Week 3Week 3:E3-9 and E3-13Total Points: 50E3-9: [20 pts]E3-13: [30 pts]General Journal(a)Cash(b)GALAXY INC.DateAccount TitlesDebitCreditAug. 1Aug. 1Trial BalanceMay 4Accounts payable70010August 31, 2012Cash70031DebitCredit7Bal.Cash…………………………….Accounts receivable…….8Accounts ReceivableEquipment…………………..Aug. 25Aug. 31Notes payable……………..9Bal.Common Stock……………Service revenue…………..17EquipmentAug. 1222Bal.29Notes PayableAug. 12Bal.Common StockAug. 1Bal.Service RevenueAug. 1025Bal.
study objectives
After studying this chapter, you should be able to:
1 Analyze the effect of business transactions on the basic
accounting equation.
2 Explain what an account is and how it helps in the recording
process.
3 Define debits and credits and explain how they are used to
record business transactions.
4 Identify the basic steps in the recording process.
5 Explain what a journal is and how it helps in the recording
process.
6 Explain what a ledger is and how it helps in the recording
process.
7 Explain what posting is and how it helps in the recording
process.
8 Explain the purposes of a trial balance.
9 Classify cash activities as operating, investing, or
financing.
chapter
THE ACCOUNTING
INFORMATION SYSTEM
3
100
● Scan Study Objectives
● Read Feature Story
● Scan Preview
● Read Text and Answer
p. 110 p. 116 p. 119 p. 128
● Work Using the Decision Toolkit
● Review Summary of Study Objectives
● Work Comprehensive p. 133
● Answer Self-Test Questions
● Complete Assignments
● Go to WileyPLU S for practice and tutorials
● Read A Look at I FR S p. 159
● the navigator
Do it!
Do it!
✓
c03TheAccountingInformationSystem.qxd 9/2/10 1:38 PM Page 100
101
How organized are you financially? Take a short quiz.
Answer yes or no to each question:
• Does your wallet contain so many cash machine
receipts that you’ve been declared a walking fire
hazard?
• Is your wallet such a mess that it is often faster to
fish for money in the crack of your car
seat than to dig around in your wallet?
• Was Steve Nash playing high school
basketball the last time you balanced
your bank account?
• Have you ever been tempted to burn down your
house so you don’t have to try to find all of the re-
ceipts and records that you need to fill out your tax
returns?
If you think it is hard to keep track of the many
transactions that make up your life, imagine what it is
like for a major corporation like Fidelity Investments.
Fidelity is one of the largest mutual fund manage-
ment firms in the world. If you had your life savings
invested at Fidelity Investments, you might be just
slightly displeased if, when you called to find out
your balance, the representative said, “You know, I
kind of remember someone with a name like yours
sending us some money—now what did we do with
that?”
To ensure the accuracy of your balance and the
security of your funds, Fidelity Investments, like all
other companies large and small, relies on a sophisti-
cated.
study objectivesAfter studying this chapter, you should be.docxhanneloremccaffery
study objectives
After studying this chapter, you should be able to:
1 Analyze the effect of business transactions on the basic
accounting equation.
2 Explain what an account is and how it helps in the recording
process.
3 Define debits and credits and explain how they are used to
record business transactions.
4 Identify the basic steps in the recording process.
5 Explain what a journal is and how it helps in the recording
process.
6 Explain what a ledger is and how it helps in the recording
process.
7 Explain what posting is and how it helps in the recording
process.
8 Explain the purposes of a trial balance.
9 Classify cash activities as operating, investing, or
financing.
chapter
THE ACCOUNTING
INFORMATION SYSTEM
3
100
● Scan Study Objectives
● Read Feature Story
● Scan Preview
● Read Text and Answer
p. 110 p. 116 p. 119 p. 128
● Work Using the Decision Toolkit
● Review Summary of Study Objectives
● Work Comprehensive p. 133
● Answer Self-Test Questions
● Complete Assignments
● Go to WileyPLU S for practice and tutorials
● Read A Look at I FR S p. 159
● the navigator
Do it!
Do it!
✓
c03TheAccountingInformationSystem.qxd 9/2/10 1:38 PM Page 100
101
How organized are you financially? Take a short quiz.
Answer yes or no to each question:
• Does your wallet contain so many cash machine
receipts that you’ve been declared a walking fire
hazard?
• Is your wallet such a mess that it is often faster to
fish for money in the crack of your car
seat than to dig around in your wallet?
• Was Steve Nash playing high school
basketball the last time you balanced
your bank account?
• Have you ever been tempted to burn down your
house so you don’t have to try to find all of the re-
ceipts and records that you need to fill out your tax
returns?
If you think it is hard to keep track of the many
transactions that make up your life, imagine what it is
like for a major corporation like Fidelity Investments.
Fidelity is one of the largest mutual fund manage-
ment firms in the world. If you had your life savings
invested at Fidelity Investments, you might be just
slightly displeased if, when you called to find out
your balance, the representative said, “You know, I
kind of remember someone with a name like yours
sending us some money—now what did we do with
that?”
To ensure the accuracy of your balance and the
security of your funds, Fidelity Investments, like all
other companies large and small, relies on a sophisti-
cated accounting information system. That’s not to say
that Fidelity or any other company is error-free. In fact,
if you’ve ever really messed up your
checkbook register, you may take some
comfort from one accountant’s mistake
at Fidelity Investments. The accountant
failed to include a minus sign while doing a calcula-
tion, making what was actually a $1.3 billion loss look
like a $1.3 billion gain—yes, billion! Fortunately, like
most accounting errors, it was detected before an.
The document provides an overview of exercises, problems, cases, and internet assignments from Chapter 3 of an accounting textbook. It lists 13 exercises that cover key accounting concepts like the accounting cycle, journal entries, financial statements, and accounting principles. It also describes 5 problems, 2 cases, 1 business week assignment, and 1 internet assignment. The problems require students to record transactions and analyze their impact. The cases focus on revenue recognition and income measurement. The assignments reinforce concepts and require outside research.
Chapter 3
The Accounting System
Learning Objectives
• Understand the need for and general characteristics of a proper accounting system.
• Understand accounts and how they are impacted by the debit/credit rules.
• Know how to prepare journal entries to describe the effects of transactions and events.
• Post accounts to the general ledger and prepare a trial balance.
• Apply features and tools that are used to enhance and improve accounting systems
and processes.
Martin Barraud/OJO Images/Getty Images
eps81189_03_c03.indd 37 12/20/13 8:49 AM
CHAPTER 3Section 3.1 Exploring Accounting Systems
Chapter Outline
Introduction
3.1 Exploring Accounting Systems
3.2 Chart of Accounts
3.3 Accounts and Debits/Credits
Debit and Credit Rules
T-Accounts
3.4 Transaction Analysis
Critical Thinking About Transaction Analysis
An Applied Example of Transaction Analysis
3.5 General Journal
Posting the General Ledger
Review of the Sequence of Transaction Recording
A Balanced Trial Balance: No Guarantee of Correctness
Special Journals
3.6 Source Documents
3.7 Thinking About Automation
3.8 Critical Thinking About Debits and Credits
Introduction
Exhibit 2.5 shows how transactions systematically impact the accounting equation and resulting financial statements. Although this system works fine as an introduction to
the accounting equation, it is not adequate for managing an actual business. Too many
transactions originate in too many places for a single tabulation to capture all business
activity reliably. Many small businesses have tried to use a simple schedule or spreadsheet
to record and process all their activities; however, chaos quickly rules. A more complete
and controlled accounting system is needed to manage today’s complex businesses. In
this chapter, we will explore the design and use of modern accounting practices.
3.1 Exploring Accounting Systems
Large and successful healthcare businesses have invariably developed robust account-ing information systems. This suggests that the pathway to business success entails
more than just providing excellent medical services. It also entails thoughtful develop-
ment of well-designed accounting information systems. It is far better to establish a proper
system at the outset of launching a healthcare business than to come back later and try to
repair an inadequate system. By the time a business discovers that its system is deficient,
it is often too late. The business may well have lost control of necessary information for
proper business management. The results are often disastrous.
eps81189_03_c03.indd 38 12/20/13 8:49 AM
CHAPTER 3Section 3.2 Chart of Accounts
This naturally leads you to wonder about the core elements of a proper system. Clearly,
the accounting system must provide a basis for preparing financial statements. This is the
end objective and reflects the aggregation of all activity. Thus, the goal of an accounting
system is to process transactions and events ...
The document provides an overview of the accounting cycle, which consists of a recording phase and reporting phase. The recording phase involves analyzing transactions, recording them in journals, posting to ledgers, and preparing a trial balance. The reporting phase involves preparing adjusting entries, a post-adjusted trial balance, financial statements, and closing entries. The purpose is to review the basic steps of the accounting process, including journalizing, posting, preparing financial statements, and closing books at the end of each period.
The document is a 40-page eBook from the Corporate Finance Institute that provides an introduction to accounting principles. It covers topics such as bookkeeping, the accounting equation, debits and credits, journal entries, T-accounts, adjusting entries, the general ledger, accounts receivable, inventory, assets, liabilities, shareholders' equity, the balance sheet, income statement, and statement of cash flows. The eBook is intended to walk readers through all important bookkeeping and accounting principles from basic transaction recording to the full accounting cycle and key financial statements.
The document provides an overview of the accounting cycle and key concepts in financial accounting. It discusses [1] what accounts are and how they are used to record business transactions, [2] the basic steps in the recording process including journalizing, posting to ledgers, and preparing a trial balance, and [3] key adjusting entries related to deferrals like prepaid expenses and unearned revenues, and accruals like accrued revenues and accrued expenses. The purpose is to explain the fundamentals of recording and reporting financial information according to generally accepted accounting principles.
The document provides examples of journal entries and explains the accounting process. It discusses how transactions are first recorded in journals before being posted to individual accounts. Debits are listed before credits in journal entries and credits are indented. Accounts record the effects of transactions by showing increases or decreases to asset, liability, equity, expense and revenue accounts.
