Chapter 4 continues the analysis of the preparation of accounting statements begun in Chapter 3. The discussions of Chapter 3 involved an underlying assumption that the data required in the accounting process was available in the necessary form, and with sufficient frequency. We will see now that the required data will emerge from an information system which is designed to enable us to prepare the financial statements. An information system has three identifiable components — data collection, data processing, and data communication — and it is in this form that we will examine methods of translating accounting data into financial statements. We begin by considering the most widely used method of analysis of accounting data.
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Notes and References
- 1.Many students understandably find the use of some terms in accounting confusing. In this sentence creditor refers to the amounts owing as a result of purchases made on credit which simply means that the cash payment is not made at the time of the purchase. The term credit introduced in Rule 1 should be understood in this context as merely having the meaning conveyed by Rule 1 — i.e., it describes entries on the right hand side of an account. It does not mean having things ‘on credit’, nor should it be used as a synonym for ‘good’, any more than a debit is ‘bad’. Both are neutral terms which bear a meaning restricted to that described in Rule 1.Google Scholar
- 2.See Sect. 9.4 for details of these day books.Google Scholar