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Chapter 3

THE ACCOUNTING THE ACCOUNTING INFORMATION INFORMATION

SYSTEMSYSTEM

ContinuedContinued

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Chapter 3The Accounting Information System

Identify the basic steps in the recording process.

Explain what a journal is and how it helps in the recording process.

Explain what a ledger is and how it helps in the recording process.

Explain what posting is and how it helps in the recording process.

Explain the purposes of a trial balance.

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Basic Steps in the Recording Process.

1.1.AnalyzeAnalyze

2.2.JournalizeJournalize

3.3.PostPost

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Recording Process Step 1

Analyze each Analyze each transaction and effect transaction and effect

on accountson accounts

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The Journal...

is an accounting record where the transactions are recorded in chronological order.

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Recording Process Step 2

Enter transaction information in a Enter transaction information in a journal, a process called journal, a process called journalizingjournalizing

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Recording Process Step Recording Process Step 33

Transfer (post) the journal Transfer (post) the journal information to the appropriate information to the appropriate accounts in the ledgeraccounts in the ledger

Date Debit Credit

GENERAL JOURNAL

Account Titles and Explanations

2007 Oct. 1 Cash 10,000 Common Stock 10,000 (Invested cash in business) 1 Cash 5,000

Notes Payable 5,000 (Issued 3-month, 12% note payable for cash) 2 Office Equipment 5,000 Cash 5,000 (Purchased office equipment for cash)

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Let’s Review Using Sierra’s Let’s Review Using Sierra’s TransactionsTransactions

OctOct. 1 - Owner . 1 - Owner invested invested $10,000 Cash in $10,000 Cash in business business in exchange for in exchange for $10,000 $10,000 of Common Stock of Common Stock

10,00010,000

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CashCash Common StockCommon Stock

10,00010,000

What is the normal balance for the accounts?What is the normal balance for the accounts?

Accounts affected?Type of Account?Increase or Decrease?Debit or credit?

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CashCash Note PayableNote Payable

5,0005,000 5,0005,000

Oct. 1 – Sierra issued a 3-month, Oct. 1 – Sierra issued a 3-month, 12%, $5,000 Note Payable to Castle 12%, $5,000 Note Payable to Castle Bank.Bank.

Accounts affected?Type of Account?Increase or Decrease?Debit or credit?

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CashCash Note PayableNote Payable

5,0005,000 5,0005,000

Oct. 1 – Sierra issued a 3-month, Oct. 1 – Sierra issued a 3-month, 12%, $5,000 Note Payable to Castle 12%, $5,000 Note Payable to Castle Bank.Bank.

1252

Office EquipmentOffice Equipment CashCash

5,0005,000 5,0005,000

Oct. 2 – Sierra acquired office Oct. 2 – Sierra acquired office equipment by paying $5,000 cash to equipment by paying $5,000 cash to Superior Sales Co.Superior Sales Co.

5,0005,000

10,00010,000

Accounts affected?Type of Account?Increase or Decrease?Debit or credit?

1352

Office EquipmentOffice Equipment CashCash

5,0005,000 5,0005,000

Oct. 2 – Sierra acquired office Oct. 2 – Sierra acquired office equipment by paying $5,000 cash to equipment by paying $5,000 cash to Superior Sales Co.Superior Sales Co.

5,0005,000

10,00010,000

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The General Ledger•the entire group of accounts maintained by a company

•contains all the asset, liability, and stockholders’ equity accounts

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Chart of Accounts...

is a list of a company’s accounts.

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The General Ledger

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The General Ledger

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The Ledger

The entries from the journal are posted to the ledger,usually in summary form, except for the general journal.

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Posting

Transferring information from the journals to the general ledger accounts

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GENERAL JOURNALAccount Titles and Explanations

2007 Oct. 1 Cash 10,000 Common Stock 10,000

BalanceAcct 1010 Account CASH

Date

Acct 3010 Account COMMON STOCKDate Balance

debit

debit

credit

credit

debit

debit

credit

credit

ref

ref

Posting Entries

GENERAL JOURNAL

Account Titles and Explanations

2007 Oct. 1 Cash 10,000 Common Stock 10,000

BalanceAcct 1010 Account CASH

Date

Acct 3010 Account COMMON STOCKDate Balance

debit

debit

credit

credit

debit

debit

credit

credit

ref

ref

Oct 1

Oct 1

gj 1

gj 1

10,000 10,000

10,00010,000

Posting Entries

Posting Entries

GENERAL JOURNAL

Account Titles and Explanations

2007 Oct. 1 Cash 10,000 Common Stock 10,000

BalanceAcct 1010 Account CASH

Date

Acct 3010 Account COMMON STOCKDate Balance

debit

debit

credit

credit

debit

debit

credit

credit

ref

ref

Oct 1

Oct 1

gj 1

gj 1

10,000 10,000

10,00010,000

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Trial Balance

A list of all the accounts and their balances at a given time.

It serves to prove the mathematical equality of debits and credits after posting.

It aids in the preparation of financial statements.

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Sierra CorporationTrial Balance

October 31, 2007

Debit Credit Cash $15,200Advertising Supplies 2,500Prepaid Insurance 600Office Equipment 5,000Notes Payable $ 5,000Accounts Payable 2,500Unearned Service Revenue 1,200Common Stock 10,000Dividends 500Service Revenue 10,000Salaries Expense 4,000Rent Expense 900 $28,700 $28,700