INTRODUCTION TO ACCOUNTING INFORMATION SYSTEM Expected Learning Outcome , After studying the chapter, you should be able to... 1. Describe what an accounting information (AIS) is. ._ Explain the basic functions essential elements of an AIS. Describe the features and characteristics of an effective Als. - Explain briefly the structure of an AIS covering a. Data Collection b. Data Processing ¢. Report Generation 5. Describe the basic Computerized AIS. 6. Understand who is responsible for designing and installing a business firm's AIS. 7. Describe the tools and processes comprising the AIS including but Not limited to the following “Source document Account; Chart of Account Debit and Credit Entries Double-Entry Accounting ; Books of Accounts J 1. General Journal; Special Journal 2. General Ledger: Subsidiary Ledger Journalization g. Posting to ledger wuss kop ®20cpCHAPTER 5 INTRODUCTION TO ACCOUNTING INFORMATION SYSTEM ‘An accounting system consists of the personnel, procedures, devices, and records used by an organization (1) to develop accounting information and (2) to ‘communicate this information to decision makers. The design and capabilities of these systems vary greatly from one organization to the next. In very small businesses, the accounting system may consist of little more than a cash register, a checkbook and annual preparation of income tax returis. In large businesses, an accounting system includes computers highly trained personnel and accounting reports affecting the daily operations of every department. But in every case, the Basic purpose of the accounting system remains the same: to meet the entity’s ‘needs for accounting information as efficiently as possible. Accounting systems should be cost effective that is, the value of the information produced should exceed the cost of producing it. Management has no choice but ‘ produce the types of accounting reports required by law. In other situations, however, managements may use cost-effectiveness as the criterion for deciding ‘whether or not to produce the information. ACCOUNTING AND TECHNOLOGY Before the invention of calculators and computers, all business transactions were “recorded by hand. Now computers perform routine recordkeeping operations and ‘prepare financial reports. Computers are used today in all types of businesses, both F and small. One question often arises: “Is the computer taking over “secountants’ jobs?” Actually. with the introduction of computers, more jobs have been created to fulfill management's need for more information. Regardless of whether a business uses a computer, the nature of accounting is the same. The computer is a powerful tool of the accountant. However, as a tool, the ‘computer is only as useful as the ability of the operator. The operator must be ‘skilled to key the correct information into the computer program. Otherwise, as “the saying goes, “garbage in, garbage out.”80_Chapter 5 An information system embodies all the activities, procedures and processes that are used by an entity to collect, process and report financial information. ‘The information system accepts inputs in the form of data from internal and external sources. These data are then processed by classifying and summarizing them to produce outputs in the form of financial statements. The structure of an entity's accounting information system is shown in Figure 5-1 BASIC FUNCTIONS OF AN ACCOUNTING INFORMATION SYSTEM (AIS) Every accounting system performs the following basic functions relative to the development of information about the financial position of a business and the results of its operations: 1. ‘Interpretation and recording of the effects of business transactions 2. Classification of the effects of similar transactions 3. Summarization and communication of information contained in the system to decisions makers. Accounting systems vary in the manner and speed with which the foregoing functions are performed. The manual system though is considered too slow and cumbersome to meet the needs of most business organizations. Still, there are many small businesses that continue to use manual accounting systems but they modify these systems to meet. their needs as efficiently as possible. In large businesses, transactions occur at a rate of several hundred thousand or eyen millions per hour. To keep pace with such a rapid flow of accounting information, these companies must use accounting systems that are largely computer-based. This textbook uses a simple manual accounting system to illustrate basic accounting concepts. ESSENTIAL ELEMENTS OF AN AIS The basic elements of an accounting information system are: |. Procedures or a set of interrelated activities involving the originating, processing and reporting of financial and other data. 2. Statement of accounting policies and standards.Introduction to Accounting Information System _ 84 3. Records and reports necessary to gather, process, store and transmit financial and other information. 