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The Accounting Information System The Accounting Information System
The Accounting Information System The Accounting Information System
The Accounting Information System The Accounting Information System
The Accounting
Accounting Information
Information
System
System
Chapter
3
Intermediate Accounting
12th Edition
Kieso, Weygandt, and Warfield
Chapter
3-1 Prepared by Coby Harmon, University of California, Santa Barbara
Learning
Learning Objectives
Objectives
Chapter
3-2
Accounting
Accounting Information
Information System
System
Accounting
Accounting Information
Information The
The Accounting
Accounting Cycle
Cycle
System
System
Chapter
3-4
Accounting
Accounting Information
Information System
System
Chapter
3-5 LO 1 Identify the major financial statements and other means of financial reporting ..
Basic
Basic Terminology
Terminology
Event Journal
Transaction Posting
Account Trial Balance
Real Account Adjusting Entries
Nominal Account Financial Statements
Ledger Closing Entries
Chapter
3-6 LO 1 Understand basic accounting terminology.
Debits
Debits and
and Credits
Credits
Chapter
3-7 LO 2 Explain double-entry rules.
Debits
Debits and
and Credits
Credits
An arrangement that shows
Account the effect of transactions on
an account.
Debit = “Left”
Credit = “Right”
Chapter
3-8 LO 2 Explain double-entry rules.
Debits
Debits and
and Credits
Credits
If Debit entries are greater than Credit entries,
the account will have a debit balance.
Account Name
Debit / Dr. Credit / Cr.
Balance $15,000
Chapter
3-9 LO 2 Explain double-entry rules.
Debits
Debits and
and Credits
Credits
If Credit entries are greater than Debit entries,
the account will have a credit balance.
Account Name
Debit / Dr. Credit / Cr.
Balance $1,000
Chapter
3-10 LO 2 Explain double-entry rules.
Debits
Debits and
and Credits
Credits Summary
Summary
Liabilities
Normal
Debit / Dr. Credit / Cr.
Normal Normal
Normal
Balance
Balance Balance
Balance
Debit
Debit Credit
Credit Normal Balance
Assets Chapter
Equity
3-24
Normal Balance
Normal Balance
Chapter
Expense
3-23
Revenue
Chapter
3-25
Normal Balance
Normal Balance
Chapter
3-27 Chapter
3-26
Chapter
3-11 LO 2 Explain double-entry rules.
Debits
Debits and
and Credits
Credits Summary
Summary
Balance Sheet Income Statement
Debit
Credit
Chapter
3-12 LO 2 Explain double-entry rules.
Basic
Basic Accounting
Accounting Equation
Equation
Chapter
3-13 LO 2 Explain double-entry rules.
Double-Entry
Double-Entry System
System Exercise
Exercise
Stockholders’
Stockholders’
Assets = Liabilities + Equity
Equity
+ 32,000 + 46,000
+ 14,000
Chapter
3-14 LO 2 Explain double-entry rules.
Double-Entry
Double-Entry System
System Exercise
Exercise
Stockholders’
Stockholders’
Assets = Liabilities + Equity
Equity
- 600 - 600
(expense)
Chapter
3-15 LO 2 Explain double-entry rules.
Double-Entry
Double-Entry System
System Exercise
Exercise
Stockholders’
Stockholders’
Assets = Liabilities + Equity
Equity
+ 3,200 + 3,200
Chapter
3-16 LO 2 Explain double-entry rules.
Double-Entry
Double-Entry System
System Exercise
Exercise
Stockholders’
Stockholders’
Assets = Liabilities + Equity
Equity
+ 2,300 + 2,300
(revenue)
Chapter
3-17 LO 2 Explain double-entry rules.
Double-Entry
Double-Entry System
System Exercise
Exercise
Stockholders’
Stockholders’
Assets = Liabilities + Equity
Equity
+ 6,100
- 6,100
Chapter
3-18 LO 2 Explain double-entry rules.
Double-Entry
Double-Entry System
System Exercise
Exercise
Stockholders’
Stockholders’
Assets = Liabilities + Equity
Equity
- 7,000 - 7,000
Chapter
3-19 LO 2 Explain double-entry rules.
Double-Entry
Double-Entry System
System Exercise
Exercise
Stockholders’
Stockholders’
Assets = Liabilities + Equity
Equity
+ 10,000 - 10,000
Note
Notethat
thatthe
theaccounting
accountingequation
equationequality
equalityisis
maintained
maintainedafter
afterrecording
recordingeach
eachtransaction.
transaction.
Chapter
3-20 LO 2 Explain double-entry rules.
Ownership
Ownership Structure
Structure
Proprietorship
Proprietorship
or
or Corporation
Corporation
Partnership
Partnership
Chapter
3-21 LO 2 Explain double-entry rules.
Corporation
Corporation Ownership
Ownership Structure
Structure
Illustration 3-4
Balance Sheet
Stockholders’ Equity
Common
Common Stock
Stock (Investment
(Investment Retained
Retained Earnings
Earnings
by
by stockholders)
stockholders) (Net
(Net income
income retained
retained in
in business)
business)
Work
6. Financial Statements Sheet
4. Adjustments
Chapter
3-23 LO 3 Identify steps in the accounting cycle.
Transactions
Transactions and
and Events
Events
What to Record?
FASB states, “transactions and other events and
circumstances that affect a business enterprise.”
Types of Events:
External – between a business and its environment.
Internal – event occurring entirely within a business.
Chapter
3-24 LO 3 Identify steps in the accounting cycle.
