Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 4 Accounting Information Systems 159

statement framework. In this chapter, we describe and illustrate the use of journal

entries to record transactions. Both methods of recording transactions and their effects

on the financial statements have advantages and disadvantages.

The integrated financial statement framework we used in Chapters 2–3 illustrates

the effects of transactions on the financial statements and how the financial statements

are integrated. In the real world, however, the double-entry accounting system, in-

cluding journal entries and debits and credits, is used because it is more efficient and

is common practice.

Since the double-entry accounting system is used in virtually all accounting sys-

tems, we use journal entries to record transactions in the remainder of this text.

However, we supplement each journal entry with the following margin notation

adapted from the integrated financial statement framework. We do this so that you can

better see the effects of transactions on the financial statements and how transactions

are integrated in the financial statements.

Nov. 5 Land 20,000

Cash 20,000

10 Supplies 1,350

Accounts Payable 1,350

18 Cash 7,500

Fees Earned 7,500

30 Wages Expense 2,125

Rent Expense 800

Utilities Expense 450

Miscellaneous Expense 275

Cash 3,650

30 Accounts Payable 950

Cash 950

30 Dividends 2,000

Cash 2,000

Statement of Cash

Flows (SCF) Balance Sheet (BS) Income Statement (IS)

Effect Effect Effect

TT T

SCF BS IS

O, I, F A, L, SE R, E

O—Operating Activity A—Assets R—Revenue

I—Investing Activity L—Liabilities E—Expense

F—Financing Activity SE—Stockholders’ Equity

Upward or downward arrows show increases in each financial statement element.

For example, the November 5 transaction of Online Solutions is accompanied by the

following notation:

SCF BS IS

IT AcT —

SCF BS IS

IT AcT —

—AcLc —

Oc AcSEc Rc

OT ATSET Ec

OT ATLT —

FT ATSET —