4. Bookkeeping system or pro-forma accounting entries including computational requirements. Personnel directly involved in accounting work. 6. Equipment and devices used in the system to expedite the work, provide controls and minimize if not totally prevent fraud and errors. .TURES OF AN EFFECTIVE AIS: ‘are a number of design features that make" accounting systems run ently. A good system, whether computerized or manual, should possess the jing characteristi Compatibility to the company’s organization. ‘The system should suit the business firm’s organizational structure and policies. 2. Provision of necessary reports. The system should be able to provide timely, pertinent, accurate and effective reports needed by management and other interested parties. 3. Provision for controls. The system should provide adequate controls to ensure the reliability and accuracy of financial data, safeguard assets and minimize errors and fraud. 4. Adequacy of provision for audit trail. The system should be designed to facilitate the tracing of data processing steps from the financial statements and reports to the source document and vice versa. 5. Presence of qualified and competent personnel. ‘The system should consider the capabilities as well as the limitations of the personnel who will be responsible for its implementation.82_Chapter 5 6. Simplicity, flexibility, and favorable cost/benefit relationship, The system should be simple yet workable, efficient and sufficiently. flexible to permit changes and modifications. It should also accomplish its objective at the least possible cost. STRUCTURE OF AN ACCOUNTING INFORMATION SYSTEM An accounting information system embodies all the activities, procedures, and Process that are then processed by classifying and summarizing them to produce ‘outputs in the form of financial statements. Many factors affect the structure of the accounting system within a particular organization. Among the most important are (1) the company’s needs for accounting information and (2) the resources available for operation of the system. Determining Information Needs ‘A number of considerations should be taken into account by an’ entity in determining the types of accounting information that must be developed. These are the size of the organization, whether it is publicly owned or privately-owned, the philosophy of management, the legal and other regulatory requirements that must be complied with, how usefull management considers the information and the cost of developing the information. Availability of Resources and the Cost of Producing Accounting Information The development and installation of computer-based accounting systems have increased greatly the types and amount of accounting information that can be produced in a cost-effective manner, Figure 5-1 shows the structure of an entity’s accounting information system, The diagram shows that the operation of an accounting information system involves three tasks, namely, 1. Data Collection (Inputs), 2. Data Processing (Processing), and 3. Report Generation (Outputs).Introduction to Accounting Information System 83. Data Collection The first task is to collect data. The data collected depend on the objective that the system is intended to achieve. As noted above, the objective of general purpose financial reporting is the provision of information that users will find Usefull for making economic decisions. ‘The first step in designing an information system, therefore, is to identify the information needs of users. Afier these information needs have been identified, an information system can be designed to collect and process the data necessary to produce the required information. The data collected for processing in the accounting information system are the result of sransactions and other past events. A transaction is an exchange of something of value between two or more entities such as the purchase of goods from a supplier or the payment of wages to employees for services provided by them. Transactions usually give rise to business documents that capture relevant aspects of the financial exchange. Data Processing As shown in Figure 5-1, data processing involves the classification and summarization of transactions and events. Classification is the process of grouping items that share common characteristics. The accounting equation discussed in Chapter 3 identifies the effects of transactions and events, grouping them into effects on assets, liabilities, owner’s equity, income and expenses. Transactions and events must be classified according to their inherent nature or business significance. The account employs professional skill and judgment in identifying appropriate categories within ease of the elements of the financial statements, Summarization is necessary because financial report users would be unable to comprehend the detail provided by reporting each and every transaction entered into by the entity. The data have to be reduced in volume to be useful to users. Summarization carries with it an inevitable loss of information.