The
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
1.

Understand basic accounting terminology.

2.

Explain double-entry rules.


Accounting
Accounting Information
Information System
System
Accounting
AccountingInformation
Information
System
System

The
TheAccounting
AccountingCycle
Cycle

Basic terminology
Debits and credits

Identification and recording
Journalizing

Basic equation
Financial statements and
ownership structure

Posting
Trial balance
Adjusting entries
Adjusted trial balance
Preparing financial

How much and what kind of debt is outstanding?
Were sales higher this period than last?
What assets do we have?
What were our cash inflows and outflows?
Did we make a profit last period?

Chapter
3-5

LO 1 Identify the major financial statements and other means of financial reporting ..


Basic
Basic Terminology
Terminology
Event
Transaction
Account
Real Account
Nominal Account
Ledger

Chapter
3-6

Journal
Posting
Trial Balance
Adjusting Entries
Financial Statements

An arrangement that shows
the effect of transactions on
an account.
Debit = “Left”
Credit = “Right”

An Account can
be illustrated in a
T-Account
form.

Chapter
3-8

Account Name
Debit / Dr.

Credit / Cr.

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.

the account will have a credit balance.
Account Name
Debit / Dr.

Transaction #1

Balance

Chapter
3-10

$10,000

Credit / Cr.

$3,000

Transaction #2

8,000

Transaction #3

$1,000

LO 2 Explain double-entry rules.


Debits
Debits and

Credit / Cr.

Debit / Dr.

Liabilities

Debit / Dr.

Credit / Cr.

Normal Balance
Normal Balance
Chapter
3-23

Expense
Debit / Dr.

Revenue

Chapter
3-25

Credit / Cr.

Debit / Dr.

Normal Balance

Chapter

Credit

Chapter
3-12

LO 2 Explain double-entry rules.


Basic
Basic Accounting
Accounting Equation
Equation
Relationship among the assets, liabilities and
stockholders’ equity of a business:
Illustration 3-3

The equation must be in balance after every transaction.
For every Debit there must be a Credit.
Chapter
3-13

LO 2 Explain double-entry rules.


Double-Entry
Double-Entry System
System Exercise
Exercise
1. Invested $32,000 cash and equipment valued at
$14,000 in the business.


Assets

- 600

Chapter
3-15

=

Liabilities

+

Stockholders’
Stockholders’
Equity
Equity

- 600

(expense)

LO 2 Explain double-entry rules.


Double-Entry
Double-Entry System
System Exercise
Exercise

for Shuler Co.
Assets

+ 2,300

Chapter
3-17

=

Liabilities

+

Stockholders’
Stockholders’
Equity
Equity

+ 2,300

(revenue)

LO 2 Explain double-entry rules.


Double-Entry
Double-Entry System
System Exercise
Exercise

Assets

- 7,000

Chapter
3-19

=

Liabilities

+

Stockholders’
Stockholders’
Equity
Equity

- 7,000

LO 2 Explain double-entry rules.


Double-Entry
Double-Entry System
System Exercise
Exercise
7. Declared a cash dividend of $10,000.

Assets

3-20

LO 2 Explain double-entry rules.


Ownership
Ownership Structure
Structure
Ownership structure dictates the types of accounts
that are part of the equity section.
Proprietorship
Proprietorship
or
or
Partnership
Partnership

Chapter
3-21

Corporation
Corporation



Capital Account



Common Stock

Common Stock
Stock

(Investment
(Investment
by
by stockholders)
stockholders)

Dividends

Retained
Retained Earnings
Earnings

(Net
(Net income
income retained
retained in
in business)
business)

Net income or Net loss
(Revenues
(Revenues less
less expenses)
expenses)

Income
Income Statement

Work
Sheet

4. Adjustments

5. Adjusted trial balance
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

7. The accountant determines the federal income
taxes owed based on the income earned.
Chapter
3-25

Not Recorded
Internal

LO 3 Identify steps in the accounting cycle.