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Prepared By: Sachin Rohatgi
Record transactions in journals. 2. 4. Understand basic accounting terminology. post to ledger accounts. 3. . Explain double entry rules. Identify steps in the accounting cycle. you should be able to: 1.The Accounting Information Systems After studying this chapter. and prepare a trial balance.
Prepare closing entries. Explain the reasons for preparing adjusting entries. 6. 8. Explain how inventory accounts are adjusted at year-end. 7. Prepare a 10-column work sheet. .The Accounting Information Systems 5.
liabilities and owners· equity of a business: Assets = Liabilities + Owners· Equity The equation must be in balance after every recorded transaction in the system.The Basic Accounting Equation Accounting data is represented by the following relationship among the assets. .
liability or other element.The Double Entry System Accounting information is based on the double entry system. An account is an arrangement of transactions affecting a given asset. Under this system. The recording is done by means of a ´debitcreditµ convention (set of rules) applying to all accounts. the two-sided effect of a transaction is recorded in the appropriate accounts. .
The Double Entry System The system records the two-sided effect of transactions Transaction Bought furniture for cash Two-sided effect Decrease in one asset Increase in another asset Increase in an asset Increase in a liability Took a loan in cash .
.The Double Entry System Note that the accounting equation equality is maintained after recording each transaction.
The Account and the Debit-Credit DebitConvention Asset Debit Liability Credit Equity Credit Expense Debit Revenue Credit Normal balance in account .
Expanded Basic Equation and Debit/Credit Rules and Effects .
The Debit-Credit Convention DebitBalance increases Debit entries in an asset account Debit entries in an expense account Credit entries in a liability account Credit entries in equity account Credit entries in a revenue account Balance decreases Credit entries in an asset account Credit entries in an expense account Debit entries in a liability account Debit entries in equity account Debit entries in a revenue account .
Ownership (Equity) Structure Investments by Owners Net Income + Dividends or Withdrawals Net Loss Owners· Equity .
Prepare the post-closing trial balance . Prepare necessary adjusting journal entries 6. Journalize the transaction 3. Prepare the adjusted trial balance 7. Prepare financial statements 8. Post the transaction to accounts in ledger 4. Analyze the transaction 2. Prepare the (unadjusted) trial balance 5. Prepare closing journal entries for the year 9.The Accounting Cycle: Steps 1.
The Accounting Cycle: Steps Accounting period Begin 2 Originating Journal Entries End 4 Unadjusted Trial Balance 6 Adjusted Trial Balance 3 7 5 Adjusting Journal Entries 9 Post-Closing Trial Balance Financial Statements Post to Ledger 8 Start over Closing Entries .
Adjusting Journal Entries Adjusting entries are needed for: Recognizing revenue for the period. . Matching expenses with revenues they helped generate. Adjusting entries are required every time financial statements are prepared.
Adjusting Entries: Recognizing Revenue Adjusting Unearned Revenue Recording Accrued Revenue Revenues received in cash and recorded as liabilities Revenues earned but not yet recorded in books .
Adjusting Entries: Matching Expenses Adjusting Prepayments for Expenses Recording Accrued Expense Prepayments made in cash and recorded as assets Expense incurred but not yet recorded in books .
Closing Journal Entries Closing entries are made to close all nominal accounts (revenue and expense accounts) for the year. Real (or Permanent) accounts (balance sheet accounts) are not closed. . Dividend account is closed to Retained Earnings account.
Earnings Dividends Income Summary 4 Expense 1 3 Revenue 2 .Scheme of Closing Entries Ret.
such entries are not required.Closing Entries: Periodic Inventory System In a periodic inventory system. . In a perpetual inventory system. closing entries are made to record cost of goods sold and ending inventory.