Chapter 4 Accounting Information Systems 155
and rules for recording transactions in accounts, journals, and ledgers. In addition, the
system should include controls to prevent and detect errors in the recording and sum-
marization process.
The Account
In Chapters 2 and 3, we recorded and summarized transactions by using the integrated
financial statement framework. Each financial statement item was represented.
Transactions were recorded as pluses or minuses for each item affected by the trans-
action. Detecting and preventing errors in processing transactions was controlled by
monitoring the equality of the balance sheet (accounting equation). That is, total assets
must equal total liabilities plus stockholders’ equity.
While the system illustrated in Chapters 2 and 3 allowed us to record and sum-
marize transactions for a small business with few transactions, it would be inefficient
for a large business. One element in which transactions are recorded efficiently is the
account.
Anaccount, in its simplest form, has three parts. First, each account has a title,
which is the name of the item recorded in the account. Second, each account has a
space for recording increases in the amount of the item. Third, each account has a space
for recording decreases in the amount of the item. The account form presented below
is called a T accountbecause it resembles the letter T. The left side of the account is
called the debitside, and the right side is called the creditside.
TITLE
Left side Right side
Debit CreditAmounts entered on the left side of an account, regardless of the account title, are
calleddebitsto the account. When debits are entered in an account, the account is said
to be debited(or charged). Amounts entered on the right side of an account are called
credits, and the account is said to be credited. Debits and credits are sometimes abbre-
viated as Dr.andCr.
In the cash account that follows, transactions involving cash receipts are listed on
the debit side of the account. The transactions involving cash payments are listed on
the credit side. If at any time the total of cash receipts ($10,950) is needed, the entries
on the debit side of the account are added. The total of the cash payments on the credit
side, $6,850 in the example, is determined in a similar manner. Subtracting the pay-
ments from the receipts, $10,950$6,850, determines the amount of cash on hand,
$4,100. This amount is called the balance of an account. This balance should be iden-
tified as a debit balance in some way, such as showing the balance on the debit side of
the account or simply listing it as a debit balance.
CASH
3,750 850
4,300 1,400
2,900 700
4,100 10,950 2,900
1,000
6,850
Total
Balance of account debits
(Total debits Total credits) Total
credits
Debit
side of
account
Credit
side of
account
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