‘soueleg fe sjuawayeys jetoueuy 0 sajou « 1860 URWIEIS MOY YsED & suesn J8yjo « Aynbe ut rewinof sidiaaal ‘saoionu 6.2 | siowioysno « Sr0pU9l «, ‘soBueyo jo uowoyes « ‘sjuawnoop Buisn | siayddns « siojsenuj e <--7 — yuawiayeys wou © |+-~ ‘SisAleue fray payayjooeiep [*- — saoinos ‘suesn uonisod jeroueuy ‘| ‘uoyoesueN Suojoesuen — eiep feweyxe jo jUOWAIEIs © Buzuewwns © : spoued Buunp: oneuioju Buysse luopoaion Bep sindino SaSS390ud SANdNI splepues pue sjdeouc0 Buqunaooy ‘Bupyew vojsioep 40) sejyed yeusayxs 0} UOReULO}U apINd tuarség worremtosny Supunossy we Jo MIIAI9AQ “[-¢ aanIy Sido) ygIntroduction to Accounting Information System ‘388 3. Report Generation After processing the data, the final task is the preparation of a financial report that includes a statement of financial position, an income statement, a statement of changes in equity and a cash flow statement. The information reported in these financial statements must reflect precisely the data collected and processed in the accounting information system. ‘The information in the financial statements may then be analyzed and interpreted by users to assist them in making decisions. Figure 5-2 presents an overview of a manual accounting information system using special journals. z Figure 5-2. Accounting System: Documents and Process Input | soles | | sank | |‘tmooee | |: Empioyee invoces | |Puchase| Journal Business | invoices |_| Deposits | an Invoices | | CPOKS | | Time: Ents, Documents imoces ss es Seay eae pie Processing [Soles Processing of | acon cash ‘Accounts || cash ‘Accounting, [Reccrase| [Recents | |] Pavone | osaumene|| Pavel | | Somat Data —— General Ledger pupae Financial Other ones Statements [*————— ———— | Reports86 Chapter 5 COMPUTERIZED ACCOUNTING INFORMATION SYSTEM Computers are virtually being used today in every area of business, It is difficult to imagine how any business in the not-too-distant future could be successful without integrating computers into its operations and management. In most businesses, the accounting area was the first to adopt computer ‘technology for preparing management reports. Computers allow transactions to be processed almost instantaneously with related reports available for immediate use by managers. In addition, computers can be used to plan for the future by modeling ‘business operations and conducting “what if” or sensitivity analyses, using various assumptions and alternative decisions by management. Computerized accounting systems have three main advantages over manual systems. These are 1. Computerized systems simplify the record-keeping process. Transactions are recorded in electronic forms and at the same time, posted electronically to general and subsidiary ledger accounts, . Computerized systems are generally more accurate than manual systems. Computerized systems provide management current account balance information to support decision making since aecount balances are posted as the transactions occur. Figure 5-3 shows an overview of a computerized accounting information system.Introduction to Accounting Information System _ 87 Figure 5-3. Overview of a Computerized Accounting Information System COMPUTERIZED ACCOUNTING SYSTEM - ACCOUNTING RECORDS PERSONNEL journals i input transactions, request ig i renorfs protect recanis = | Louver recone ‘ 7 josted a HARDWARE ae INPUT | | OUTPUT entered printed to pata (edie SOFTWARE | paper scee"| pepORTS PROCESSING RESPONSIBILITY FOR DESIGNING AND INSTALLING ACCOUNTING INFORMATION SYSTEM. The responsibility for designing and installing an accounting information system depends on the size of the entity as well as the need for information and availability, of resources, Many businesses who have small volume of transactions and yery limited information requirements (j.e., for regulatory compliance and owner's personal knowledge needs only) would require a simple accounting system that an accountant can develop. But medium-size and large businesses may have to hire fa team of people with specialized talents to meet the entity’s requirements. The design and installation of accounting information systems is a specialized field involving not only accounting but also expertise in management information systems, marketing and in many cases ~ computer programming. Large businesses may have a staff of systems analysts, internal auditors and other professionals who work full-time in designing and improving the accounting system, Medium-size companies often hire a CPA firm or consultants to design ‘and update their systems. Other small businesses with limited resources usually purchase one of the many packaged accounting systems designed for