Chapter 07

Chapter 007 Accounting Information Systems
Summary of Questions by Difficulty Level (DL) and Learning Objective (LO)

True/False
Item DL LO Item DL LO Item DL LO
1. Easy C1 19. Easy C3 37. Hard C5
2. Easy C1 20. Med C3 38. Hard A1
3. Med C1 21. Med C3 39. Easy A1
4. Med C1 22. Hard C3 40. Med A1
5. Med C1 23. Med C3 41. Med A1
6. Hard C1 24. Med C3 42. Easy C3
7. Hard C1 25. Easy C4 43. Med P1
8. Easy C1 26. Easy C4 44. Easy P1
9. Easy C2 27. Med C4 45. Med P1
10. Easy C2 28. Med C4 46. Med P1
11. Med C2 29. Hard C4 47. Hard C3
12. Med C2 30. Hard C4 48. Easy P2
13. Med C2 31. Easy C5 49. Med P2
14. Med C2 32. Easy C5 50. Med P2
15. Med C2 33. Easy C5 51. Hard P2
16. Hard C2 34. Easy C5 52. Easy P3
17. Easy C3 35. Med C5 53. Easy P3
18. Easy C3 36. Hard C5 54. Easy P3
7-1
Multiple Choice
55. Easy C1 68. Easy C3 81. Med C4
56. Easy C1 69. Easy C3 82. Easy C5
57. Med C1 70. Easy C3 83. Med C5
58. Med C1 71. Easy C3 84. Med C5
59. Med C1 72. Hard C3 85. Easy A1
60. Hard C1 73. Easy C4 86. Med A1
61. Easy C2 74. Easy C4 87. Med A1
62. Easy C2 75. Easy C4 88. Med P1
63. Med C2 76. Easy C4 89. Easy P2
64. Med C2 77. Med C4 90. Med P2
65. Med C2 78. Med C4 91. Hard P2
66. Med C2 79. Med C4 92. Hard P2
67. Hard C2 80. Med C4 93. Med P3
Matching
94. Med C1 96. Med C1-C5, 98. Easy C3,P1
A1, P1
95. Hard C2 97. Med C1-C4, 99. Med C1,P1
A1
Short Essay
100. Easy C1 103. Med C4 106. Hard P1
101. Easy C2 104. Hard C5 107. Hard P2
102. Med C3 105. Med A1 108. Hard P3
109. Med C1
Problems
110. Med A1 115. Hard P1 120. Med P3
111. Med P1 116. Hard P1 121. Med P3
112. Med P1 117. Med P1,P2 122. Med P3
113. Med P1 118. Med P1,P2
114. Hard P1 119. Hard P1,P2
7-2
Completion Problems
123. Easy C1 131. Med C2 139. Med C5
124. Med C1 132. Med C2 140. Med C5
125. Med C1 133. Med C2 141. Easy A1
126. Med C1 134. Easy C3 142. Med A1
127. Med C1 135. Easy C3 143. Med P1
128. Med C1 136. Med C4 144. Med P2
129. Med C2 137. Med C5 145. Hard P3
130. Med C2 138. Med C5
Problems
146. Med A1 148. Med P1 150. Med P2
147. Easy C3 149. Med P1
7-3
True / False Questions
1. Accounting information systems collect and process data from transactions and events,
organize them in useful forms, and communicate results to decision makers.
TRUE
AACSB: Communications
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: Easy
Learning Objective: C1
2. Accounting information systems are so accurate that decision makers in practice do not
need a basic knowledge of how the systems work.
FALSE
AICPA BB: Industry
Difficulty: Easy
3. The five basic principles of accounting information systems are control, competency,
compatibility, flexibility and cost-benefit.
FALSE
AICPA BB: Industry
Difficulty: Medium
7-4
4. Internal controls include policies to direct operations toward common goals, procedures to
ensure reliable financial reports, safeguards to protect company assets and methods to achieve
compliance with laws and regulations.
TRUE
AICPA BB: Industry
Difficulty: Medium
5. The flexibility principle requires that an accounting information system conform with a
company's activities, personnel, and structure and adapt to a company's unique
characteristics.
FALSE
AICPA BB: Industry
Difficulty: Medium
6. The compatibility principle requires that an accounting system report useful,

understandable, timely, and pertinent information for effective decision making.
FALSE
AICPA BB: Industry
Difficulty: Hard
7. The cost-benefit principle affects all other accounting system principles.

