Intermediate Accounting, 15th Edition

CHAPTER 3 The Accounting Information System

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Understand basic accounting terminology.
2. Explain double-entry rules.
3. Identify steps in the accounting cycle.
4. Record transactions in journals, post to ledger accounts, and prepare a trial balance.
5. Explain the reasons for preparing adjusting entries and identify major types of adjusting entries.
6. Prepare financial statements from the adjusted trial balance.
7. Prepare closing entries.
8. Prepare financial statements for a merchandising company.

Needed: A Reliable Information System

Maintaining a set of accounting records is not optional. Regulators require that businesses prepare and retain a set of records and documents that can be audited. The U.S. Foreign Corrupt Practices Act, for example, requires public companies to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets.” But beyond these two reasons, a company that fails to keep an accurate record of its business transactions may lose revenue and is more likely to operate inefficiently.

One reason accurate records are not provided is because of economic crime or corruption. It is clear that economic crime remains a persistent and difficult problem for many companies. For example, it was recently estimated that 53 percent of U.S. companies experienced significant economic crime. And its global counterparts are not far ...