small ‘companies in their line of business. These package systems are available through office supply stores, computer stores and software manufacturers.88. Chapter 5 BASIC TOOLS AND PROCESSES COMPRISING THE AIS The accounting process identifies business transactions and events, analyzes and records their effects, and’summarizes and presents information in reports and financial statements. These reports and statements are analyzed and used for making investing, lending, and other business decisions. The succeeding section explains several tools and processes that comprise the accounting information system. These include the source documents, account or ledger account, chart of accounts, debit and credit rules, double-entry accounting, journalizing and posting. SOURCE DOCUMENTS Alll business transactions are evidenced by or supported by printed forms and documents. Source documents identify and describe these transactions and events entering the accounting process. Examples are sales invoices, checks, bills from suppliers, employee earnings, records, and bank statements. These documents especially if obtained from outside the organization, provide objective and reliable evidence about business transactions and events and their amounts. THE ACCOUNT AND ITS ANALYSIS. Accounting information systems are designed to show the increases and decreases in each financial statement item in a separate record. An account is a means of accumulating in one place all the information about changes in specific financial items. In its simplest form, an account has these parts or elements, namely 1. A title, 2. A left side, which is called the debit side, and 3. A right side, which is called the credit side.Introduction to Accounting Information System 289 ” The form account presented below is called a T-account because itis similar to the letter T. In a computerized system, of course, the elements of each account are stored and formatted electronically. More complete forms of accounts will be illustrated later. Title of Account Right or Credit side “A T-account —a ledger account in its simplest form” ‘The entire group of accounts for a business entity is kept together in an accounting record called a ledger. ‘CHART OF ACCOUNTS A list of the accounts in the ledger is called a chart of accounts. The accounts are normally listed in the order in which they appear in the financial statements. The statement of financial position accounts is listed first, in the order of assets, liabilities and owner’s equity. The income statement accounts are then listed in the order of revenues and expenses. ‘An entity’s chart of accounts is designed to meet the information needs of. management and other users of its financial statements. Within the chart of ‘accoimnts, the accounts are numbered for use as reference. A flexible numbering system is normally used; so that new accounts can be added without affecting other account numbers. Figure 5-4 shows an illustrative chart of accounts.90. Chapter 5 Figure 5-4: Illustrative Chart of Accounts Ramos Appliance Repair Service Chart of Accounts ae Ae 199) Cash iat Accounts Receivable 181 Shop Supplies 181 Tools and Equipment Liabilities (200 - 299) 200 Accounts payatle Owner's Equity (300 - 399) 300 S. Ramos, Capital 301 Ramos, Drawing Revenues (400 - 499) 400 Service Revenues Expenses (500 — 599) 500 Rent Expense 501 Wage Expense 502 Utilities Expense 503 Supplies Expense Appendix A presents the typical chart of accounts for service, trading and manufacturing companies, DEBIT AND CREDIT ENTRIES An amount recorded on the left or debit side of an account, regardless of the account title is called a debit or a debit entry. Likewise, any amount entered on the right or credit side of an account is called a credit or a credit entry. Debits and credits are sometimes abbreviated as Dr. and Cr.Introduction to Accounting Information System 91. . Debit and Credit Rules The use of debits and credits to record changes in Assets, Liabilities, and Owner's Equity may be summarized as follows: Asset Account Debit | Credit Increase Decrease Liabilty Account nt Debit Credit Decrease Increase Owner's Equity Account Debit Credit Decrease Increase Debit Balances in Asset Accounts ‘Asset accounts normally have debit balances. If an asset account has a eredit balance ~ such balance is only temporary. “The fact that assets are located on the left side of the accounting equation is a convenient means of remembering the rule. ‘An increase in an asset is recorded on the left (debit) side of the account while a decrease in an asset is recorded on the right (credit) side of the account. Thus, an asset account normally has a debit (left-hand) balance. Any Asset Account Debit Credit (representing an | (representing a increase) decrease)$92, Chapter 5 Credit Balances in Liability and Owner’s Equity Accounts li ity and owner's equity account normally have