Analyzing Accounting Transactions Flashcards
What is the accounting information system? What does it begin with?
The accounting information system is the system of collecting and processing transaction data and communicating financial information to decision-makers.
An accounting information system begins with determining what relevant transaction data should be collected and processed. Not all events are recorded and reported as accounting transactions. Only those events that cause changes in assets, liabilities, or shareholder’s equity should be recorded. For example, hiring a new employee is an event that should not be recorded in the company’s accounting records. This is because while the hiring of an employee will lead to a future accounting transaction (e.g., the payment of salary after the work has been completed), no accounting transaction has occurred at this point in time.
When does an accounting transaction occur?
An accounting transaction occurs when assets, liabilities, or shareholder’s equity items change as a result of some economic event.
What is the basic accounting equation? If an asset increases, do you only do one change in the equation? Can two or more items be affected when analyzing the accounting equation?
Assets = Liabilities + Shareholder’s Equity
The accounting equation must always balance, so each transaction will have a dual (double-sided) effect on the equation. For example, if an individual asset is increased, there must be either a corresponding decrease in another asset, an increase in a specific liability, and/or an increase in shareholder’s equity.
Yes. Two or more items could be affected when analyzing the accounting equation. For example, an asset (cash) could increase by $50, a different asset (acccounts receivable) could increase by $150, and shareholder’s equity (sales) could increase by $200.