The document is a 40-page eBook from the Corporate Finance Institute that provides an introduction to accounting principles and concepts. It covers topics such as bookkeeping, the accounting equation, debits and credits, journal entries, T-accounts, adjusting entries, the general ledger, and key accounts in financial statements like assets, liabilities, equity, revenue, and expenses. The eBook is intended to walk readers through all important aspects of accounting and financial reporting.
study objectivesAfter studying this chapter, you should be.docxhanneloremccaffery
study objectives
After studying this chapter, you should be able to:
1 Analyze the effect of business transactions on the basic
accounting equation.
2 Explain what an account is and how it helps in the recording
process.
3 Define debits and credits and explain how they are used to
record business transactions.
4 Identify the basic steps in the recording process.
5 Explain what a journal is and how it helps in the recording
process.
6 Explain what a ledger is and how it helps in the recording
process.
7 Explain what posting is and how it helps in the recording
process.
8 Explain the purposes of a trial balance.
9 Classify cash activities as operating, investing, or
financing.
chapter
THE ACCOUNTING
INFORMATION SYSTEM
3
100
● Scan Study Objectives
● Read Feature Story
● Scan Preview
● Read Text and Answer
p. 110 p. 116 p. 119 p. 128
● Work Using the Decision Toolkit
● Review Summary of Study Objectives
● Work Comprehensive p. 133
● Answer Self-Test Questions
● Complete Assignments
● Go to WileyPLU S for practice and tutorials
● Read A Look at I FR S p. 159
● the navigator
Do it!
Do it!
✓
c03TheAccountingInformationSystem.qxd 9/2/10 1:38 PM Page 100
101
How organized are you financially? Take a short quiz.
Answer yes or no to each question:
• Does your wallet contain so many cash machine
receipts that you’ve been declared a walking fire
hazard?
• Is your wallet such a mess that it is often faster to
fish for money in the crack of your car
seat than to dig around in your wallet?
• Was Steve Nash playing high school
basketball the last time you balanced
your bank account?
• Have you ever been tempted to burn down your
house so you don’t have to try to find all of the re-
ceipts and records that you need to fill out your tax
returns?
If you think it is hard to keep track of the many
transactions that make up your life, imagine what it is
like for a major corporation like Fidelity Investments.
Fidelity is one of the largest mutual fund manage-
ment firms in the world. If you had your life savings
invested at Fidelity Investments, you might be just
slightly displeased if, when you called to find out
your balance, the representative said, “You know, I
kind of remember someone with a name like yours
sending us some money—now what did we do with
that?”
To ensure the accuracy of your balance and the
security of your funds, Fidelity Investments, like all
other companies large and small, relies on a sophisti-
cated accounting information system. That’s not to say
that Fidelity or any other company is error-free. In fact,
if you’ve ever really messed up your
checkbook register, you may take some
comfort from one accountant’s mistake
at Fidelity Investments. The accountant
failed to include a minus sign while doing a calcula-
tion, making what was actually a $1.3 billion loss look
like a $1.3 billion gain—yes, billion! Fortunately, like
most accounting errors, it was detected before an.
The document provides an overview of exercises, problems, cases, and internet assignments from Chapter 3 of an accounting textbook. It lists 13 exercises that cover key accounting concepts like the accounting cycle, journal entries, financial statements, and accounting principles. It also describes 5 problems, 2 cases, 1 business week assignment, and 1 internet assignment. The problems require students to record transactions and analyze their impact. The cases focus on revenue recognition and income measurement. The assignments reinforce concepts and require outside research.
Chapter 3
The Accounting System
Learning Objectives
• Understand the need for and general characteristics of a proper accounting system.
• Understand accounts and how they are impacted by the debit/credit rules.
• Know how to prepare journal entries to describe the effects of transactions and events.
• Post accounts to the general ledger and prepare a trial balance.
• Apply features and tools that are used to enhance and improve accounting systems
and processes.
Martin Barraud/OJO Images/Getty Images
eps81189_03_c03.indd 37 12/20/13 8:49 AM
CHAPTER 3Section 3.1 Exploring Accounting Systems
Chapter Outline
Introduction
3.1 Exploring Accounting Systems
3.2 Chart of Accounts
3.3 Accounts and Debits/Credits
Debit and Credit Rules
T-Accounts
3.4 Transaction Analysis
Critical Thinking About Transaction Analysis
An Applied Example of Transaction Analysis
3.5 General Journal
Posting the General Ledger
Review of the Sequence of Transaction Recording
A Balanced Trial Balance: No Guarantee of Correctness
Special Journals
3.6 Source Documents
3.7 Thinking About Automation
3.8 Critical Thinking About Debits and Credits
Introduction
Exhibit 2.5 shows how transactions systematically impact the accounting equation and resulting financial statements. Although this system works fine as an introduction to
the accounting equation, it is not adequate for managing an actual business. Too many
transactions originate in too many places for a single tabulation to capture all business
activity reliably. Many small businesses have tried to use a simple schedule or spreadsheet
to record and process all their activities; however, chaos quickly rules. A more complete
and controlled accounting system is needed to manage today’s complex businesses. In
this chapter, we will explore the design and use of modern accounting practices.
3.1 Exploring Accounting Systems
Large and successful healthcare businesses have invariably developed robust account-ing information systems. This suggests that the pathway to business success entails
more than just providing excellent medical services. It also entails thoughtful develop-
ment of well-designed accounting information systems. It is far better to establish a proper
system at the outset of launching a healthcare business than to come back later and try to
repair an inadequate system. By the time a business discovers that its system is deficient,
it is often too late. The business may well have lost control of necessary information for
proper business management. The results are often disastrous.
eps81189_03_c03.indd 38 12/20/13 8:49 AM
CHAPTER 3Section 3.2 Chart of Accounts
This naturally leads you to wonder about the core elements of a proper system. Clearly,
the accounting system must provide a basis for preparing financial statements. This is the
end objective and reflects the aggregation of all activity. Thus, the goal of an accounting
system is to process transactions and events ...
The document provides an overview of the accounting cycle, which consists of a recording phase and reporting phase. The recording phase involves analyzing transactions, recording them in journals, posting to ledgers, and preparing a trial balance. The reporting phase involves preparing adjusting entries, a post-adjusted trial balance, financial statements, and closing entries. The purpose is to review the basic steps of the accounting process, including journalizing, posting, preparing financial statements, and closing books at the end of each period.
The document is a 40-page eBook from the Corporate Finance Institute that provides an introduction to accounting principles. It covers topics such as bookkeeping, the accounting equation, debits and credits, journal entries, T-accounts, adjusting entries, the general ledger, accounts receivable, inventory, assets, liabilities, shareholders' equity, the balance sheet, income statement, and statement of cash flows. The eBook is intended to walk readers through all important bookkeeping and accounting principles from basic transaction recording to the full accounting cycle and key financial statements.
The document provides an overview of the accounting cycle and key concepts in financial accounting. It discusses [1] what accounts are and how they are used to record business transactions, [2] the basic steps in the recording process including journalizing, posting to ledgers, and preparing a trial balance, and [3] key adjusting entries related to deferrals like prepaid expenses and unearned revenues, and accruals like accrued revenues and accrued expenses. The purpose is to explain the fundamentals of recording and reporting financial information according to generally accepted accounting principles.
The document provides examples of journal entries and explains the accounting process. It discusses how transactions are first recorded in journals before being posted to individual accounts. Debits are listed before credits in journal entries and credits are indented. Accounts record the effects of transactions by showing increases or decreases to asset, liability, equity, expense and revenue accounts.
The document is a 40-page eBook from the Corporate Finance Institute that provides an introduction to accounting principles and concepts. It covers topics such as bookkeeping, the accounting equation, debits and credits, journal entries, T-accounts, adjusting entries, the general ledger, and key accounts in financial statements like assets, liabilities, equity, revenue, and expenses. The eBook is intended to walk readers through all important aspects of accounting and financial reporting.
The document provides an overview of the key concepts and steps covered in Chapter 3 of Intermediate Accounting. It discusses the accounting information system and its objectives. The key steps in the accounting cycle are identified as journalizing transactions, posting to ledger accounts, preparing an initial trial balance, adjusting entries, and final financial statements. Basic accounting terminology is defined, including accounts, debits/credits, the accounting equation, and the different types of accounts. Examples are provided to illustrate double-entry accounting and the posting process.
The document provides an overview of the key learning objectives and content covered in Chapter 3 of Intermediate Accounting (IFRS 2nd Edition) by Kieso, Weygandt, and Warfield. The chapter introduces fundamental accounting concepts including the accounting equation, double-entry system, accounting cycle, basic terminology, adjusting entries, and preparation of financial statements. It also discusses how the accounting information system collects and processes transaction data to disseminate financial information to stakeholders.
Ch03-financial reporting and accounting standardsVivi Tazkia
The document provides an overview of the key concepts and steps covered in Chapter 3 of Intermediate Accounting (IFRS 2nd Edition) by Kieso, Weygandt, and Warfield. It outlines 8 learning objectives for the chapter, which include understanding basic accounting terminology, the double-entry system, the accounting cycle, journalizing and posting transactions, adjusting entries, and preparing financial statements. The chapter also discusses the accounting equation, T-accounts, the different types of accounts, and the accounting process from recording transactions to the adjusted trial balance.
Finance for strategic managers day 1- 1Parag Tikekar
This document provides an overview of Parag Tikekar's background and qualifications, including degrees in electronics and business. It then outlines the agenda for a finance course, including introductions to bookkeeping, accounting, accounting methods, trial balances, debits and credits. The document defines key accounting terms and describes the processes of single and double entry bookkeeping systems and cash versus accrual accounting methods. It emphasizes the importance of accurate bookkeeping for preparing financial statements.
Balance Sheet And Statement Of Cash FlowErin Rivera
The document discusses off-balance sheet financing practices. It defines off-balance sheet financing as obtaining financing for a business through accounting techniques that do not disclose significant capital expenditures on the company's balance sheet. This allows businesses to maintain leverage positions without negative implications. However, off-balance sheet financing reduces transparency and can mislead investors by obscuring the company's true financial obligations and risks. Regulators have imposed rules to increase disclosure of off-balance sheet activities and bring transparency.
92717, 7(27 PMPage 1 of 78httpsjigsaw.vitalsource.com.docxransayo
This document summarizes 9 transactions for Sierra Corporation during its first month of operations to illustrate how transactions affect the accounting equation. The transactions include investing cash in exchange for stock, borrowing money through a note payable, purchasing equipment with cash, receiving a cash advance from a customer, providing services for cash, paying rent expenses in cash, prepaying insurance expenses with cash, purchasing supplies on credit, and hiring employees. For each transaction, the accounting equation is analyzed to show the impact on specific asset, liability, and equity accounts to maintain the balance of the equation.