TRUE
AICPA BB: Industry
Difficulty: Hard
7-5
8. Accounting information systems are designed to capture information about a company's

transactions and events and to provide output including financial, managerial, and tax reports.
TRUE
AICPA BB: Industry
Difficulty: Easy
9. Due to electronic files and Web communications, source documents are no longer required.
FALSE
AICPA BB: Industry
Difficulty: Easy
10. Accurate source documents are crucial to accounting systems to limit the possibility of
entering faulty data into the system.
TRUE
AICPA BB: Industry
Difficulty: Easy
11. With advanced technology there is no need to trace information that has been entered into
an accounting information system to its source.
FALSE
AICPA BB: Industry
Difficulty: Medium
7-6
12. With on-line systems, all information storage should be off-line to protect the data.
FALSE
AICPA BB: Industry
Difficulty: Medium
13. Accounting information processes are structured to eliminate the need for professional
judgment.
FALSE
AICPA BB: Industry
Difficulty: Medium
14. Auditors rely on accounting system databases when they audit financial statements and a
company's controls.
TRUE
AICPA BB: Industry
Difficulty: Medium
15. Input devices are the means to make accounting information available to users.
FALSE
AICPA BB: Industry
Difficulty: Medium
7-7
16. Input devices include journal entries, keyboards, scanners, and modems.
TRUE
AICPA BB: Industry
Difficulty: Hard
17. A special journal is used to record and post transactions of a similar type.
TRUE
AICPA BB: Industry
Difficulty: Easy
18. A sales journal is used to record cash sales.

FALSE
AICPA BB: Industry
Difficulty: Easy
19. The purchases journal is used to record cash purchases of merchandise.

FALSE
AICPA BB: Industry
Difficulty: Easy
7-8
20. The general journal is used for transactions not covered by special journals and for
adjusting, closing, and correcting entries.
TRUE
AICPA BB: Industry
Difficulty: Medium
21. Under the perpetual inventory system, special journals are not required.
FALSE
AICPA BB: Industry
Difficulty: Medium
22. When posting from special journals each debit and credit entry is entered as a separate
amount in the general ledger.
FALSE
AICPA BB: Industry
Difficulty: Hard
23. Most transactions for merchandising businesses fall into four groups: sales on credit,
purchases on credit, cash receipts, and cash disbursements.
TRUE
AICPA BB: Industry
Difficulty: Medium
7-9
24. Special journals are designed in a manner that is best suited for each business, so good
systems design for a business could include collapsing the sales and cash receipts journal into
one journal.
TRUE
AACSB: Technology
AICPA BB: Leveraging Technology
AICPA FN: Leveraging Technology
Difficulty: Medium
25. A subsidiary ledger is a listing of individual accounts with a common characteristic.

TRUE
AICPA BB: Industry
Difficulty: Easy
26. Two common subsidiary ledgers are cash receipts and cash disbursements.
FALSE
AICPA BB: Industry
Difficulty: Easy
27. The accounts payable ledger is used for storing transactions data regarding individual
customers.
FALSE
AICPA BB: Industry
Difficulty: Medium
7-10
28. The accounts payable ledger has a controlling account in the general ledger and a separate
subsidiary account for each creditor in the accounts payable ledger.
TRUE
AICPA BB: Industry
Difficulty: Medium
29. Equipment, inventory, and investments are other accounts that can include detailed
information in a subsidiary ledger.
TRUE
AICPA BB: Industry
Difficulty: Hard
30. Subsidiary ledgers are not needed in perpetual inventory systems because the accounting
system captures sufficient details to support analyses that decision makers need.
FALSE
AICPA BB: Industry
Difficulty: Hard
31. An advantage of online processing is up-to-date databases.

TRUE
AACSB: Technology
AICPA BB: Industry
Difficulty: Easy
7-11
32. Off-the-shelf accounting software is not adequate to meet the needs of small businesses.
FALSE
AACSB: Technology
Difficulty: Easy
33. Enterprise resource planning software packages include the programs that manage a
company's vital operations.
TRUE
AACSB: Technology
Difficulty: Easy
34. Computer networks are links among computers giving different users and different
computers access to common databases and programs.
TRUE
AACSB: Technology
Difficulty: Easy
35. Enterprise resource planning software is primarily used for recording journal entries.
FALSE
AACSB: Technology
Difficulty: Medium
7-12
36. Most companies use batch processing instead of online because batch processing requires
continual updating of databases.
FALSE
AACSB: Technology
Difficulty: Hard
37. The SAP enterprise-resource planning software is already being used to help direct the
operations of many of the world's largest companies.
TRUE
AACSB: Technology
AICPA BB: Industry
Difficulty: Hard
38. A business segment is a part of a company that is separately identified by its products or
services, or by the geographic market it serves.
TRUE
AICPA BB: Industry
Difficulty: Hard
Learning Objective: A1
39. Segment return on assets is segment operating income divided by segment average assets.
TRUE
AICPA BB: Industry
Difficulty: Easy
7-13
40. External users of financial statements are generally uninterested in segment information to
understand a company's business activities.
FALSE
AICPA BB: Industry
Difficulty: Medium
41. Segment information is often useful to investors for evaluating a company's profitability,
risk, and growth.
TRUE
AICPA BB: Industry
Difficulty: Medium
42. A columnar journal is any journal with only one column.

