Chapter 3 (REVIEW-Self study chapter)

After studying this chapter, you should be able to:
Understand basic accounting terminology.
Explain double-entry rules.
Explain how transactions affect the accounting equation.
Identify the steps in the accounting cycle and the steps in the recording process.
Explain the reasons for and prepare adjusting entries.
Explain how the type of ownership structure affects the financial statements.
Prepare closing entries and consider other matters relating to the closing process.
Prepare a 10-column work sheet and financial statements.

After studying Appendix 3A, you should be able to:
Identify adjusting entries that may be reversed.

THE ACCOUNTING INFORMATION SYSTEM
The Accounting Information System

Basic Terminology
Event: The cause of changes of assets, liabilities, and equity
Transaction: A transfer or exchange between two or more entities or parties
Account: Where transactions are recorded
- A separate account is used for each asset, liability, revenue, expense, gain, loss and capital (owner’s equity)

Permanent accounts (or “real” accounts) * Asset, liability, and equity accounts * Appear on the balance sheet * Permanent accounts are not closed at year end Temporary accounts (or “nominal” accounts) * Revenue, expense, and dividend accounts * Revenue and expenses are on the income statement; dividends are on the statement of changes in shareholders equity. * Temporary accounts are closed at year end

Journalizing and Posting * A Journal is a book of original entry for all transactions * The General Journal is a chronological listing of transactions expressed as debits and credits to particular accounts (known as a journal entries) * Special Journals are used to summarize transactions with common characteristics (e.g. cash receipts, sales,