This document discusses various topics related to accounting as a profession. It begins by defining accounting and describing the wide variety of roles that accountants perform beyond just preparing financial statements, such as analyzing costs and efficiencies, participating in mergers and acquisitions, developing information systems, and managing taxes and benefits. It then outlines some career paths one can take in accounting, such as auditing, budget analysis, and financial accounting. It also notes the expected job growth and outlook for the field.
This document contains 27 accounting interview questions and answers. It begins with common questions about types of business transactions, real and nominal accounts, accounting platforms worked on, double-entry bookkeeping rules, working capital, maintaining accuracy, TDS, accounts payable vs receivable, trial balance vs balance sheet, positive cash flows indicating trouble, common accounting errors, inactive vs dormant accounts, accounting standards in India, deferred tax liability and asset, and acid-test ratio equation. It ends with questions about popular accounting applications, GST, bank reconciliation statements, tally accounting, fictitious assets, and departmental accounting systems.
This document provides an overview of the brief exercises, exercises, problems, and critical thinking cases in Chapter 3 of the textbook. It includes:
- Descriptions of 15 brief exercises that involve journalizing transactions, preparing trial balances, and understanding the accounting cycle and financial statements.
- Descriptions of 10 exercises that require analyzing transactions, applying accounting principles like revenue recognition, and preparing trial balances.
- Descriptions of 8 problems sets A and B that require journalizing transactions and understanding the accounting equation.
- Descriptions of 4 critical thinking cases involving topics like revenue recognition, measuring income, whistleblowing, and analyzing revenue sources.
Chapter 2, Fundamentals of Accounting I (2).pptxKalkaye
This document provides an overview of the accounting cycle for service businesses. It discusses key concepts like accounts, debits and credits, journals, ledgers, and the steps in the recording process. The recording process involves analyzing transactions, recording them in a journal, and then posting the journal entries to the appropriate accounts in the general ledger. Adjusting entries, preparing an adjusted trial balance, and closing entries are also part of the full accounting cycle.
This powerpoint presentation is created by Gyanbikash.com for the students of class nine to ten from their accounting NCTB textbook for multimedia class.
Solutions manual for fundamental accounting principles volume 1 canadian 15th...Miller612
Here are the journal entries to record the transactions:
Jan. 1 Accounts Receivable 1,000
Service Revenue 1,000
To record services provided on account
Jan. 5 Cash 400
Accounts Receivable 400
To record collection of account receivable
Jan. 10 Accounts Payable 920
Cash 920
To record payment of accounts payable
Jan. 15 Service Revenue 900
Accounts Receivable 900
To record services provided on account
Jan. 20 Cash 1,800
Accounts Receivable 1,800
To record collection of accounts receivable
Jan. 25 Cash 2,500
Accounts Payable 2,500
To record payment of accounts payable
Jan. 30 Accounts
The document discusses key concepts in the accounting information system including:
1) The basic steps in the recording process such as analyzing transactions, journalizing, posting to ledger accounts, and preparing a trial balance.
2) The use of debits and credits to record transactions and their effect on different types of accounts.
3) The purpose and use of accounts, journals, ledgers, and the trial balance in the recording process.
The document discusses the accounting cycle and related concepts. It covers:
1) Analyzing transactions and their impact on the accounting equation (Assets = Liabilities + Equity). Transactions are recorded through journal entries.
2) Journal entries record transactions in chronological order and are posted to accounts in the general ledger.
3) A trial balance is prepared by listing account balances from the general ledger to check that total debits equal total credits. It helps identify any errors.
4) Technology has streamlined accounting processes but also introduces new risks around data security and reliability of systems.
The document discusses the accounting cycle and related concepts. It covers:
1) Analyzing transactions and determining their impact on the accounting equation (Assets = Liabilities + Equity). This is the first step in the accounting cycle.
2) Recording transactions in a journal, which provides a chronological record. This is the second step. Entries are then posted to accounts in the general ledger.
3) Preparing a trial balance to check that total debits equal total credits after posting. This is the third step.
Chapter 3 ANALYZING AND RECORDING TRANSACTIONSPrinciples of EstelaJeffery653
Chapter 3 ANALYZING AND RECORDING TRANSACTIONS
Principles of Accounting, Volume 1: Financial Accounting
PowerPoint Image Slideshow
Chapter Outline
3.1 Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to Financial Statements
3.2 Define and Describe the Expanded Accounting Equation and Its Relationship to Analyzing Transactions
3.3 Define and Describe the Initial Steps in the Accounting Cycle
3.4 Analyze Business Transactions Using the Accounting Equation and Show the Impact of Business Transactions on Financial Statements
3.5 Use Journal Entries to Record Transactions and Post to T-Accounts
3.6 Prepare a Trial Balance
Module 3.1 Describe Principles, Assumptions, and Concepts of
Accounting and Their Relationship to Financial Statements
The Financial Accounting Standards Board (FASB) is an independent, nonprofit organization that sets the standards for financial accounting and reporting, including generally accepted accounting principles (GAAP), for both public- and private-sector businesses in the United States.
GAAP are the concepts, standards, and rules that guide the preparation and presentation of financial statements.
US accounting rules are called US GAAP.
International accounting rules are called International Financial Reporting Standards (IFRS).
Some companies that operate on a global scale may be able to report their financial statements using IFRS.
Publicly traded companies (those that offer their shares for sale on exchanges in the United States) have the reporting of their financial operations regulated by the Securities and Exchange Commission (SEC).
Teacher Notes: By having proper accounting standards such as US GAAP or IFRS, information presented publicly is considered comparable and reliable. As a result, financial statement users are more informed when making decisions.
3
The conceptual framework is a set of concepts that guide financial reporting. These concepts help ensure information is comparable and reliable to stakeholders.
Revenue recognition principle: directs a company to recognize revenue in the period in which it is earned; is earned when a product or service has been provided
Expense recognition (matching) principle: states that we must match expenses with associated revenues in the period in which the revenues were earned
Cost principle: states that virtually everything the company owns or controls (assets) must be recorded at its value at the date of acquisition
Full disclosure principle: states that a business must report any business activities that could affect what is reported on the financial statements
The Conceptual Framework
Teacher Notes: Revenue recognition is not dependent on when cash is received.
Expense recognition is not dependent on when cash is paid.
Matching is important so as not to overstate or understate income.
4
Separate entity concept: prescribes that a business may only report activities on financial statements that are specifically rela ...
`Do assignments as detailed outNO WIKI for referncesPlease m.docxmelbruce90096
`Do assignments as detailed out
NO WIKI for refernces
Please make sure that ALL REFERNCES ARE APA CITED
TB BOOK CITATION:
Dyer, W. G., Jr., Dyer, J. H., & Dyer, W. G. (2013). Team building: Proven strategies for improving team performance (5th ed.). San Francisco, CA: Jossey-Bass.
.
_____1.On July 9, Sheb Company sells goods on credit to .docxmelbruce90096
_____1.
On July 9, Sheb Company sells goods on credit to Wooley Company for $5,000, terms 1/10, n/60. Sheb receives payment on July 18. The entry by Sheb on July 18 is:
A)
Cash
5,000
Accounts Receivable
5,000
B)
Cash
5,000
Sales Discounts
50
Accounts Receivable
4,950
C)
Cash
4,950
Sales Discounts
50
Accounts Receivable
5,000
D)
Cash
5,050
Sales Discounts
50
Accounts Receivable
5,000
_____2.
The collection of a $1,000 account after the 2 percent discount period will result in a
A)
debit to Cash for $980.
B)
credit to Accounts Receivable for $1,000.
C)
credit to Cash for $1,000.
D)
debit to Sales Discounts for $20.
_____3.
Gross profit does
not
appear
A)
on a multiple-step income statement.
B)
on a single-step income statement.
C)
to be relevant in analyzing the operation of a merchandiser.
D)
on the income statement if the periodic inventory system is used because it cannot be calculated.
_____4.
During 2014, Parker Enterprises generated revenues of $90,000. The company's expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000 and a loss on the sale of equipment of $3,000.
Parker's gross profit is
A)
$24,000.
B)
$27,000.
C)
$45,000.
D)
$90,000.
_____5.
At the beginning of September, 2014, Stella Company reported Inventory of $8,000. During the month, the company made purchases of $35,600. At September 30, 2014, a physical count of inventory reported $8,400 on hand. Cost of goods sold for the month is
A)
$35,200.
B)
$35,600.
C)
$36,000.
D)
$43,600.
_____6.
The Freight-In account
A)
increases the cost of merchandise purchased.
B)
is contra to the Purchases account.
C)
is a permanent account.
D)
has a normal credit balance.
______7.
A company purchased inventory as follows:
150 units at $5
350 units at $6
The average unit cost for inventory is
A)
$5.00.
B)
$5.50.
C)
$5.70.
D)
$6.00.
______8.
A company just starting business made the following four inventory purchases in June:
June
1
150 units
$
390
June
10
200 units
585
June
15
200 units
630
June
28
150 units
510
$2,115
A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for June is
A)
$683.
B)
$825.
C)
$1,290.
D)
$1,432.
PART II — BASIC INVENTORY COMPUTATIONS
(18 points)
9.
Joe Poultry uses a
periodic
inventory system. Its beginning inventory on May 1 consisted of 300 units of Product A at a cost of $6.25 per unit. During May, the following purchases and sales were made.
Purchases
Sales
May
6
300
units at $7.20
May
4
275
units
14
400
units at $9.10
8
300
units
21
100
units at $11.50
22
400
units
28
500
units at $11.80
24
225
units
1,300
1,200
Instructions:
Compute the May 31 ending inventory and May cost of goods sold under (a) Average Cost, (b) FIFO, and (c) LIFO. Provide appropriate supporting ca.
[removed]eltomate Son rojos y se sirven (they are serv.docxmelbruce90096
[removed]
el
tomate
: Son rojos y se sirven (
they are served
) en las ensaladas.
[removed]
los
entremeses
: Se come (
It is eaten
) antes del plato principal; es líquida y caliente (
hot
).
