intermediate accounting chapter 3 2015.pdf

Chapter 3 Accounting Information System The Accounting Cycle Transactions 1. Journalization 7. Closing entries 8. Post-closing trial balance 9. Reversing entries 3. Trial balance 2. Posting 6. Financial Statements 5. Adjusted trial balance 4. AdjustmentsWork Sheet Illustration 3-6 Identify and Recording Transactions 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. 1. A supplier of a company‘s raw material is paid an amount owed on account. External Not Recorded 2. A customer pays its open account. External 3. A new chief executive officer is hired. Not Recorded 4. The biweekly payroll is paid. 5. Raw materials are entered into production. Internal External 6. A new advertising agency is hired. Not Recorded 7. The accountant determines the federal income taxes owed based on the income earned. Internal Review “Transactions and Events” External Internal General Journal – a chronological record of transactions. Journal Entries are recorded in the journal. 1. Journalizing September 1: Stockholders invested $15,000 cash in the corporation in exchange for shares of stock. Illustration 3-7 Posting – the process of transferring amounts from the journal to the ledger accounts. 2. Posting Illustration 3-7 Illustration 3-8 Posting – Transferring amounts from journal to ledger. 2. Posting Illustration 3-8 Expanded Example 2. Posting The purpose of transaction analysis is (1)to identify the type of account involved, and (2)to determine whether a debit or a credit is required. Keep in mind that every journal entry affects one or more of the following items: assets, liabilities, stockholders’ equity, revenues, or expense. Posting process 1. October 1: Stockholders invest $100,000 cash in an advertising venture to be known as Pioneer Advertising Agency Inc. 2. October 1: Pioneer