Review
Review “Transactions
“Transactions and
and Events”
Events”
External Internal Not Recorded
General Journal
Date Account Title Ref. Debit Credit
Jan. 3 Cash 100 100,000
Common stock 300 100,000
General Ledger
Cash Acct. No. 100
Date Explanation Ref. Debit Credit Balance
Jan. 3 Sale of stock GJ1 100,000 100,000
Chapter
3-29 LO 5 Explain the reasons for preparing adjusting entries.
Classes
Classes of
of Adjusting
Adjusting Entries
Entries
Illustration 3-20
Prepayments Accruals
1. Prepaid Expenses. 3. Accrued Revenues.
Expenses paid in cash and Revenues earned but not
recorded as assets before yet received in cash or
they are used or consumed. recorded.
Chapter
3-30 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Prepaid
“Prepaid Expenses”
Expenses”
Chapter
3-31 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Prepaid
“Prepaid Expenses”
Expenses”
Example: On Jan. 1st, Phoenix Corp. paid $12,000 for 12
months of insurance coverage. Show the journal entry to
record the payment on Jan. 1st.
Chapter
3-32 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Prepaid
“Prepaid Expenses”
Expenses”
Example: On Jan. 1st, Phoenix Corp. paid $12,000 for 12
months of insurance coverage. Show the adjusting journal
entry required at Jan. 31st.
11,000
Chapter
3-33 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Unearned
“Unearned Revenues”
Revenues”
Chapter
3-34 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Unearned
“Unearned Revenues”
Revenues”
Example: On Nov. 1st, Phoenix Corp. received $24,000 from
Arcadia High School for 3 months rent in advance. Show
the journal entry to record the receipt on Nov. 1st.
Chapter
3-35 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Unearned
“Unearned Revenues”
Revenues”
Example: On Nov. 1st, Phoenix Corp. received $24,000 from
Arcadia High School for 3 months rent in advance. Show
the adjusting journal entry required on Nov. 30th.
16,000
Chapter
3-36 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Accrued
“Accrued Revenues”
Revenues”
Revenues earned but not yet received in cash or
recorded.
Chapter
3-37 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Accrued
“Accrued Revenues”
Revenues”
Example: On July 1st, Phoenix Corp. invested $300,000 in
securities that return 5% interest per year. Show the
journal entry to record the investment on July 1st.
Investments Cash
Debit Credit Debit Credit
300,000 300,000
Chapter
3-38 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Accrued
“Accrued Revenues”
Revenues”
Example: On July 1st, Phoenix Corp. invested $300,000 in
securities that return 5% interest per year. Show the
adjusting journal entry required on July 31st.
Chapter
3-39 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Accrued
“Accrued Expenses”
Expenses”
Expenses incurred but not yet paid in cash or
recorded.
Chapter
3-40 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Accrued
“Accrued Expenses”
Expenses”
Example: On Feb. 2nd, Phoenix Corp. borrowed $200,000 at a
rate of 9% per year. Interest is due on first of each month.
Show the journal entry to record the borrowing on Feb. 2 nd.
Chapter
3-41 LO 5 Explain the reasons for preparing adjusting entries.
Adjusting
Adjusting Entries
Entries –– “Accrued
“Accrued Expenses”
Expenses”
Example: On Feb. 2nd, Phoenix Corp. borrowed $200,000 at a
rate of 9% per year. Interest is due on first of each month.
Show the adjusting journal entry required on Feb. 28th.
Chapter
3-42 LO 5 Explain the reasons for preparing adjusting entries.
5.
5. Adjusted
Adjusted Trial
Trial Balance
Balance
Chapter
3-43 LO 5 Explain the reasons for preparing adjusting entries.
6.
6. Preparing
Preparing Financial
Financial Statements
Statements
Financial
Financial Statements
Statements areare prepared
prepared directly
directly from
from the
the
Adjusted
Adjusted Trial
Trial Balance.
Balance.
Statement
Statement
Balance Income of
of Cash
Sheet Statement Retained
Flows
Earnings
Chapter
3-44 LO 6 Prepare financial statement from the adjusted trial balance.
6.
6. Preparing
Preparing Financial
Financial Statements
Statements
Assume the following
Adjusted Trial Balance Balance Sheet
Chapter
3-45 LO 6 Prepare financial statement from the adjusted trial balance.
6.
6. Preparing
Preparing Financial
Financial Statements
Statements
Assume the following
Adjusted Trial Balance Income Statement
Chapter
3-46 LO 6 Prepare financial statement from the adjusted trial balance.
6.
6. Preparing
Preparing Financial
Financial Statements
Statements
Assume the following Statement of
Adjusted Trial Balance Retained Earnings
Chapter
3-47 LO 6 Prepare financial statement from the adjusted trial balance.
7.
7. Closing
Closing Entries
Entries
Chapter
3-48 LO 7 Prepare closing entries.
7.
7. Closing
Closing Entries
Entries
Example: Assume the following Adjusted Trial Balance
Chapter
3-49 LO 7 Prepare closing entries.
7.
7. Closing
Closing Entries
Entries
Example: Prepare the Closing journal entry from the
adjusted trial balance on the previous slide.
Sales 185,000
Interest income 17,000
Income summary 202,000
Chapter
3-51 LO 7 Prepare closing entries.
9.
9. Reversing
Reversing Entries
Entries
Chapter
3-52 LO 7 Prepare closing entries.
Perpetual
Perpetual Inventory
Inventory System
System
Chapter
3-53 LO 8 Explain how to adjust inventory accounts at year-end.
Periodic
Periodic Inventory
Inventory System
System
Chapter
3-54 LO 8 Explain how to adjust inventory accounts at year-end.
Copyright
Copyright
Copyright © 2007 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted
in Section 117 of the 1976 United States Copyright Act
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assumes no responsibility for errors, omissions, or damages,
caused by the use of these programs or from the use of the
information contained herein.
Chapter
3-55