[removed]
la
zanahoria
: Son unas verduras anaranjadas, largas y delgadas
.
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Chapter Outline
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3
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Full disclosure principle: states that a business must report any business activities that could affect what is reported on the financial statements
The Conceptual Framework
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4
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NO WIKI for refernces
Please make sure that ALL REFERNCES ARE APA CITED
TB BOOK CITATION:
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_____1.
On July 9, Sheb Company sells goods on credit to Wooley Company for $5,000, terms 1/10, n/60. Sheb receives payment on July 18. The entry by Sheb on July 18 is:
A)
Cash
5,000
Accounts Receivable
5,000
B)
Cash
5,000
Sales Discounts
50
Accounts Receivable
4,950
C)
Cash
4,950
Sales Discounts
50
Accounts Receivable
5,000
D)
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50
Accounts Receivable
5,000
_____2.
The collection of a $1,000 account after the 2 percent discount period will result in a
A)
debit to Cash for $980.
B)
credit to Accounts Receivable for $1,000.
C)
credit to Cash for $1,000.
D)
debit to Sales Discounts for $20.
_____3.
Gross profit does
not
appear
A)
on a multiple-step income statement.
B)
on a single-step income statement.
C)
to be relevant in analyzing the operation of a merchandiser.
D)
on the income statement if the periodic inventory system is used because it cannot be calculated.
_____4.
During 2014, Parker Enterprises generated revenues of $90,000. The company's expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000 and a loss on the sale of equipment of $3,000.
Parker's gross profit is
A)
$24,000.
B)
$27,000.
C)
$45,000.
D)
$90,000.
_____5.
At the beginning of September, 2014, Stella Company reported Inventory of $8,000. During the month, the company made purchases of $35,600. At September 30, 2014, a physical count of inventory reported $8,400 on hand. Cost of goods sold for the month is
A)
$35,200.
B)
$35,600.
C)
$36,000.
D)
$43,600.
_____6.
The Freight-In account
A)
increases the cost of merchandise purchased.
B)
is contra to the Purchases account.
C)
is a permanent account.
D)
has a normal credit balance.
______7.
A company purchased inventory as follows:
150 units at $5
350 units at $6
The average unit cost for inventory is
A)
$5.00.
B)
$5.50.
C)
$5.70.
D)
$6.00.
______8.
A company just starting business made the following four inventory purchases in June:
June
1
150 units
$
390
June
10
200 units
585
June
15
200 units
630
June
28
150 units
510
$2,115
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A)
$683.
B)
$825.
C)
$1,290.
D)
$1,432.
PART II — BASIC INVENTORY COMPUTATIONS
(18 points)
9.
Joe Poultry uses a
periodic
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Purchases
Sales
May
6
300
units at $7.20
May
4
275
units
14
400
units at $9.10
8
300
units
21
100
units at $11.50
22
400
units
28
500
units at $11.80
24
225
units
1,300
1,200
Instructions:
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[removed]
el
tomate
: Son rojos y se sirven (
they are served
) en las ensaladas.
[removed]
los
entremeses
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It is eaten
) antes del plato principal; es líquida y caliente (
hot
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[u07d2] Unit 7 Discussion 2
Conflict and Change
Resources
Discussion and Participation Scoring Guide
.
Change is part of our lives. Change is viewed as positive and negative. It is accompanied with excitement and confidence, opportunity, progress, growth, innovation, fear and anxiety, upheaval, threat, and unpredictability. People react to change differently.
Based on the assigned readings, briefly answer the following questions.
List and explain the three approaches to change.
Explain the dynamics of change as you see it.
.
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Choose an English Romantic writer (William Wordsworth)
Choose a work by that writer as the focus of your research (Tintern Abbey)
Analyze and interpret the work to plan our approach to it and do some preliminary reading to evaluate the topic.
8 pages 4 secondary sources
.
[removed]1.Photographs are an important source of data because t.docxmelbruce90096
[removed]
1.
Photographs are an important source of data because they:
a.
b.
c.
d.
2.
The Ju/'hoansi are best described as a band because:
a.
b.
c.
d.
3.
A bifurcate kinship system is one where:
a.
b.
c.
d.
4.
The "honeymoon" phase in anthropological fieldwork can be described as a:
a.
b.
c.
d.
5.
Theoretical models in anthropology are:
a.
b.
c.
d.
6.
If your informant describes how her peers treat her differently because her father is an important film star, this is termed her __________ status.
a.
b.
c.
d.
7.
Rank societies are those where individuals gain prestige and wealth by using:
a.
b.
c.
d.
8.
Agriculturally based societies are primarily associated with which of the following economic institution(s)?
a.
b.
c.
d.
9.
An anthropologist that includes his or her thoughts about what he or she sees as well as quotations from his or her informants is presenting what type of ethnography?
a.
b.
c.
d.
10.
Anthropological interest in sexuality can be traced back to which of the following anthropologists?
a.
b.
c.
d.
11.
Which of the following chromosomal pairs shows that an individual is male?
a.
b.
c.
d.
12.
A key informant is selected using a:
a.
b.
c.
d.
13.
Which of the following situations is considered a suitable fieldwork setting for an anthropologist?
a.
b.
c.
d.
14.
The most common kinship system in North America today consists of __________ descent groups known as __________.
a.
b.
c.
d.
15.
Members of the Yurok, Karuk, Hupa, and Tolowa use valued items such as obsidian blades, white deer skins, and elaborately carved paddles and spoons to:
a.
b.
c.
d.
16.
The production maximization model of intensive agriculture strives to maximize production through:
a.
b.
c.
d.
17.
Forensic anthropologists apply their knowledge to legal issues by studying what materials?
a.
b.
c.
d.
18.
The Zuni recognize the berdache gender person as being:
a.
b.
c.
d.
19.
The Zuni recognize the berdache gender person as being:
a.
b.
c.
d.
20.
Initial attempts by AID to bring about reforestation in Haiti failed because:
a.
b.
c.
d.
21.
What type of evidence is used to analyze the evolutionary model of human cultural adaptations?
a.
b.
c.
d.
22.
The four fields of anthropology are:
a.
b.
c.
d.
23.
The description of a single society based on fieldwork is called a(n):
a.
b.
c.
d.
24.
A societal type common in foraging groups and marked by egalitarian social structure and lack of specialization is a:
a.
b.
c.
d.
25.
Among the New Zealand Maori, facial tattoos communicated all of the following, EXCEPT:
a.
b.
c.
d.
26.
The advantages of polygyny across cultures include all of the following, EXCEPT:
a.
b.
c.
d.
27.
Every aspect of culture influences every other aspect of that culture. Thus culture is:
a.
b.
c.
d.
28.
An informant tells a fieldworker that the preferred marriage custom in his culture is for a man to marry his mother's brot.
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Can the portrayal of science in media influence how certain research and technology is viewed, and accepted, by the general public (e.g., cloning)?
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Free of grammar and spelling errors
No evidence of plagiarism.
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no more than 10% of your paper should be direct quotes
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Final Project Information
Overview
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Assignment
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Describe in detail the major differences between the Western viewpoint toward death and dying and those in these Eastern societies (you may focus on one country, such as China, or talk about Eastern societies more generally). Be sure to describe the rituals involved with the process of death and dying, the various technologies, or anything that helps explain these differences.
Give one specific example of a famous case of death and dying in Western society that demonstrates some of the problems or dysfunctions of the Western viewpoint (examining cases in the media, for example, will be a great place to start!).
Finally, conclude your final paper with a detailed commentary about what we can do to change the cultural beliefs toward death and dying in Western societies in a way that makes us less afraid of the dying process. Be very specific in your commentary.
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Your Final Paper is to be a comprehensive research study on one of the following public policy topics:
Environmental Concerns
Immigration
Health Care
Primary and Secondary Public Education
Social Security
Welfare
Your analysis of the topic will include:
The scope and nature of the public policy problem.
How the problem came to public and political awareness.
The evolution of related public policy.
Level of government and the actors involved.
The intergovernmental structure and political concerns.
Conflicting public opinion and impact on policy solutions.
The approaches to policy formulation, adoption, and evaluation.
The suggested policy direction (continuation, change or termination) and future impact.
Writing the Final Paper
The Final Paper:
Must be eight to ten double-spaced pages in length (including title and reference pages), and formatted according to APA style as outlined in the Ashford Writing Center.
Must include a title page with the following:
Title of paper
Student’s name
Course name and number
Instructor’s name
Date submitted
Must begin with an introductory paragraph that has a succinct thesis statement.
Must address the topic of the paper with critical thought.
Must end with a conclusion that reaffirms your thesis.
Must use at six to ten scholarly sources, including a minimum of four from the Ashford University Library.
Must document all sources in APA style, as outlined in the Ashford Writing Center.
Must include a separate reference page, formatted according to APA style as outlined in the Ashford Writing Center
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Your director is not aware of the involvement of the Department of Homeland Security (DHS) with private enterprise and has requested an information paper that provides her with an explanation about why this is important and how the DHS engages private enterprise in the protection of critical infrastructure and key resources (CIKR). Provide at least 1 example of each program that addresses state, local, tribal, and territorial (SLTT) governments, private enterprises, and individuals in the following DHS mission areas:
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YOu'll need to know:
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Content Expectations
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Value of Data (2.5 Points):
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Your draft should establish and develop a single thesis [or controlling idea], develop in parts. You may also write from the earlier handout on an author you haven’t yet written about.
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Kenzaburo Oe develops a very smart and very controversial thesis. What is his thesis and what exactly does he refer to in an attempt to develop, support that thesis.
Kenzaburo Oe discusses the Great Flood [Noah] at the end of his essay and identifies something very troubling about the Western mind. What is this thing he is identifying here? How does it relate to the overall theme of the essay [man’s inhumanity to man]?
Rachel Carson’s “Obligation to Endure” identifies large increases in human populations that create conditions in which insects and other forms of life must be controlled. Name a few of these patterns of behavior that cause an increase in the amount of insects among us.
Identify Rachel Carson’s thesis and her solution. What’s the problem she outlines and what does she propose we do?
How do Carson’s ideas seem to influence David Suzuki? Are they on to the same problems? How are they similar or different?
