Accounting information system
The left side of any account is the debit side .the right is the credit
All assets & expenses increase in the debit side .decrease in the credit side
All liabilities & revenues increase in the credit side .decrease in the debit side
Stock holder equity common stock & retained earnings increase in the credit side
Dividends increase in the debit side
double entry :
it is the equalty of debit & credit . it provide logical method for recording transaction & offers ameans of proving the accuracy of the recoreded amount
assets = liabilities + stockholders equity
Accounting cycle steps
1- identfy & measure transaction and event
4- unajusted trial balance
6- adjusted trial balance
7- statement preparation
identfy & measure transaction and event
transaction and event used to descibe the changes in an entity assets.liabilty & owners equity
Events are of two types:
A) external : involve interaction between an entity & its environment
B) internal events : occur within an entity
transaction : are particular kind of external events maybe an exchange in wich entity both receives & sacrifice value
General Ledger: It is a collection of all assets, liability,stockholders equity , revenue and expenses account.
T-Account is a convenient method of illustrating the effect of trasaction on particular assets , liability, equity,revenue, expense
eg: Depreciation expense $ 500
Accumulated depreciation- Office expence $ 500
DE. Depreciation expense CR
Depreciation expense $500
DE. ACCUMULATED DEPRECIATION CR.
Accumulated depreciation – Office expense $500
A subsidiary ledger is a group of accounts with a common characteristic, e.g., all are customer accounts, that is, all are accounts receivable. The subsidiary ledger facilitates the recording process by freeing the general ledger from the details of individual balances. Thus, a typical merchandising enterprise has subsidiary ledgers containing accounts with customers (accounts receivable or customers’ ledger) and creditors (accounts payable or creditors’ ledger).
the advantages of using subsidiary ledgers are that they:
1. Show transactions affecting one customer or one creditor in a single account, thus providing necessary up-to-date information on specific account balances.
2. Free the general ledger of excessive details relating to accounts receivable and accounts payable. As a result, a trial balance of the general ledger does not contain vast numbers of individual account balances.
3. Help locate errors in individual accounts by reducing the number of accounts combined in one ledger and by using control accounts.
4. Make possible a division of labor in posting by having one employee post to the general ledger and a different employee post to the subsidiary ledgers.
ILLUSTRATION 1: Relationship between General and Subsidiary Ledgers
Illustration 1 is based on the following transactions:
Sales and Collection Transactions
Credit Sales Collections on Account
Jan. 10 Aaron Co. $ 6,000 Jan. 19 Aaron Co. $ 4,000
12 Branden Inc. 3,000 21 Branden Co. 3,000
20 Caron Co. 3,000 29 Caron Co. 1,000
$12,000 $ 8,000
the book of original entry where transactions and selected other events are initially recorded .
GENERAL JOURNAL: It consists of four parts :
1- The accounts and the amount to be debited
2- The accounts and the amount to be credited
4- An explanation
special journals expedite the journalizing and posting process for frequently occurring transactions. The most common special journals are: sales journals, purchases journal, cash receipts journal, and cash payments journal.
It is the process of trasfering the essential facts and figuers from the book of original entry to the ledger accounts .
The number in the posting reference coloumn serves two pourposes:
1- Indicate the ledger account number of account involved.
2- To indicate that the posting has been completed for the particular item.
It is a list of accounts and their balances at a given time .
The primary pourpose of a trial balance is to prove the mathimatical equality of debit and credit .
A trial balance also uncoveres errors in journalizing and posting in addition
it is useful in the preparation of finantial statement .
They are made at the end of the accounting period in short adjustment are needed to ensure that the revenue recognition and matching principals are followed .
Adjusting entries are required every time financial statements are prepared .
TYPES OF ADJUSTING ENTIES:
Adjusting entries can be classified as either prepayments or accruals .
Each of these clases has two sub-categories
1- Prepaid expenses. expenses paid 3- Accrued revenues :
in cash and recorded as assets Earned but not yet received
before they are used or consumed . in cash or recorded .
2- Unearned revenues : 4- Accrued expenses:
Revenues received in cash Expenses incurred
and recorded as liabilities but not yet paid in cash
before they are earned. or recorded
Adjusting entry for prepayments:
Prepaid expenses expaire either with the passege of time eg.(rent and insurance) or through use and consumption eg. (supplies)
Prepaid expense adjusting entry results in a debit to an expense account
and credit to an asset account .
The anjusting entry for unearned revenues results in a debit (decrease )
to a liability account and a credit increase to revenue account .
ADJUSTEMENT OF ACCRUALS:
An adjusting entry for accrued revenue results in a debit (increase)to an asset
account and a credit (increase ) to a revenue account.
the adjusting entry for accrued expenses results a debit
(increase) to an expense account and a credit (increase) to a liability account
It is the procedure generally followed to reduce the balance of nominal (temporary) accounts to Zero in order to prepare the accounts for the next period’s transactions
It is made at the beginning of the next accounting period and is the exact opposite of the related adjusting entry made in the previous period
A work sheet is a columnar sheet of paper used to adjust the account balances and prepare the financial statements. Use of a work sheet helps the accountant prepare the financial statements on a more timely basis. It is not necessary to delay preparation of the financial statements until the adjusting and closing entries are journalized and posted.