the company
Notes Payable
is a loan taken out by a company or an amount borrowed by a company that is due to be repaid in the future
Accounts Payable
refers to amounts due to vendors for goods purchased and services enlisted by a company
Unearned Revenue
represents a service that a company is obligated to perform.
Common Stock
contributions by owners and investors in an account
Retained Earnings
known as earned capital
Distributions of a company's earnings back to its owners and investors are recorded in
Dividends
If a company has excess cash that it wants to invest, revenue from such investments are recorded in
Interest Revenue
Accounting Equation
EQUITY = ASSETS − LIABILITIES
Debit Means
Left side of T account
Credit means
Right side of T account
Assests do what to T Accounts?
Increase debit and decrease credit
Liabilities do what to T Accounts?
Decrease debit and increase credit
Define Normal Balance
the side of an account that increases the account
Equity does what to T Accounts?
Decrease debit and increase credit
Dividends do not follow Equity Rules in T Accounts, instead they
Increase debit and decrease credit
In general the term "payable" refers to
Liabilities
Unearned Revenue is an example of
a Liability
Revenues do what to a T account?
Decrease debit and Increase credit
Expenses do what to a T account?
Increase debit and decrease credit
What is the first step of the accounting cycle?
Analyzing business transactions
What is the second step of the accounting cycle?
Recording a journal entry is made in the journal
What is the third step of the accounting cycle?
Posting a journal entry to the appropriate accounts in the general ledger
What is the fourth step of the accounting cycle?
Compile a trial balance
A transaction must affect
2 accounts at a minimum
A complete journal entry should have
date, debit and credit amount, and description of
A company records journal entries in a chronological fashion in the
journal, or general journal
The journal is also known as
the book of original entry
A general ledger is
an arrangement of all of a company's accounts in order of assets, liabilities, equities, revenues, and expenses
A trial balance is a
listing of all of a company's accounts with their respective balances in columnar form
Adjusting journal entries
are journal entries that are recorded at the end of the month to adjust accounts to their most updated balances
accrual basis accounting is when
expenses are recorded and recognized when they are incurred.
Accrued means
it has not been received, has not been payed for, but has been recognized
Deferred means
it has been recieved, already payed for, but has not been recognized
This wearing down of PP&E is referred to as
depreciation
When a company employs PP&E in operations, it has to record an amount for
Depreciation Expense
Accumulated Depreciation is
an account used to record the cumulative-to-date depreciation on a company's PP&E
A contra-account is an account
with an opposite normal balance
Accumalted Depriciation classifies as a
contra-account
Since depreciation expense increases debit, then Accumulated Depreciation would
increase credit
The book value of property, plant, and equipment indicates the
amount that a company reports the PP&E at a certain point in time
Equipment/Property - Accumulated Depreciation =
Book Value
Interest equation
Interest = Principle * Rate * Time
What is step 5 of the accounting cycle?
Recording and Posting Adjusting Journal Entries
What is step 6 of the accounting cycle?
Preparing an adjusted trial balance
What is step 7 of the accounting cycle?
Preparing Financial Statements
Income statements record what?
Revenue and Expense Accounts
Statement of Retained Earnings record what?
Retained Earnings Beginning and Ending, and Dividends
Balance Sheet records what?
Assets, Liability, and Equity (No dividends) accounts
All financial statements begin with a 3-line header consisting of
Name of company, name of financial statement, date
Income statement formula
REVENUES − EXPENSES = NET INCOME (LOSS)
Statement of retained earnings formula
BEGINNING RETAINED EARNINGS +/− NET INCOME (NET LOSS) − DIVIDENDS = ENDING RETAINED EARNINGS
Balance sheet formula
ASSETS + LIABILITIES = EQUITY
Notes are
explanatory language to further annotate and clarify the amounts and items appearing on the financial statements
Temporary Accounts include
Revenue, Expense, and Dividends
Permanent Accounts include
Asset, Liability, Equity
Temporary Accounts are called
Nominal
Permanent Accounts are called
real
Dividends are in an equity account but are
temporary not permanent
Dividends do not go on balance sheet they go on
statement of retain earnings..
Dividends increase
debit and decrease credit
Closing entries refers to
a set of 4 journal entries that clean out a company's temporary accounts at period end and transfer the balances into the company's designated permanent account - Retained Earnings
Closing entries are recorded on
the last day of the month
Income Summary is an
account used only during the closing process as a conduit to transfer revenues and expenses to Retained Earnings
To close an account means
to make an account balance go to zero
What is the 1st closing entry?
Close all revenue accounts to Income Summary
What is the 2nd closing entry?
Close all expense accounts to Income Summary
What is the 3rd closing entry?
Close Income Summary to Retained Earnings
What is the 4th closing entry?
Close Dividends to Retained Earnings
Income Summary has
decrease in debit and increase in credit
What is step 8 of the cycle?
the 4 closing entries being journalized
What is step 9 of the cycle?
post-closing trial balance, in which a trial balance is compiled after the closing process, hence a post-closing trial balance
The post closing trial balance contains only
permanent accounts
The post closing trial balance has the least number of accounts
True