Plato’s Gorgias is a discussion of the problem of rhetoric and the need for conversation. What is rhetoric, according to Plato, and why is it so dangerous? Does he convince the reader that discourse [words] can be used inappropriately and in dangerous ways?
Discuss any of the questions that follow the readings [Understa.
Your company has just hired your foreign friend to work in a middle-.docxmelbruce90096
Your company has just hired your foreign friend to work in a middle-management position. Since you have lived in the United States for many years, your friend believes that you understand job coaching for a traditional American company. She wants to work with you and has many questions—some of which concern the manner in which cultural nuances related to religious customs, verbal and nonverbal communication, etc. may affect leadership roles.
Write a five to seven (5-7) page paper in which you:
Recommend whether or not your friend should insert herself as a coach from the beginning. Provide a rationale for your response.
Determine two (2) conflicts that could possibly arise as a result of asking people to work on days of religious significance. Propose concrete solutions for these two (2) possible conflicts.
Determine whether or not cultural quirks could restrain the foreign manager from expressing his or her ideas readily. Provide a rationale for your response.
Determine two (2) actions that you can take in order to prepare yourself and your friend to become multicultural leaders. Provide two (2) examples to support your response.
Predict two (2) major conflicts that may arise out of nonverbal communication misunderstandings (e.g., words misinterpreted, hand gestures, looks, shoulder shrugs, names of objects, etc.). Suggest two (2) actions that your friend could take in order to diffuse these types of misunderstandings and thus make the workplace more harmonious. Justify your response.
Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.
Please DO NOT use "I, me, you, us, or we" in the research paper.
Please include a introduction paragraph.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
.
Your boss has asked you to write a Project Management Plan. Your pla.docxmelbruce90096
Your boss has asked you to write a Project Management Plan. Your plan should contain the following sections:
Initiating
Planning
Executing
Monitoring and Controlling
Closing
In addition, your plan should touch upon the following components:
Integration
Cost
Human resources
Stakeholder management
Scope
Quality
Communications
Time
Procurement
Risk management
.
Your boss has chosen you to give a presentation to a number of forei.docxmelbruce90096
Your boss has chosen you to give a presentation to a number of foreign officials (We have Chosen Italy) regarding the United States Federal Reserve System. These officials are very interested in doing business in the United States, but they would like to learn more about the Federal Reserve and how it operates as compared to the official's home country.
*
Your instructor will provide a list of countries from which you may select as the home country of the "foreign officials".
Develop
a 3- to 4-slide Microsoft
®
PowerPoint
®
presentation including detailed speaker notes.
Incorporate
any feedback from peer review discussion.
Address
the following questions and include a notes page which contains the write-up portion to each question:
How does monetary policy aim to avoid inflation?
How does monetary policy control the money supply?
How does a stimulus program (through the money multiplier) affect the money supply?
Format
consistent with APA guidelines including a reference slide.
.
your assignment is to submit a presentation on Native-American liter.docxmelbruce90096
your assignment is to submit a presentation on Native-American literature. You may choose ONE of the stories below..
"The Shawl"
"The Years of My Birth"
Here are the specifications for the assignment:
1. Please submit your presentation to the Presentation Drop Box under Module 4 Hispanic-American Literature. The deadline is 12/05.
2. Your presentation will consist of a PowerPoint or Prezi. The format MUST allow for video clips to be incorporated. In order to fulfill the oral communication component of this course, you will videotape yourself speaking onto a camera or record yourself speaking. Please submit an mp3 file, not a wave file, and include this video or audio clip in your presentation. Audio is required.
3. The presentation should include:
A. First slide with your name and the story or poem you selected for your presentation.
B. Slides that show your research of a minimum of 3 facts or statistics that help enhance our understanding of Native American/ Hispanic/ African-American literature, culture, history, or traditions (depending on your last name, you will focus on one of these types of literature. Please see above). Please explain HOW these 3 facts relate to the story or poem you chose to discuss. Please provide MLA citation regarding where the facts and statistics came from (URL or article you found).
B. Please include one video clip of the author and/or historic event related to the poem or story you are presenting on.
C. Please present 2 ways in which the story or poem you chose relates to ONE literary criticism theory.
(Please see Introduction to Literary Analysis Folder under Content.) You can do this orally in video and/or audio.
D. Please audiotape yourself for 5 minutes speaking to us about the literary theory that applies to the story or poem you have chosen for your presentation. This video or audio clip should be included with your presentation or prezi.
F. On the video of yourself, please ask one question you have about the story or poem and provide a possible answer.
This presentation will be graded on:
-- complete information required
-- clarity of oral presentation
-- use of video and/or audio
-- research and explanation of literary theoy
-- analysis of story or poem.
.
Your assignment is to report on TWO cultural experience visits y.docxmelbruce90096
Your assignment is to report on TWO "cultural experience" visits you make during this term. After each visit, write a 500-800 word report about the visit and what you learned.
Your instructor may modify this assignment.
Instructions
For your two reports, attend two different venues from this list.
art museum or sculpture garden
significant or notable architectural site (if there is explanatory material there to help you understand it)
music concert
theater play
poetry reading or spoken word performance
dance performance
religious service, ceremony or ritual for a religion very different from yours, if you practice (for instance, if you are Christian, you may not go to another Christian denomination's service)
other displays or performances may be acceptable. Check with your instructor for approval beforehand.
Restrictions: The experience should be done in person. If this is impossible, contact the instructor to arrange for alternatives. You may not report on a cultural experience from prior to this class.
Write a report after each cultural experience (Cultural Experience Report #1 and #2).
Each report should include the following information. Include photos or links that help convey the information. As always, be sure to document all sources you consult in preparing your work.
Name and location of the museum, site, or performance event. If there is on-line information about the site or performance, include a link.
Type of museum, site or event. For example, is it a portrait museum, a poetry slam, an outdoor Shakespeare festival performance? If you attended a performance, name the performer or the piece. Be specific about what you attended, when, and where.
Briefly describe the general setting.
Describe at least one aspect of the experience that you found especially interesting. For example, you might write about a particular work of art, cultural artifact, song, dance section, scene in a play, costumes or lighting, a particular actor or vocalist, etc. Explain what impressed you, and why. Your reaction can be positive or negative, as long as you offer an explanation.
Identify and use at least two things you've learned in class in your essay. For example, if you visit a museum, you might point out the architectural style, discuss an artist you've learned about in the course, or tie your experience to a class discussion.
Reflect on the relevance--if any--of your experience to your everyday life. How did the experience engage your feelings or emotions, if at all? What does this tell you about human culture, or about yourself?
.
your article must be a research article You can tell it is a researc.docxmelbruce90096
your article must be a research article You can tell it is a research journal article, and not just an editorial article, because a research article will have the
7 parts of a research article
(i.e.
Title, Abstract, Introduction, Methods, Results, Discussion, References
). Once you have chosen your research journal article, then write up a 3-4 page analysis of your chosen research article answering the questions in the
“Reading a Research Article”
(attached to this page)
.
.
Your administrator has come to you for information for a present.docxmelbruce90096
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.
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it describes the bony anatomy including the femoral head , acetabulum, labrum . also discusses the capsule , ligaments . muscle that act on the hip joint and the range of motion are outlined. factors affecting hip joint stability and weight transmission through the joint are summarized.
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Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...Dr. Vinod Kumar Kanvaria
Exploiting Artificial Intelligence for Empowering Researchers and Faculty,
International FDP on Fundamentals of Research in Social Sciences
at Integral University, Lucknow, 06.06.2024
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Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...
Week 3Week 3E3-9 and E3-13Total Points 50E3-9 [20 pts]E3-13 .docx
1. Week 3Week 3:E3-9 and E3-13Total Points: 50E3-9: [20
pts]E3-13: [30 pts]General Journal(a)Cash(b)GALAXY
INC.DateAccount TitlesDebitCreditAug. 1Aug. 1Trial
BalanceMay 4Accounts payable70010August 31,
2012Cash70031DebitCredit7Bal.Cash…………………………….
Accounts receivable…….8Accounts
ReceivableEquipment…………………..Aug. 25Aug. 31Notes
payable……………..9Bal.Common Stock……………Service
revenue…………..17EquipmentAug. 1222Bal.29Notes
PayableAug. 12Bal.Common StockAug. 1Bal.Service
RevenueAug. 1025Bal.
study objectives
After studying this chapter, you should be able to:
1 Analyze the effect of business transactions on the basic
accounting equation.
2 Explain what an account is and how it helps in the recording
process.
3 Define debits and credits and explain how they are used to
record business transactions.
4 Identify the basic steps in the recording process.
5 Explain what a journal is and how it helps in the recording
process.
6 Explain what a ledger is and how it helps in the recording
process.
2. 7 Explain what posting is and how it helps in the recording
process.
8 Explain the purposes of a trial balance.
9 Classify cash activities as operating, investing, or
financing.
chapter
THE ACCOUNTING
INFORMATION SYSTEM
3
100
● Scan Study Objectives
● Read Feature Story
● Scan Preview
● Read Text and Answer
p. 110 p. 116 p. 119 p. 128
● Work Using the Decision Toolkit
● Review Summary of Study Objectives
● Work Comprehensive p. 133
● Answer Self-Test Questions
● Complete Assignments
3. ● Go to WileyPLU S for practice and tutorials
● Read A Look at I FR S p. 159
● the navigator
Do it!
Do it!
✓
c03TheAccountingInformationSystem.qxd 9/2/10 1:38 PM
Page 100
101
How organized are you financially? Take a short quiz.
Answer yes or no to each question:
• Does your wallet contain so many cash machine
receipts that you’ve been declared a walking fire
hazard?
• Is your wallet such a mess that it is often faster to
fish for money in the crack of your car
seat than to dig around in your wallet?
• Was Steve Nash playing high school
4. basketball the last time you balanced
your bank account?
• Have you ever been tempted to burn down your
house so you don’t have to try to find all of the re-
ceipts and records that you need to fill out your tax
returns?
If you think it is hard to keep track of the many
transactions that make up your life, imagine what it is
like for a major corporation like Fidelity Investments.
Fidelity is one of the largest mutual fund manage-
ment firms in the world. If you had your life savings
invested at Fidelity Investments, you might be just
slightly displeased if, when you called to find out
your balance, the representative said, “You know, I
kind of remember someone with a name like yours
sending us some money—now what did we do with
that?”
