intermediate accounting chapter 3 2015

Chapter 3

Accounting Information System

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Identify and Recording TransactionsWhat 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.Review “Transactions and Events”ExternalInternalNot Recorded

External

External

Not Recorded

External

Internal

Not Recorded

Internal1.A supplier of a company‘s raw material is paid an amount owed on account.2.3.4.5.6.7.A customer pays its open account.A new chief executive of?cer is hired.The biweekly payroll is paid.Raw materials are entered into production.A new advertising agency is hired.The accountant determines the federal income taxes owed based on the income earned.

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1. JournalizingGeneral Journal – a chronological record of transactions. Journal Entries are recorded in the journal.

September 1:

Stockholders invested $15,000 cash in the corporation in exchange for shares of stock.Illustration 3-7

2. Posting

Posting – the process of transferring amounts from the journal to the ledger accounts.

Illustration 3-7

Illustration 3-8

2. Posting

Posting – Transferring amounts from journal to ledger.

Illustration 3-82. Posting

Expanded Example

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 Advertising purchases of?ce equipment costing $50,000 by signing a 3-month, 12%, $50,000 note payable.

3.October 2: Pioneer Advertising receives a $12,000 cash advance from KC, a client, for advertising services that are expected to be complete by 12/31

4.October 3: Pioneer Advertising pays $9,000 of?ce rent, in cash, for October. completed by 12/ 31.

5.October 4: Pioneer Advertising pays $6,000 for a one-year insurance policy that will expire next year on September 30.

6.October 5: Pioneer Advertising purchases, for $25,000 on account, an estimated 3-month supply of advertising materials from Aero Supply.

7.October 9: Pioneer Advertising signs a contract with a local newspaper for advertising inserts (?yers) to be distributed starting the last Sunday in November. Pioneer will start work on the content of the ?yers in November. Payment of $7,000 is due following delivery of the Sunday papers containing the ?yers.

8.October 20: Pioneer Advertising’s board of directors declares and pays a $5,000 cash dividend to stockholders.

9.October 26: Employees are paid every four weeks. The total payroll is $2,000 per day. The pay period ended on Friday, October 26, with salaries of $40,000 being paid.

10.October 31: Pioneer Advertising receives $28,000 in cash and bills Copa Company $72,000 for advertising services of $100,000 provided in October.2. Posting

1. October 1: Stockholders invest $100,000 cash in an advertising venture to be known as Pioneer Advertising Agency Inc.Date

Oct 1AccountCash

Common StockDebit100,000100,000CreditCash

100,000Common Stock100,000