credit balances. Liabilities and owner's equity belong on the right side of the accounting equation — therefore, An increase in a liability or an owner's equity account is recorded on the right (credit) side of an account. while A decrease while in a liability or an owner's equity account is recorded on the left (debit) side of an account. Thus, a liability and owner’s equity accounts normally have credit (right-hand) balances. Determining the Balance of an Account The balance of an account is the difference between the debit and credit entries in the account. If the debit total exceeds the credit total, the account has a debit balance; if the credit total exceeds the debit total, the account has a credit balance. For example, wheh cash transactions are recorded in the Cash account, the receipts, are listed on the debit side, and the payments are listed on the credit side. The dates of the transactions may also be listed as shown below. Cash 12 50,000 | 1/10 20,000 4125 2,000 | 1/27 2,000 181 ~7,000 | 131. 500 Balance: 33,500 In our illustrated Cash account, a dotted line has been drawn across the account following the last Cash transaction recorded in January. The total cash receipts (debits) recorded in January amount to P59,000 and the total cash payments (credits) amount to P25,500. By subtracting the credit total from the debit total (P59,000 — P25,500), we determine that the Cash account has a debit balance of 33,500 on January 31. In the statement of financial position prepared at this date, Cash in the amount of P33,500 would be listed as an asset.Introduction to Accounting Information System 93 DOUBLE-ENTRY ACCOUNTING The rules for debits and credits are’ designed so that entry transaction is recorded by equal peso amounts of debits and credits. This condition on the equality of the amounts debited and credited has to be satisfied in order to maintain the equality condition of the basic accounting equation. If this equality condition is not satisfied, then in most probability the analysis of the transaction is erroneous. | This manner of recording transactions such that the amounts debited always equal the amounts credited is known as the double-entry accounting. Virtually every business organization uses the double-entry system regardless of whether the ‘company’s accounting records are done manually or by computer. Furthermore, the double-entry system allows us to measure net income at the same time we ‘record the effects of transactions on the statement of financial position accounts. ) THE GENERAL JOURNAL, The journal is a chronological (day-by-day) listing or record of business transactions. A journal is commonly called a book of original entry because it is hhere that the first formal accounting record of a transaction is made. The journal ‘shows the date of each transaction, titles of the accounts to be debited or credited, and the amounts of the debits and credits. ‘At convenient intervals, the debit and credit amounts recorded in the journal are transferred (posted) to the accounts in the ledger. ‘The updated ledger accounts, in turn serve as the basis for preparing the company’s financial statements. The simplest type of journal is called a general journal, Although many types of journals are used in business, the simplest journal form is a two-column general journal. Figure 5-5 shows a general journal. Journal pages are numbered in the ‘upper right corner. Figure 5-5: Two Column General Journal GENERAL JOURNAL PAGE 4 DESCRIPTION 2,3 &4 Re Fl | | 3) ~The column numbers in Figure 6-2 correspond to the descriptions given on the next page. leone |94 Chapter 5 Journalization Process Transactions are recorded in the general journal as follows: iS ‘The year is entered in small figures at the top of the column immediately before the column heading “Date.” The year is repeated only at the top of. each new page. The month is entered for the first entry on the page and for the first transaction of the month. The day of the month is recorded for every transaction, even if itis the same as the prior entry. The name of the account to be debited is written first, and the peso amount to be debited appears in the left-hand money aolumn, labeled as debit. . The name of the account credited appears below the account debited and is indented to the right. The peso amount credited appears on the right- hand money column, labeled as credit. . A brief description of each transaction appears immediately below each journal entry. If.an entry affects more than two accounts, the entry is called a compound entry. The entries are made in the Posting Reference or Folio column during journalizing. Entries are made in this column when the debit and credit elements are copied or posted to the proper accounts in the ledger. ‘This process will be explained in detail later in this Chapter. Accounting software packages automate and streamline the