To ensure the accuracy of your balance and the
5. security of your funds, Fidelity Investments, like all
other companies large and small, relies on a sophisti-
cated accounting information system. That’s not to say
that Fidelity or any other company is error-free. In fact,
if you’ve ever really messed up your
checkbook register, you may take some
comfort from one accountant’s mistake
at Fidelity Investments. The accountant
failed to include a minus sign while doing a calcula-
tion, making what was actually a $1.3 billion loss look
like a $1.3 billion gain—yes, billion! Fortunately, like
most accounting errors, it was detected before any
real harm was done.
No one expects that kind of mistake at a company
like Fidelity, which has sophisticated computer sys-
tems and top investment managers. In explaining the
mistake to shareholders, a spokesperson wrote,
“Some people have asked how, in this age of technol-
6. ogy, such a mistake could be made. While many of
our processes are computerized, accounting systems
are complex and dictate that some steps must be han-
dled manually by our managers and accountants, and
people can make mistakes.”
A C C I D E N T S
H A P P E N
feature story
● Why Accuracy Matters (p. 109)
● Keeping Score (p. 115)
● Boosting Microsoft’s Profits (p. 119)
INSIDE CHAPTER 3 . . .
c03TheAccountingInformationSystem.qxd 9/8/10 1:18 PM
Page 101
The Accounting Information System
As indicated in the Feature Story, a reliable information system
is a necessity for any company. The purpose of
this chapter is to explain and illustrate the features of an
accounting information system. The organization and
content of the chapter are as follows.
The Accounting Information System
7. The system of collecting and processing transaction data and
communicating fi-
nancial information to decision makers is known as the
accounting informa-
tion system. Factors that shape these systems include: the nature
of the com-
pany’s business, the types of transactions, the size of the
company, the volume
of data, and the information demands of management and
others.
Most businesses use computerized accounting systems—
sometimes referred
to as electronic data processing (EDP) systems. These systems
handle all the
steps involved in the recording process, from initial data entry
to preparation of
the financial statements. In order to remain competitive,
companies continually
improve their accounting systems to provide accurate and timely
data for deci-
sion making. For example, in a recent annual report, Tootsie
Roll states, “We
also invested in additional processing and data storage hardware
during the year.
We view information technology as a key strategic tool, and are
committed to
deploying leading edge technology in this area.” In addition,
many companies
have upgraded their accounting information systems in response
to the require-
ments of Sarbanes-Oxley.
In this chapter, we focus on a manual accounting system
because the ac-
counting concepts and principles do not change whether a
8. system is computer-
ized or manual, and manual systems are easier to illustrate.
Accounting Transactions
To use an accounting information system, you need to know
which economic
events to recognize (record). Not all events are recorded and
reported in the fi-
nancial statements. For example, suppose General Motors hired
a new employee
or purchased a new computer. Are these events entered in its
accounting records?
The first event would not be recorded, but the second event
would. We call eco-
nomic events that require recording in the financial statements
accounting
transactions.
An accounting transaction occurs when assets, liabilities, or
stockholders’
equity items change as a result of some economic event. The
purchase of a
preview of chapter 3
• Analyzing
transactions
• Summary of
transactions
Accounting
Transactions
• Debits and credits
• Debit and credit
9. procedures
• Stockholders’ equity
relationships
• Summary of
debit /credit rules
The Account
• The journal
• The ledger
• Chart of accounts
• Posting
Steps in the
Recording Process
• Summary illustration
of journalizing and
posting
The Recording
Process Illustrated
• Limitations of a trial
balance
The Trial Balance
102
c03TheAccountingInformationSystem.qxd 8/3/10 1:33 PM
Page 102
10. computer by General Motors, the payment of rent by Microsoft,
and the sale of
a multi-day guided trip by Sierra Corporation are examples of
events that change
a company’s assets, liabilities, or stockholders’ equity.
Illustration 3-1 summa-
rizes the decision process companies use to decide whether or
not to record eco-
nomic events.
ANALYZING TRANSACTIONS
In Chapter 1, you learned the basic accounting equation:
In this chapter, you will learn how to analyze transactions in
terms of their ef-
fect on assets, liabilities, and stockholders’ equity. Transaction
analysis is the
process of identifying the specific effects of economic events on
the accounting
equation.
The accounting equation must always balance. Each transaction
has a dual
(double-sided) effect on the equation. For example, if an
individual asset is in-
creased, there must be a corresponding:
Decrease in another asset, or
Increase in a specific liability, or
Increase in stockholders’ equity.
Two or more items could be affected when an asset is increased.
For exam-
11. ple, if a company purchases a computer for $10,000 by paying
$6,000 in cash
and signing a note for $4,000, one asset (equipment) increases
$10,000, another
asset (cash) decreases $6,000, and a liability (notes payable)
increases $4,000.
Accounting Transactions 103
YesNo
Record
Don't
record
Yes
Record
Events
Criterion
Record/
Don’t Record
Pay rentDiscuss guided trip options
with potential customer
Purchase computer
DELLDELLDELL
Is the financial position (assets, liabilities, or stockholders’
equity) of the company changed?
12. Bank
Home
Accounting
Ballence
Illustration 3-1
Transaction identification
process
1
Analyze the effect of
business transactions
on the basic accounting
equation.
Assets � Liabilities � Stockholders’ Equity
study objective
c03TheAccountingInformationSystem.qxd 8/3/10 1:33 PM
Page 103
104 chapter 3 The Accounting Information System
The result is that the accounting equation remains in balance—
assets increased
by a net $4,000 and liabilities increased by $4,000, as shown
below.
Chapter 1 presented the financial statements for Sierra
Corporation for its
13. first month. You should review those financial statements (on
page 17) at this
time. To illustrate how economic events affect the accounting
equation, we will
examine events affecting Sierra Corporation during its first
month.
In order to analyze the transactions for Sierra Corporation, we
will expand
the basic accounting equation. This will allow us to better
illustrate the impact
of transactions on stockholders’ equity. Recall from the balance
sheets in Chap-
ters 1 and 2 that stockholders’ equity is comprised of two parts:
common stock
and retained earnings. Common stock is affected when the
company issues new
shares of stock in exchange for cash. Retained earnings is
affected when the com-
pany earns revenue, incurs expenses, or pays dividends.
Illustration 3-2 shows
the expanded equation.
If you are tempted to skip ahead after you’ve read a few of the
following trans-
action analyses, don’t do it. Each has something unique to
teach, something you’ll
need later. (We assure you that we’ve kept them to the minimum
needed!)
EVENT (1). INVESTMENT OF CASH BY STOCKHOLDERS.
On October 1, cash of
$10,000 is invested in the business by investors (primarily your
friends and fam-
ily) in exchange for $10,000 of common stock. This event is an
accounting trans-
14. action because it results in an increase in both assets and
stockholders’ equity.
Assets � Liabilities � Stockholders’ Equity
�$10,000 �$4,000
� 6,000
$ 4,000 � $4,000
Assets Liabilities Stockholders' Equity� �
Retained EarningsCommon Stock �
Expenses DividendsRevenues � �
Illustration 3-2 Expanded
accounting equation
Basic
Analysis
The asset Cash is increased $10,000, and stockholders’ equity
(specifically
Common Stock) is increased $10,000.
Equation
Analysis
Assets � Liabilities � Stockholders’ Equity
Common
Cash � Stock
(1) �$10,000 � �$10,000 Issued stock
15. c03TheAccountingInformationSystem.qxd 8/3/10 1:33 PM
Page 104
The equation is in balance after the issuance of common stock.
Keeping track
of the source of each change in stockholders’ equity is essential
for later account-
ing activities. In particular, items recorded in the revenue and
expense columns
are used for the calculation of net income.
EVENT (2). NOTE ISSUED IN EXCHANGE FOR CASH. On
October 1, Sierra borrowed
$5,000 from Castle Bank by signing a 3-month, 12%, $5,000
note payable. This
transaction results in an equal increase in assets and liabilities.
The specific effect
of this transaction and the cumulative effect of the first two
transactions are:
Total assets are now $15,000, and liabilities plus stockholders’
equity also total
$15,000.
EVENT (3). PURCHASE OF OFFICE EQUIPMENT FOR
CASH. On October 2, Sierra
purchased equipment by paying $5,000 cash to Superior
Equipment Sales Co.
This event is a transaction because an equal increase and
decrease in Sierra’s as-
sets occur.
The total assets are now $15,000, and liabilities plus
stockholders’ equity also
16. total $15,000.
EVENT (4). RECEIPT OF CASH IN ADVANCE FROM
CUSTOMER. On October 2, Sierra
received a $1,200 cash advance from R. Knox, a client. This
event is a transac-
tion because Sierra received cash (an asset) for guide services
for multi-day trips
that are expected to be completed by Sierra in the future.
Although Sierra re-
ceived cash, it does not record revenue until it has performed
the work. In
some industries, such as the magazine and airline industries,
customers are
expected to prepay. These companies have a liability to the
customer until they
deliver the magazines or provide the flight. When the company
eventually provides
the product or service, it records the revenue.
Accounting Transactions 105
Basic
Analysis
Equation
Analysis
The asset Cash is increased $5,000, and the liability Notes
Payable
is increased $5,000.
⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩ ⎧ ⎪ ⎪ ⎪ ⎪
⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩
Basic
18. Later, when Sierra collects the $10,000 from the customer,
Accounts Receivable
declines by $10,000, and Cash increases by $10,000.
106 chapter 3 The Accounting Information System
Since Sierra received cash prior to performance of the service,
Sierra has a
liability for the work due.
EVENT (5). SERVICES PROVIDED FOR CASH. On October 3,
Sierra received $10,000
in cash from Copa Company for guide services performed for a
corporate event.
This event is a transaction because Sierra received an asset
(cash) in exchange
for services.
Guide service is the principal revenue-producing activity of
Sierra. Revenue
increases stockholders’ equity. This transaction, then, increases
both assets
and stockholders’ equity.
Often companies provide services “on account.” That is, they
provide ser-
vice for which they are paid at a later date. Revenue, however,
is earned when
services are performed. Therefore, revenues would increase
when services are
performed, even though cash has not been received. Instead of
receiving cash,
the company receives a different type of asset, an account
19. receivable. Accounts
receivable represent the right to receive payment at a later date.
