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After studying this chapter, you should be able to:
1 Identify the basic principles of accounting information systems.
2 Explain the major phases in the development of an accounting system.
3 Describe the nature and purpose of a subsidiary ledger.
4 Explain how special journals are used in journalizing.
5 Indicate how a multi-column journal is posted.
CHAPTER 7 ACCOUNTING INFORMATION SYSTEMS
CHAPTER 7 ACCOUNTING INFORMATION SYSTEMS
An accounting information system involves collecting and processing data and disseminating financial information to interested parties.
An AIS may either be manual or computerized.
ACCOUNTING INFORMATION SYSTEMS
ACCOUNTING INFORMATION SYSTEMS
ILLUSTRATION 7-1 PRINCIPLES OF AN EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM
ILLUSTRATION 7-1 PRINCIPLES OF AN EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM
Costs Benefits
The accounting system must be cost effective.
Benefits of information must outweigh the cost of providing it.
The accounting system must be cost effective.
Benefits of information must outweigh the cost of providing it.
ILLUSTRATION 7-1 PRINCIPLES OF AN EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM
ILLUSTRATION 7-1 PRINCIPLES OF AN EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM
It must be relevant!
It must be reliable! It must be
accurate!
It must be timely!
Balance Sheet
Income Statement
Other Financial Reports
ILLUSTRATION 7-1 PRINCIPLES OF AN EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM
ILLUSTRATION 7-1 PRINCIPLES OF AN EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM
Government Regulation and
Deregulation
Organizational Growth Increased
Competition
Changing Accounting Principles
Technological Advances
ILLUSTRATION 7-2 PHASES IN THE DEVELOPMENT OF AN
ACCOUNTING SYSTEM
ILLUSTRATION 7-2 PHASES IN THE DEVELOPMENT OF AN
ACCOUNTING SYSTEM
Analysis
Follow-up Design
Implementation
Planning and identifying
information needs and sources
Monitoring and correcting any
weaknesses
Creating forms, documents, procedures,
job descriptions, and reports
Installing the system, training personnel, and
making the system wholly operational
In a manual accounting system, each of the steps in the accounting cycle is performed by hand.
This means that transactions are entered into a journal and then posted to the ledger.
Financial statements are thus derived from many manual computations from ledger balances.
So.....why study manual systems if the real world uses computerized systems?
MANUAL ACCOUNTING SYSTEMS
MANUAL ACCOUNTING SYSTEMS
Small businesses still abound and most of them begin operations with manual accounting systems and convert to computerized systems as business grows.
To understand what computerized accounting systems do, one must understand how manual accounting systems work.
MANUAL VS. COMPUTERIZED SYSTEMS
MANUAL VS. COMPUTERIZED SYSTEMS
A subsidiary ledger is a group of accounts with a common characteristic, such as accounts receivable.
The subsidiary ledger is assembled together to facilitate the recording process by freeing the general ledger from details concerning individual balances.
Two common subsidiary ledgers are the Accounts Receivable Ledger and the Accounts Payable Ledger.
SUBSIDIARY LEDGERSSUBSIDIARY LEDGERS
The general ledger account that summarizes subsidiary ledger data is called a control account.
Each general ledger control account balance must equal the composite balance of the individual accounts in the subsidiary ledger.
CONTROL ACCOUNTCONTROL ACCOUNT
ILLUSTRATION 7-3 RELATIONSHIP OF GENERAL
LEDGERS AND SUBSIDIARY ACCOUNTS
ILLUSTRATION 7-3 RELATIONSHIP OF GENERAL
LEDGERS AND SUBSIDIARY ACCOUNTS
GeneralLedger
SubsidiaryLedgers
CashOwner’sCapital
AccountsReceivable
AccountsPayable
CustomerA
CustomerB
CustomerC
CreditorX
CreditorY
CreditorZ
Accounts receivable controls a Accounts payable controls a subsidiary ledger of many different subsidiary ledger of many different customers. creditors.
ILLUSTRATION 7-4 RELATIONSHIP BETWEEN LEDGERS
ILLUSTRATION 7-4 RELATIONSHIP BETWEEN LEDGERS
GENERAL LEDGER
Accounts ReceivableDate Ref. Debit Credit Balance2002
Jan. 31 12,000 12,000 31 8,000 4,000
The subsidiary ledger is separatefrom the general ledger.
The subsidiary ledger is separatefrom the general ledger.
Accounts Receivable is a control account.
Accounts Receivable is a control account.
Subsidiary ledgers have several advantages. They:
1 Show transactions affecting one customer or one creditor in a single account.
2 Free the general ledger of excessive details.
3 Help locate errors in individual accounts by reducing the number of accounts in one ledger and
by using control accounts.
4 Make possible a division of labor in posting. One employee posts to the general ledger whilesomeone else posts to the subsidiary ledger.
SUBSIDIARY LEDGERSSUBSIDIARY LEDGERS
Special journals are used to group similar types of transactions.
If a transaction cannot be recorded in a special journal, it is recorded in the general journal.
Special journals permit greater division of labor and reduce time needed to complete the posting process.
SPECIAL JOURNALSSPECIAL JOURNALS
ILLUSTRATION 7-6 USE OF SPECIAL JOURNALS AND THE
GENERAL JOURNAL
ILLUSTRATION 7-6 USE OF SPECIAL JOURNALS AND THE
GENERAL JOURNAL
SalesJournal
Cash ReceiptsJournal
Purchases Journal
Cash PaymentsJournal
GeneralJournal
Used for:
All sales ofmerchandiseon account
Used for:
All cash received
(including cash sales)
Used for:
All purchasesof merchandise
on account
Used for:
All cash paid (including
cashpurchases)
Used for:
Transactionsthat cannotbe enteredin a special
journal, including
correcting, adjusting, and closing entries
The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise.