way in which transactions are recorded. However, recording transactions manually — without a computer — is an effective way to understand the manner in which economic events are captured by the accounting system and subsequently Sa in a company’s financial statement,Introduction to Accounting Information System 95 SPECIAL JOURNALS A special journal is used to record and post transactions which are of the same nature and which ‘occur frequently. The following special journals are generally. used for merchandising business. Cash receipts journal — used for recording cash received by the firm. Cash disbursements journal — used for recording cash payments. Purchases journal — used for recording purchases account. Sales journal — used for recording sales on account. Repo The use of special journals is discussed in detail in Chapter 8. THE GENERAL LEDGER The journal provides a day-by-day record of business transactions. A complete set of all the accounts used by a business is called the General Ledger. The general ledger provides a complete record of the transactions entered in each account. The accounts are numbered and arranged in the same order as the chart of accounts, that is, accounts are numbered and grouped by classification: assets, liabilities, owners’ equity, revenue and expense. Four-Column Account A four-column account contains columns for the debit or credit transaction and column for the debit or credit running balance. In actual practice, businesses are more likely to use a version of the 4-column account. Figure 5-6 shows an illustration of how the 4-column account is used. Note that the heading for the four-column account has the account title and an account number. The account ‘number is taken from the chart of accounts and is used in the posting process, The primary advantage of the four-column account is that it maintains a running balance.Chapter 5 Figure 5-6. Illustrative 4-column Ledger Account RARS General Ledger ACCOUNT CASH : ACCOUNTNO. 1 DATE y BALANCE 2015 ITEM. CREDIT DEBIT CREDIT Jan 2 0 ]000 0. 000) 20 ]000 JS. 000} 32{000) 2/000 30/000, 000 37 ra a 31 3[500| 33500) SSS Transaction Amount Running Balance SUBSIDIARY LEDGER A subsidiary ledger consists of individual accounts with a common characteristic such as 1 subsidiary ledger 2. Amounts due to suppliers — recorded in accounts payable subsidiary ledger. 3. Inventory 4. Plant assets Subsidiary ledgers provide sufficient details that will support analysis of a specific account. A general ledger account that is supported by a subsidiary ledger is called controlling account. The use of subsidiary ledger is discussed in detail in Chapter 8. POSTING PROCESS The process of copying the debits and credits from the journal to the ledger ‘accounts is known as posting. All amounts entered in the journal must be posted ‘to the general ledger accounts. Posting simply means updating the ledger accounts for the effects of the transactions recorded in the journal.Introduction to Accounting Information System _i 97 Viewed as a mechanical task, posting basically amounts to performing the steps ‘you describe when you ‘read’ a journal entry aloud. Ina computerized system, postings often occur instantaneously, rather ‘than later. Posting from the journal to the ledger can be done daily or at frequent intervals. There are four steps involved in this process. In the ledger account: 1. Enter the date of each transaction in the Date column. 2. Enter the amount of each transaction in the Debit or Credit column and enter the new balance in the Balance column under Debit or Credit. If the account balance is zero, draw a line through the debit and credit column. 3. Enter the page number of the journal from which each transaction is posted in the Posting Reference column. Inthe journal: 4, Enter the account number in the Posting Reference column of the journal for each transaction that is posted. The information in the posting reference columns of the journal and ledger provides a link between the journal and ledger known as cross-reference.REVIEW QUESTIONS AND PROBLEMS L. Questions Why is accounting considered an information system? What is an accounting system and what is the primary objective of such a system? What do we mean when we say that an accounting system needs to be “cost-effective?” . }. What are the basic functions of every accoupting system? ‘What requirements must be satisfied for a transaction to be accepted as an input into the accounting information system? Explain the role of documents in the accounting information system. ‘Who designs and installs accounting systems? Explain the basics steps in processing transactions. Describe source documents and their purpose. 10. Describe an account and its use in recording transactions. 11. Describe a ledger and a chart of accounts, 12. Define debits and credits and explain their role in double entry accounting. 