Suppose that
Sierra had provided these services on account rather than for
cash. This event
would be reported using the accounting equation as:
Assets � Liabilities � Stockholders’ Equity
Accounts
Receivable � Revenues
�$10,000 �$10,000 Service Revenue
Basic
Analysis
The asset Cash is increased $1,200; the liability Unearned
Service Revenue is increased $1,200 because
the service has not been provided yet. That is, when an advance
payment is received, an unearned revenue
(a liability) should be recorded in order to recognize the
obligation that exists.
⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪
⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩ ⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩
Equation
Analysis
Assets � Liabilities � Stockholders’ Equity
Equip- Notes Unearned Service Common
Cash � ment � Payable � Revenue � Stock
$10,000 $5,000 $5,000 $10,000
21. Note that in this case, revenues are not affected by the
collection of cash. Instead
we record an exchange of one asset (Accounts Receivable) for a
different asset (Cash).
EVENT (6). PAYMENT OF RENT. On October 3, Sierra
Corporation paid its office
rent for the month of October in cash, $900. This rent payment
is a transaction
because it results in a decrease in an asset, cash.
Rent is an expense incurred by Sierra Corporation in its effort
to generate
revenues. Expenses decrease stockholders’ equity. Sierra
records the rent pay-
ment by decreasing cash and increasing expenses to maintain
the balance of the
accounting equation.
EVENT (7). PURCHASE OF INSURANCE POLICY FOR
CASH. On October 4, Sierra
paid $600 for a one-year insurance policy that will expire next
year on Septem-
ber 30. Payments of expenses that will benefit more than one
accounting period
are identified as assets called prepaid expenses or prepayments.
Accounting Transactions 107
Assets � Liabilities � Stockholders’ Equity
Accounts
Cash Receivable
23. Basic
Analysis
The asset Cash is decreased $600. The asset Prepaid Insurance
is increased $600.
⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩ ⎧ ⎪ ⎪
⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩
Assets � Liabilities � Stockholders’ Equity
Prepaid Equip- Notes Unearned Common Retained Earnings
Cash � Insurance � ment � Pay. � Serv. Rev. � Stock � Rev.
� Exp. � Div.
$20,300 $5,000 $5,000 $1,200 $10,000 $10,000 $900
(7) �600 �$600
$19,700 � $600 � $5,000 � $5,000 � $1,200 � $10,000 �
$10,000 � $900
$25,300 $25,300
The balance in total assets did not change; one asset account
decreased by the
same amount that another increased.
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108 chapter 3 The Accounting Information System
EVENT (8). PURCHASE OF SUPPLIES ON ACCOUNT. On
24. October 5, Sierra purchased
supplies on account from Aero Supply for $2,500. In this case,
“on account” means
that the company receives goods or services that it will pay for
at a later date.
EVENT (9). HIRING OF NEW EMPLOYEES. On October 9,
Sierra hired four new em-
ployees to begin work on October 15. Each employee will
receive a weekly salary
of $500 for a five-day work week, payable every two weeks.
Employees will re-
ceive their first paychecks on October 26. On the date Sierra
hires the employ-
ees, there is no effect on the accounting equation because the
assets, liabilities,
and stockholders’ equity of the company have not changed.
EVENT (10). PAYMENT OF DIVIDEND. On October 20,
Sierra paid a $500 dividend.
Dividends are a reduction of stockholders’ equity but not an
expense. Dividends
are not included in the calculation of net income. Instead, a
dividend is a distri-
bution of the company’s assets to its stockholders.
EVENT (11). PAYMENT OF CASH FOR EMPLOYEE
SALARIES. Employees have
worked two weeks, earning $4,000 in salaries, which were paid
on October 26.
Equation
Analysis
Basic
Analysis
25. The asset Supplies is increased $2,500; the liability Accounts
Payable is increased $2,500.
Basic
Analysis
An accounting transaction has not occurred. There is only an
agreement that the employees will begin
work on October 15. (See Event (11) for the first payment.)
⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩ ⎧
⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪
⎩
Assets � Liabilities � Stockholders’ Equity
Prepd. Equip- Notes Accounts Unearned Common Retained
Earnings
Cash � Supplies � Insur. � ment � Pay. � Payable � Serv.
Rev. � Stock � Rev. � Exp. � Div.
$19,700 $600 $5,000 $5,000 $1,200 $10,000 $10,000 $900
(8) �$2,500 �$2,500
$19,700 � $2,500 � $600 � $5,000 � $5,000 � $2,500 �
$1,200 � $10,000 � $10,000 � $900
$27,800 $27,800
⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩ ⎧ ⎪
⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪
⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩
Equation
Analysis
26. Basic
Analysis
The dividends account is increased $500; the asset Cash is
decreased $500.
Assets � Liabilities � Stockholders’ Equity
Sup- Prepd. Equip- Notes Accts. Unearned Common Retained
Earnings
Cash � plies � Insur. � ment � Pay. � Pay. � Serv. Rev. �
Stock � Rev. � Exp. � Div.
$19,700 $2,500 $600 $5,000 $5,000 $2,500 $1,200 $10,000
$10,000 $900
(10) �500 � $500
$19,200 � $2,500 � $600 � $5,000 � $5,000 � $2,500 �
$1,200 � $10,000 � $10,000 � $900 � $500
$27,300 $27,300
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Page 108
Salaries Expense is an expense that reduces stockholders’
equity. This event is a
transaction because assets and stockholders’ equity are affected.
SUMMARY OF TRANSACTIONS
Illustration 3-3 (page 110) summarizes the transactions of
Sierra Corporation to
27. show their cumulative effect on the basic accounting equation.
It includes the
transaction number in the first column on the left. The right-
most column shows
the specific effect of any transaction that affects stockholders’
equity. Remem-
ber that Event (9) did not result in a transaction, so no entry is
included for that
event. The illustration demonstrates three important points:
1. Each transaction is analyzed in terms of its effect on assets,
liabilities, and
stockholders’ equity.
2. The two sides of the equation must always be equal.
3. The cause of each change in stockholders’ equity must be
indicated.
Accounting Transactions 109
Why Accuracy Matters
While most companies record transactions very carefully, the
reality is that
mistakes still happen. For example, bank regulators fined Bank
One Corporation (now
Chase) $1.8 million because they felt that the unreliability of
the bank’s accounting sys-
tem caused it to violate regulatory requirements.
Also, in recent years Fannie Mae, the government-chartered
mortgage association, an-
nounced a series of large accounting errors. These
announcements caused alarm among
investors, regulators, and politicians because they fear that the
28. errors may suggest larger,
undetected problems. This is important because the home-
mortgage market depends on
Fannie Mae to buy hundreds of billions of dollars of mortgages
each year from banks, thus
enabling the banks to issue new mortgages.
Finally, before a major overhaul of its accounting system, the
financial records of Waste
Management Company were in such disarray that of the
company’s 57,000 employees,
10,000 were receiving pay slips that were in error.
The Sarbanes-Oxley Act of 2002 was created to minimize the
occurrence of errors like
these by increasing every employee’s responsibility for accurate
financial reporting.
Investor Insight
? In order for these companies to prepare and issue financial
statements, their ac-counting equations (debits and credits) must
have been in balance at year-end.
How could these errors or misstatements have occurred? (See
page 158.)
Equation
Analysis
Basic
Analysis
The asset Cash is decreased $4,000; the expense account
Salaries Expense is increased $4,000.
⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩ ⎧ ⎪ ⎪ ⎪ ⎪
⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪
31. occurred?
Details of the event Accounting equation If the event affected
assets,
liabilities, or stockholders’ equity,
then record as a transaction.
INFO NEEDED FOR DECISION
TRANSACTION
ANALYSIS
before you go on...
Do it!
A tabular analysis of the transactions made by Roberta Mendez
& Co.,
a certified public accounting firm, for the month of August is
shown below. Each increase
and decrease in stockholders’ equity is explained.
Describe each transaction that occurred for the month.
Solution
1. The company issued shares of stock to stockholders for
$25,000 cash.
32. 2. The company purchased $7,000 of equipment on account.
3. The company received $8,000 of cash in exchange for
services performed.
4. The company paid $850 for this month’s rent.
Assets � Liabilities � Stockholders’ Equity
Accounts Common Retained Earnings
Cash � Equipment � Payable � Stock � Revenue � Expenses
1. �$25,000 �$25,000 Issued stock
2. �$7,000 � �$7,000
3. �8,000 �$8,000 Service Revenue
4. �850 �$850 Rent Expense
$32,150 � $7,000 � $7,000 � $25,000 � $8,000 � $850
$39,150 $39,150
⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩ ⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪
⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪
⎩
33. Action Plan
• Analyze the tabular analysis to
determine the nature and effect
of each transaction.
• Keep the accounting equation in
balance.
• Remember that a change in an
asset will require a change in
another asset, a liability, or in
stockholders’ equity.
Related exercise material: BE3-1, BE3-2, BE3-3, 3-1, E3-1, E3-
2, E3-3, and E3-4.Do it!
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Page 110
The Account
Rather than using a tabular summary like the one in Illustration
34. 3-3 for Sierra
Corporation, an accounting information system uses accounts.
An account is an
individual accounting record of increases and decreases in a
specific asset, lia-
bility, stockholders’ equity, revenue, or expense item. For
example, Sierra Cor-
poration has separate accounts for Cash, Accounts Receivable,
Accounts Payable,
Service Revenue, Salaries Expense, and so on. (Note that
whenever we are re-
ferring to a specific account, we capitalize the name.)
In its simplest form, an account consists of three parts: (1) the
title of the
account, (2) a left or debit side, and (3) a right or credit side.
Because the align-
ment of these parts of an account resembles the letter T, it is
referred to as a
T account. The basic form of an account is shown in Illustration
3-4.
We use this form of account often throughout this book to
explain basic ac-
counting relationships.
35. DEBITS AND CREDITS
The term debit indicates the left side of an account, and credit
indicates the
right side. They are commonly abbreviated as Dr. for debit and
Cr. for credit.
They do not mean increase or decrease, as is commonly thought.
We use the
terms debit and credit repeatedly in the recording process to
describe where en-
tries are made in accounts. For example, the act of entering an
amount on the
left side of an account is called debiting the account. Making an
entry on the
right side is crediting the account.
