provides the control that the total of accounts with debit
balances must equal the total of accounts with credit
balances.Describe and illustrate the basic elements of a finan-
cial reporting system. The basic elements of a financial
reporting system include adjusting entries, financial state-
ments, and closing entries. Adjusting entries are necessary
under the accrual basis of accounting to bring the accounts
up to date for preparing financial statements. Closing en-
tries transfer the balances of the revenue, expense, and
dividend accounts to retained earnings.Describe the accounting cycle for the double-entry
accounting system. The accounting cycle of the
double-entry accounting system includes the journal, ledger,
unadjusted trial balance, adjusted trial balance, closing en-
tries, and post-closing trial balance. The basic steps of the
accounting cycle for the double-entry accounting system
are listed on pages 172 and 173.Describe and illustrate the computation and use of
earnings before interest, taxes, depreciation, and
amortization (EBITDA). Earnings before interest, taxes,
depreciation, and amortization (EBITDA) is a type of pro
forma computation used by financial analysts as a rough
estimate of operating cash flows that are available to pay
interest and other fixed charges.Describe the nature of business information systems.
A business information system collects and processes
data into information that is distributed to stakeholders/
users. Business information systems share common elements
that include data sources, data collection, data processing,
database management, information generation, and stake-
holders/users.
Describe the nature of accounting information
systems.An accounting information system is a type
of business information system that processes financial and
operational data into reports useful to internal and external
stakeholders. Accounting information systems consist of the
(1) management reporting system, (2) the transaction pro-
cessing system, and (3) the financial reporting system.
Describe and illustrate the basic elements of trans-
action processing systems. The basic elements of trans-
action processing systems include accounts and rules for
recording transactions in accounts, journals, and ledgers.
In addition, the processing system should include controls
to prevent and detect errors in the recording and summa-
rization process. An account is used to record increases
and decreases in financial statement elements. The rules of
debit and credit are used to determine how increases and
decreases are recorded in the various accounts. A journal is
a chronological record of each transaction. The ledger is the
summary of all the accounts for a business. The trial balance
Chapter 4 Accounting Information Systems 1772
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GLOSSARY
AccountThe element of an accounting system that summarizes
the increases and decreases in each financial statement item.
Accounting information systemAn information system
that consists of management reporting, transaction process-
ing, and financial reporting subsystems that processes finan-
cial and operational data into reports useful to internal and
external stakeholders.
Adjusted trial balanceThe trial balance prepared after the
adjusting entries have been posted to the ledger.
Adjusting entriesThe entries necessary to bring the ac-
counts up to date before preparing financial statements.
Balance of an accountThe amount of the difference be-
tween the debits and the credits that have been entered into
an account.
Business information systemA system that collects and
processes company data into information that is distributed
to users.
Chart of accountsThe list of accounts in the general ledger.Closing entriesThe entries necessary at the end of an ac-
counting period to transfer the balances of revenue, expense,
and dividend accounts to retained earnings.
Closing processThe process of transferring the balances of
revenue, expense, and dividend accounts to retained earnings
in preparation for recording transactions of the next period.
CreditsAmounts entered on the right side of an account.
DebitsAmounts entered on the left side of an account.
Double-entry accounting systemA system of account-
ing for transactions, based on recording increases and de-
creases in accounts so that debits equal credits and Assets
LiabilitiesStockholders’ Equity.Earnings before interest, taxes, depreciation, and
amortization (EBITDA)A type of pro forma computation
used by financial analysts as a rough estimate of operating cash
flows that are available to pay interest and other fixed charges.SUMMARY OF LEARNING GOALS