3-1


THE ACCOUNTING
INFORMATION
SYSTEM

3-2

Financial Accounting, Seventh Edition

3


Learning
Learning Objectives
Objectives
After studying this chapter, you should be able to:

3-3

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.


Financial Accounting
Seventh Edition
Kimmel Weygandt Kieso
3-4


The
The Accounting
Accounting Information
Information System
System
Accounting Information System
System of
►

collecting and

►

processing transaction data and

►

communicating financial information to decision makers.

Most businesses use computerized accounting (EDP) systems.

3-5


Question: Are the following events recorded in the
accounting records?
Event

Criterion

Purchase
computer.

Discuss guided trip
options with potential
customer.

Illustration 3-1

Pay rent.

Is the financial position (assets, liabilities, or
stockholders’ equity) of the company changed?

Record/ Don’t
Record

3-7

LO 1 Analyze the effect of business transactions on the basic accounting equation.


Accounting
Accounting Transactions


LO 1 Analyze the effect of business transactions on the basic accounting equation.


Accounting
Accounting Transactions
Transactions
Event (1). On October 1, cash of $10,000 is invested in Sierra Corporation by
investors in exchange for $10,000 of common stock.

1.

3-10

+10,000

+10,000

LO 1 Analyze the effect of business transactions on the basic accounting equation.


Accounting
Accounting Transactions
Transactions
Event (2). On October 1, Sierra borrowed $5,000 from Castle Bank by signing
a 3-month, 12%, $5,000 note payable.

1.

+10,000


+10,000
+5,000
+5,000

LO 1 Analyze the effect of business transactions on the basic accounting equation.


Accounting
Accounting Transactions
Transactions
Event (4). On October 2, Sierra received a $1,200 cash advance from R. Knox,
a client.

1.

+10,000

2.
3.

+5,000
-5,000

4.

+1,200

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+10,000

3-14

+10,000
+5,000
+5,000
+1,200
+10,000

LO 1 Analyze the effect of business transactions on the basic accounting equation.


Accounting
Accounting Transactions
Transactions
Event (6). On October 3, Sierra Corporation paid its office rent for the month
of October in cash, $900.

1.

+10,000

2.
3.

+5,000
-5,000

4.


+10,000

2.
3.

+5,000
-5,000

4.

+1,200

5.

+10,000

6.

-900

7.

-600

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+10,000
+5,000
+5,000

+10,000

6.

-900

7.

-600

8.

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+10,000
+5,000
+5,000
+1,200
+10,000
-900
+600
+2,500

+2,500

LO 1 Analyze the effect of business transactions on the basic accounting equation.


Accounting
Accounting Transactions

8.

+10,000
+5,000
+5,000
+1,200
+10,000
-900
+600
+2,500

+2,500

An accounting transaction has not occurred.
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LO 1 Analyze the effect of business transactions on the basic accounting equation.


Accounting
Accounting Transactions
Transactions
Event (10). On October 20, Sierra paid a $500 dividend.

1.

+10,000

2.
3.

+10,000
-900
+600
+2,500

-500

+2,500
-

LO 1 Analyze the effect of business transactions on the basic accounting equation.


Accounting
Accounting Transactions
Transactions
Event (11). Employees have worked two weeks, earning $4,000 in salaries,
which were paid on October 26.

1.

+10,000

2.
3.

+5,000
-5,000

4.


-500
-4,000

+2,500
-4,000


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The
The Account
Account
Account



Record of increases and decreases in
a specific asset, liability, equity,
revenue, or expense item.



Debit = “Left”



Credit = “Right”



LO 3 Define debits and credits and explain they are used to record business transactions.


Debit
Debit and
and Credit
Credit Procedures
Procedures
If Debits are greater than Credits, the account will have
a debit balance.
Account Name
Debit / Dr.

Credit / Cr.

Transaction #1

$10,000

$3,000

Transaction #3

8,000

Transaction #2

Balance
$15,000

Balance
$1,000

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LO 3 Define debits and credits and explain they are used to record business transactions.