When comparing the totals of the two sides, an account shows a
debit balance
if the total of the debit amounts exceeds the credits. An account
shows a credit
balance if the credit amounts exceed the debits. Note the
position of the debit side
and credit side in Illustration 3-4.
36. The procedure of recording debits and credits in an account is
shown in
Illustration 3-5 for the transactions affecting the Cash account
of Sierra Corpo-
ration. The data are taken from the Cash column of the tabular
summary in
Illustration 3-3.
The Account 111
2
Explain what an account is
and how it helps in the
recording process.
study objective
3
Define debits and credits
and explain how they are
used to record business
transactions.
study objective
37. Left or debit side Right or credit side
Title of Account Cr.Dr.
Illustration 3-4 Basic
form of account
$10,000
5,000
–5,000
1,200
10,000
–900
–600
–500
–4,000
5,000
900
600
500
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112 chapter 3 The Accounting Information System
Every positive item in the tabular summary represents a receipt
of cash; every
negative amount represents a payment of cash. Notice that in
the account form
we record the increases in cash as debits, and the decreases in
cash as cred-
its. For example, the $10,000 receipt of cash (in red) is debited
to Cash, and the
�$5,000 payment of cash (in blue) is credited to Cash.
Having increases on one side and decreases on the other reduces
recording
errors and helps in determining the totals of each side of the
account as well as
the account balance. The balance is determined by netting the
two sides (sub-
tracting one amount from the other). The account balance, a
40. debit of $15,200,
indicates that Sierra had $15,200 more increases than decreases
in cash. That
is, since it started with a balance of zero, it has $15,200 in its
Cash account.
DEBIT AND CREDIT PROCEDURES
Each transaction must affect two or more accounts to keep the
basic account-
ing equation in balance. In other words, for each transaction,
debits must
equal credits. The equality of debits and credits provides the
basis for the double-
entry accounting system.
Under the double-entry system, the two-sided effect of each
transaction is
recorded in appropriate accounts. This system provides a logical
method for record-
ing transactions. The double-entry system also helps to ensure
the accuracy of the
recorded amounts and helps to detect errors such as those at
Fidelity Investments
as discussed in the Feature Story. If every transaction is
41. recorded with equal debits
and credits, then the sum of all the debits to the accounts must
equal the sum of all
the credits. The double-entry system for determining the
equality of the accounting
equation is much more efficient than the plus/minus procedure
used earlier.
Dr./Cr. Procedures for Assets and Liabilities
In Illustration 3-5 for Sierra Corporation, increases in Cash—an
asset—were en-
tered on the left side, and decreases in Cash were entered on the
right side. We
know that both sides of the basic equation (Assets � Liabilities
� Stockholders’
Equity) must be equal. It therefore follows that increases and
decreases in liabil-
ities will have to be recorded opposite from increases and
decreases in assets. Thus,
increases in liabilities must be entered on the right or credit
side, and decreases
in liabilities must be entered on the left or debit side. The
effects that debits and
credits have on assets and liabilities are summarized in
Illustration 3-6.
42. International Note Rules for
accounting for specific events
sometimes differ across countries.
For example, European companies
rely less on historical cost and
more on fair value than U.S.
companies. Despite the differences,
the double-entry accounting
system is the basis of accounting
systems worldwide.
Debits Credits
Increase assets Decrease assets
Decrease liabilities Increase liabilities
Illustration 3-6 Debit
and credit effects—assets
and liabilities
Asset accounts normally show debit balances. That is, debits to
a specific
asset account should exceed credits to that account. Likewise,
liability accounts
43. normally show credit balances. That is, credits to a liability
account should
exceed debits to that account. The normal balances may be
diagrammed as in
Illustration 3-7.
Illustration 3-7 Normal
balances—assets and
liabilities
Debit for
increase
Assets
Credit for
decrease
Normal
balance
Normal
balance
Debit for
decrease
44. Liabilities
Credit for
increase
Normal
balance
Normal
balance
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Page 112
Knowing which is the normal balance in an account may help
when you are
trying to identify errors. For example, a credit balance in an
asset account, such
as Land, or a debit balance in a liability account, such as
Salaries Payable, usu-
ally indicates errors in recording. Occasionally, however, an
abnormal balance
may be correct. The Cash account, for example, will have a
credit balance when
a company has overdrawn its bank balance (written a check that
“bounced”). In
45. automated accounting systems, the computer is programmed to
flag violations
of the normal balance and to print out error or exception
reports. In manual sys-
tems, careful visual inspection of the accounts is required to
detect normal bal-
ance problems.
Dr./Cr. Procedures for Stockholders’ Equity
In Chapter 1, we indicated that stockholders’ equity is
comprised of two parts:
common stock and retained earnings. In the transaction events
earlier in this
chapter, you saw that revenues, expenses, and the payment of
dividends affect
retained earnings. Therefore, the subdivisions of stockholders’
equity are: com-
mon stock, retained earnings, dividends, revenues, and
expenses.
COMMON STOCK. Common stock is issued to investors in
exchange for the stock-
holders’ investment. The common stock account is increased by
credits and de-
creased by debits. For example, when cash is invested in the
46. business, cash is
debited and common stock is credited. The effects of debits and
credits on the
common stock account are shown in Illustration 3-8.
Helpful Hint The normal balance
is the side where increases in the
account are recorded.
The Account 113
Illustration 3-9 Normal
balance—Common Stock
Debit for
decrease
Common Stock
Credit for
increase
Normal
balance
Normal
balance
47. Debits Credits
Decrease Common Stock Increase Common Stock
Illustration 3-8 Debit
and credit effects—Common
Stock
Debits Credits
Decrease Retained Earnings Increase Retained Earnings
Illustration 3-10 Debit
and credit effects—Retained
Earnings
The normal balance in the Common Stock account may be
diagrammed as
in Illustration 3-9.
RETAINED EARNINGS. Retained earnings is net income that
is retained in the
business. It represents the portion of stockholders’ equity that
has been accumu-
lated through the profitable operation of the company. Retained
48. earnings is in-
creased by credits (for example, by net income) and decreased
by debits (for ex-
ample, by a net loss), as shown in Illustration 3-10.
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114 chapter 3 The Accounting Information System
The normal balance for Retained Earnings may be diagrammed
as in Illus-
tration 3-11.
DIVIDENDS. A dividend is a distribution by a corporation to
its stockholders. The
most common form of distribution is a cash dividend. Dividends
result in a re-
duction of the stockholders’ claims on retained earnings.
Because dividends re-
duce stockholders’ equity, increases in the Dividends account
are recorded with
debits. As shown in Illustration 3-12, the Dividends account
49. normally has a debit
balance.
REVENUES AND EXPENSES. When a company earns
revenues, stockholders’ eq-
uity is increased. Revenue accounts are increased by credits and
decreased by
debits.
Expenses decrease stockholders’ equity. Thus, expense accounts
are in-
creased by debits and decreased by credits. The effects of debits
and credits on
revenues and expenses are shown in Illustration 3-13.
Credits to revenue accounts should exceed debits; debits to
expense accounts
should exceed credits. Thus, revenue accounts normally show
credit balances,
and expense accounts normally show debit balances. The normal
balances
may be diagrammed as in Illustration 3-14.
Illustration 3-11 Normal
balance—Retained Earnings
50. Debit for
decrease
Retained Earnings
Credit for
increase
Normal
balance
Normal
balance
Illustration 3-12 Normal
balance—Dividends
Debit for
increase
Dividends
Credit for
decrease
Normal
balance
Normal
51. balance
Debits Credits
Decrease revenue Increase revenue
Increase expenses Decrease expenses
Illustration 3-13 Debit
and credit effects—revenues
and expenses
Illustration 3-14 Normal
balances—revenues and
expenses
Debit for
increase
Expenses
Credit for
decrease
Normal
balance
53. • Dividends: on the retained earnings statement.
• Revenues and expenses: on the income statement.
Dividends, revenues, and expenses are eventually transferred to
retained earn-
ings at the end of the period. As a result, a change in any one of
these three
items affects stockholders’ equity. Illustration 3-15 shows the
relationships of the
accounts affecting stockholders’ equity.
The Account 115
Keeping Score
The Chicago Cubs baseball team has these major revenue and
expense
accounts:
Revenues Expenses
Admissions (ticket sales) Players’ salaries
Concessions Administrative salaries
54. Television and radio Travel
Advertising Ballpark maintenance
Investor Insight
? Do you think that the Chicago Bears football team would be
likely to have thesame major revenue and expense accounts as
the Cubs? (See page 158.)
Illustration 3-15
Stockholders’ equity
relationshipsBalance Sheet
Assets
Liabilities
Stockholder’s equity
Common stock
Retained earnings
Income Statement
Revenues
55. Less: Expenses
Net income or net loss
Retained Earnings Statement
Begining retained earnings
Add: Net income
Less: Dividends
Ending retained earnings
Investments by stockholders
Net income retained in the business
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116 chapter 3 The Accounting Information System
SUMMARY OF DEBIT/CREDIT RULES
56. Illustration 3-16 summarizes the debit/credit rules and effects
on each type of
account. Study this diagram carefully. It will help you
understand the funda-
mentals of the double-entry system. No matter what the
transaction, total deb-
its must equal total credits in order to keep the accounting
equation in balance.
Illustration 3-16 Summary
of debit/credit rules
⎧ ⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪
⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩
Assets Stockholders’ Equity+Basic
Equation
Expanded
Basic Equation
Debit / Credit
Rules
Liabilities=
57. = + – + –
Dr.
+
Assets
Cr.
–
Dr.
–
Liabilities
Cr.
+
Dr.
–
Retained
Earnings
59. –
+
Dr.
–
Common
Stock
Cr.
+
DEBITS AND CREDITS
FOR BALANCE SHEET
ACCOUNTS
before you go on...
Do it!
Kate Browne, president of Hair It Is Inc., has just rented space
in a shop-
ping mall for the purpose of opening and operating a beauty
salon. Long before opening
60. day and before purchasing equipment, hiring assistants, and
remodeling the space, Kate
was strongly advised to set up a double-entry set of accounting
records in which to record
all of her business transactions.
Identify the balance sheet accounts that Hair It Is Inc. will
likely need to record the
transactions necessary to establish and open for business. Also,
indicate whether the nor-
mal balance of each account is a debit or a credit.