The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise.
Under a perpetual inventory system, one entry at selling price in the Sales Journal results in a debit to Accounts Receivable and a credit to Sales.
Another entry at cost results in a debit to Cost of Goods Sold and a credit to Merchandise Inventory.
Only one line is needed to record each transaction and all entries are made from sales invoices.
Under a perpetual inventory system, one entry at selling price in the Sales Journal results in a debit to Accounts Receivable and a credit to Sales.
Another entry at cost results in a debit to Cost of Goods Sold and a credit to Merchandise Inventory.
Only one line is needed to record each transaction and all entries are made from sales invoices.
ILLUSTRATION 7-7 JOURNALIZING THE SALES JOURNAL
PERPETUAL INVENTORY SYSTEM
ILLUSTRATION 7-7 JOURNALIZING THE SALES JOURNAL
PERPETUAL INVENTORY SYSTEM
ILLUSTRATION 7-9 PROVING THE EQUALITY OF THE POSTINGS
FROM THE SALES JOURNAL
ILLUSTRATION 7-9 PROVING THE EQUALITY OF THE POSTINGS
FROM THE SALES JOURNAL
To prove the ledgers it is necessary to determine that 1 the total of the general ledger debit balances must equal the total of the general ledger credit balances and 2 the sum of the subsidiary ledger balances must equal the balance in the control account.
To prove the ledgers it is necessary to determine that 1 the total of the general ledger debit balances must equal the total of the general ledger credit balances and 2 the sum of the subsidiary ledger balances must equal the balance in the control account.
1 One-line entry for each sales transaction saves time. It is not necessary to write out the four account titles for each transaction.
2 Only totals, rather than individual entries, are posted to the general ledger. This saves posting time and reduces the possibilities of errors in posting.
3 A division of labor results, because one individual can take responsibility for the sales journal.
ADVANTAGES OF A SALES JOURNAL
ADVANTAGES OF A SALES JOURNAL
CASH RECEIPTS JOURNALCASH RECEIPTS JOURNAL
Has debit columns for cash and sales discounts and credit columns for accounts receivable, sales, and other accounts
Posting the cash receipts journal involves posting all column totals once at the end of the month to the appropriate accounts
Has debit columns for cash and sales discounts and credit columns for accounts receivable, sales, and other accounts
Posting the cash receipts journal involves posting all column totals once at the end of the month to the appropriate accounts
ILLUSTRATION 7-11 PROVING THE EQUALITY
OF THE CASH RECEIPTS JOURNAL
ILLUSTRATION 7-11 PROVING THE EQUALITY
OF THE CASH RECEIPTS JOURNAL
When the journalizing of a multi-column journal has been completed, the amount columns are totaled (footing), and the totals are compared to prove the equality of the debits and credits (cross-footing).
When the journalizing of a multi-column journal has been completed, the amount columns are totaled (footing), and the totals are compared to prove the equality of the debits and credits (cross-footing).
ILLUSTRATION 7-12 PROVING THE LEDGERS AFTER POSTING THE
SALES AND THE CASH RECEIPTS JOURNALS
ILLUSTRATION 7-12 PROVING THE LEDGERS AFTER POSTING THE
SALES AND THE CASH RECEIPTS JOURNALSA c c o u n t s R e c e i v a b l e
S u b s i d i a r y L e d g e r
A b b o t S i s t e r s $ 1 5 , 4 0 0B a b s o n C o . 1 4 , 5 7 0D e l i C o . 2 1 , 2 1 0
$ 5 1 , 1 8 0
After the posting of the cash receipts journal is completed, it is necessary to prove the ledgers. The general ledger totals are in agreement . Also, the sum of the subsidiary ledger balances equals the control account balance.
After the posting of the cash receipts journal is completed, it is necessary to prove the ledgers. The general ledger totals are in agreement . Also, the sum of the subsidiary ledger balances equals the control account balance.
PURCHASES JOURNALPURCHASES JOURNAL
Each entry results in a debit to Merchandise Inventory and a credit to Accounts PayableAll entries are made from purchase invoicesPostings are made daily to the accounts payable subsidiary journal and monthly to the
general ledger
Each entry results in a debit to Merchandise Inventory and a credit to Accounts PayableAll entries are made from purchase invoicesPostings are made daily to the accounts payable subsidiary journal and monthly to the
general ledger
ILLUSTRATION 7-15 PROVING THE EQUALITY OF THE
PURCHASES JOURNAL
ILLUSTRATION 7-15 PROVING THE EQUALITY OF THE
PURCHASES JOURNAL
To prove the ledgers it is necessary to determine that 1 the total of the general ledger debit balances equals the total of the general ledger credit balances and 2 the sum of the subsidiary ledger balances equals the balance in the control account.
To prove the ledgers it is necessary to determine that 1 the total of the general ledger debit balances equals the total of the general ledger credit balances and 2 the sum of the subsidiary ledger balances equals the balance in the control account.
CASH PAYMENTS JOURNAL
CASH PAYMENTS JOURNAL
Has multiple columns because of the multiple reasons that cash payments may be madeJournalizing procedures are similar to cash receipts journalAll entries are made from pre-numbered checksPosting procedures are also like the cash receipts journal
Has multiple columns because of the multiple reasons that cash payments may be madeJournalizing procedures are similar to cash receipts journalAll entries are made from pre-numbered checksPosting procedures are also like the cash receipts journal
ILLUSTRATION 7-19 JOURNALIZING AND
POSTING THE GENERAL JOURNAL
ILLUSTRATION 7-19 JOURNALIZING AND
POSTING THE GENERAL JOURNAL
500 500
500
500
500
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