13. Explain the impact of transactions on accounts and financial statements. 14, Describe the process of journalizing transactions. 15. Describe the process of posting entries in the journal to the ledger. . Problems Problem 1 Compute the missing amounts for each of the following companies. GreenCo. White Co. Black Co. Beginning: Assets Liabitit 200,000 600,000 500,000 500,000 900,000 1,100,000Introduction to Accounting Information System 9% Ending: Assets P700,000 Pp? Liabilities 350,000 800,000 Owner's equity: Investment by owner PO P100,000 Withdrawals by owner 400,000 700,000 Income statement: Revenues 2,100,000. 4,000,000 Expenses 2 3,000,000 c Problem 2 ‘ : Connie Company was recently formed. The balance of each item company’s accounting equation is shown below for June 10 and fer eseh of the nine following business days. Accounts Accounts Owner's Cash Receivable Supplies Land Payable Equity dune 10 Pago —-Pagjod0 10,000. Pa0,000 Pagkoa 170,000 in 130,000 4000 10,000 80,000. aja» 220,000 2 60,000 40,000 10,0007 150,000 au 220,000 6 60,000 40,000 30,000. 10,000 somup- (220,000 18 50,000 40,000 30,000 150,000 Saga "7 220,000 7 70,000 20,000 20,000, 150,000 SagaB 220,000 18 160,000 20,000. 30,000. 150,000 SND —-310.000 13 130,000 20,000. 30,000. 150,000 aaa =310,000 2 140,000 20000 50,000 150,000 ND «310.000. 2B 50,000 20,000 50,000. 150,000 R00 250,000 Required: ‘Assuming that a single transaction took place on each day. deseribe briefly the transaction that was most likely to have occurred, beginning with June 11 Indicate which accounts were affected and by what amount. No revenue or expense transactions occurred on these dates100_Chapter 5 Problem 3 Lisa Luna owns and operates an interior design studio called Luna interiors. The following amounts summarize the financial position of her business on August 31, 20X1: Assets = _Liabiltes + Equity ‘Accounts Cash + Receivable + Supplies + Land = Payable + Equity Ba. 12,500 45,000 120,000 80,000 67,500 ‘During September 20X1 the following events occurred: a. Luna inherited P200,000 and deposited the cash in the business bank account. Performed services for a client and received cash of P7,000. Paid off the beginning balance of accounts payable. Purchased supplies on account, P10,000. Collected cash from a customer on account, P10,000. Invested personal cash of P10,000 in the business. Consulted on the interior design of a major office building and billed the client for services rendered, P24,000, Recorded the following business expenses for the month: 1. Paid office rent ~ 9,000, 2. Paid advertising ~ P1,000. i, Sold supplies to another business for P1,500 cash, which was the cost of the supplies. J. Withdrew cash of P18,000 for personal use. F eae nes Required: 1. Analyze the effects of the above transactions on the accounting equation of Luna Interiors. 2. Prepare the income statement of Luna Interiors for the month ended September 30, 20X1. List expenses in decreasing order by amount. 3. Prepare the entity’s statement of owner’s equity for the month ended September 30, 20X1. 4. Prepare the balances sheet of Luna Interiors at September 30, 20X1. 5. What did you learn from working on this problem? 6. With what you learned, how will it help you manage a business?Introduction to Accounting’ bnfarnration System 101 tim Problem 4 K. C.-Barr owns and operates an interior design studio called Barr Designers. The following amounts summarize the financial position of her business on April 30, 20X1: Owner's ‘Assets = _Labiities+___Eauity_ Recounts ‘Accounts K. C Barr Gash + Receivable + Supplies + Land = Payable + Equity Ba 17,200 22,400 241,000 54,000 228,800 During May 20X1 the following events occurred: * a. Barr received P120,000 as a gift and deposited the cash in the business bank account. Paid off the beginning balance of accounts payable. Performed services for a client and received cash of P11,000. Collected cash from a customer on account, P7,500. Purchased supplies on account, P7,200. Consulted in the interior design of major office building and billed the client for services rendered, P50,000. Invested personal cash of P17,000 in the business. Recorded the following business expenses for the month: 1. Paid off rent — P12,000. 2. Paid advertising — P 6,600. i. Sold supplies to another designer for P800 cash, which was the cost of the supplies. |. Withdrew cash of P24,000 for personal use. peeaos re Required: 1. Analyze the effects of the transactions on the accounting equation of Barr Designers. 2. Prepare the income statement of Barr Designers for the month ended May 31, 20X 1. List expenses in decreasing order by amount. 3. Prepare the statement of owner's equity of Barr Designers for the month ‘ended May 31, 20X1 4. Prepare the balance sheet of Barr Designers at May 31. 5. What did you learn from working this problem? 6. With what you learned, how will it help you to manage a business?