FALSE
AICPA BB: Industry
Difficulty: Easy
43. Individual transactions in the sales journal are regularly posted to customer accounts in the
accounts payable ledger.
FALSE
AICPA BB: Industry
Difficulty: Medium
Learning Objective: P1
7-14
44. Three transactions that would be recorded in the sales journal are: (1) recording sales
taxes (2) recording sales returns and allowances and (3) recording purchases discounts.
FALSE
AICPA BB: Industry
Difficulty: Easy
45. Each transaction recorded in the sales journal yields a debit to Accounts Receivable and a
credit to Sales.
TRUE
AICPA BB: Industry
Difficulty: Medium
46. Posting debits from the Sales journal to Accounts Receivable twice – once to the general
ledger account Accounts Receivable and once to the customer's subsidiary account – violates
the accounting equation of debits equal credits.
FALSE
AICPA BB: Industry
Difficulty: Medium
47. A procedure called direct posting of sales invoices can substitute for the sales journal.
TRUE
AICPA BB: Industry
Difficulty: Hard
7-15
48. Account balances in the general ledger and the subsidiary ledgers should be proved for
accuracy after posting is complete.
TRUE
AICPA BB: Industry
Difficulty: Easy
49. A schedule of accounts receivable is a listing of all creditor accounts and account
balances.
FALSE
AICPA BB: Industry
Difficulty: Medium
50. If the total balance of the accounts receivable ledger equals the total of the controlling
Accounts Receivable account, then the accounts are presumed to be correct.
TRUE
AICPA BB: Industry
Difficulty: Medium
51. To check for accuracy after posting: first a trial balance is completed, then, the subsidiary
ledgers are tested by preparing a schedule of the controlling account.
FALSE
AICPA BB: Industry
Difficulty: Hard
7-16
52. A company using the periodic inventory system does not record the increase in cost of
goods sold and decrease in inventory at the time of each sale in the sales journal.
TRUE
AICPA BB: Industry
Difficulty: Easy
53. The purchases journal is identical under both the periodic and the perpetual inventory
systems.
FALSE
AICPA BB: Industry
Difficulty: Easy
54. The difference in the sales journal between the perpetual and periodic inventory systems is
that a column is used to record cost of goods sold and inventory amounts for each sale under
the perpetual system but not the periodic system.
TRUE
AICPA BB: Industry
Difficulty: Easy
7-17
Multiple Choice Questions
55. Accounting information systems:

A. Collect and process data from transactions and events.
B. Organize data in useful forms.
C. Communicate information to business decision makers.
D. Are crucial to effective decision making.
E. All of these.
AICPA BB: Industry
Difficulty: Easy
56. Internal control procedures include:

A. Procedures to ensure reliable financial reports.
B. Safeguards to protect company assets.
C. Policies to direct operations toward common goals.
D. Methods to achieve compliance with laws and regulation.
E. All of these.
AICPA BB: Industry
Difficulty: Easy
57. The control principle for accounting information systems requires that the:
A. Benefits from an activity outweigh the costs of the activity.
B. System report useful, understandable, timely, and pertinent information for effective
decision making.
C. System must have internal controls.
D. System adapt to changes in the company, business environment, and needs of decision
makers.
E. System conform with a company's activities, personnel, and structure.
AICPA BB: Industry
Difficulty: Medium
7-18
58. The flexibility principle of accounting information systems requires that the:
A. Benefits from an activity outweigh the costs of the activity.
B. System report useful, understandable, timely, and pertinent information for effective
decision making.
C. System aid managers in controlling and monitoring business activities.
D. System be able to adapt to changes in the company, business environment, and needs of
decision makers.
E. System conform with a company's activities, personnel, and structure.
AICPA BB: Industry
Difficulty: Medium
59. The accounting principle that requires an accounting information system to report useful,
understandable, timely, and pertinent information for effective decision-making is the:
A. Control principle.
B. Compatibility principle.
C. Relevance principle.
D. Flexibility principle.
E. Cost-Benefit principle.
AICPA BB: Industry
Difficulty: Medium
60. The five fundamental principles of accounting information systems are:

A. Control, accountability, relevance, compatibility, and flexibility.
B. Historical cost, relevance, compatibility, flexibility, and cost-benefit.
C. Control, relevance, compatibility, flexibility, and safety.
D. Control, relevance, compatibility, timeliness, and cost-benefit.
E. Control, relevance, compatibility, flexibility, and cost-benefit.
AICPA BB: Industry
Difficulty: Hard
7-19
61. Accounting information systems consist of:

A. People.
B. Records.
C. Methods.
D. Equipment.
E. All of these.
AICPA BB: Industry
Difficulty: Easy
62. The basic components of an accounting information system include:

A. Source documents.
B. Input devices.
C. Information processors.
D. Information storage.
E. All of these.
AICPA BB: Industry
Difficulty: Easy
63. Source documents:

A. Are input devices.
B. Provide the basic information processed by an accounting system.
C. Cannot be electronic files.
D. Store processed information for future use.
E. All of these.
AICPA BB: Industry
Difficulty: Medium
7-20
64. Input devices include:

A. Bar-code readers.
B. Printers.
C. Software.
D. Ledgers.
E. All of these.
AICPA BB: Industry
Difficulty: Medium
65. Information storage:

A. Eliminates the need for professional judgment.
B. Keeps data in a form accessible to information processors.
C. Provides the basic information processed by an accounting system.
D. Captures information from source documents.
E. Includes all of these.
AICPA BB: Industry
Difficulty: Medium
66. Output devices include:

A. Printers.
B. Monitors.
C. LCD projectors.
D. Web communications.
E. All of these.
AICPA BB: Industry
Difficulty: Medium
7-21
67. Information processors:

A. Include information storage.
B. Interpret, transform, and summarize information for use in analysis and reporting.
C. Are components of an accounting system that keep data in accessible form.
D. Are the means to take information out of an accounting system and make it available to
users.
E. Include scanners.
AICPA BB: Industry
Difficulty: Hard
68. The special journals of many accounting systems include the:

A. Sales journal.
B. Purchases journal.
C. Cash receipts journal.
D. Cash disbursements journal.
E. All of these.
AICPA BB: Industry
Difficulty: Easy
69. The sales journal is used for recording:

A. Credit purchases.
B. Credit sales.
C. Cash sales.
D. Cash purchases.
E. Cash receipts.
AICPA BB: Industry
Difficulty: Easy
7-22
70. The purchases journal is used for recording:

A. Credit purchases.
B. Credit sales.
C. Cash sales.
D. Cash purchases.
E. Cash disbursements.
AICPA BB: Industry
Difficulty: Easy
71. A book of original entry that is used to record and post transactions of a similar type is a:
A. Schedule.
B. Columnar ledger.
C. Special journal.
D. General journal.
E. Subsidiary ledger.
AICPA BB: Industry
Difficulty: Easy
72. When a company uses special journals, the general journal is used for selected
transactions and events including:
A. Recording adjusting transactions.
B. Posting transactions to special journals.
C. Accumulating debits and credits.
D. Collecting detailed listings of amounts.
E. Recording cash receipts.
AICPA BB: Industry
Difficulty: Hard
7-23
73. A record that contains all accounts (with amounts) of a company is the:
A. General ledger.
B. General journal.
C. Special ledger.
D. Special journal.
E. Column balance ledger.
AICPA BB: Industry
Difficulty: Easy
74. A subsidiary ledger:

A. Includes transactions not covered by special journals.
B. Is a listing of all of the accounts of a business.
C. Is a listing of individual accounts and amounts with a common characteristic.
D. Is also called a general ledger.
E. Is also called a special journal.
AICPA BB: Industry
Difficulty: Easy
75. A subsidiary ledger that contains a separate account for each supplier (creditor) to the
company is a(n):
A. Controlling account.
B. Accounts receivable ledger.
C. Accounts payable ledger.
D. General ledger.
E. Special journal.
AICPA BB: Industry
Difficulty: Easy
7-24
76. An accounts payable ledger is:

A. A subsidiary ledger that contains an account for each supplier (creditor).
B. A list of the balances of all the accounts in the accounts receivable ledger that is added to
show the total amount of accounts receivable outstanding.
C. A book of original entry that is designed and used for recording only a specific type of
transaction.
D. The ledger that contains the financial statement accounts of a business.
E. A subsidiary ledger that contains a separate account for each party that grants both short-
term and long-term credit on account to the company.
AICPA BB: Industry
Difficulty: Easy
77. Assume that a company uses a sales journal, a purchases journal, a cash receipts journal, a
cash disbursements journal, and a general journal. A sales return for credit on account would
be recorded in the:
A. Sales journal.
B. General journal.
C. Cash receipts journal.
D. Accounts receivable ledger.
E. Cash disbursements journal.
AICPA BB: Industry
Difficulty: Medium
7-25
78. An accounts receivable ledger is:

A. A subsidiary ledger that contains an account for each credit customer.
B. A list of the balances of selected accounts in the accounts receivable ledger that is added to
show the total amount of the significant accounts receivable outstanding.
C. A book of original entry that is designed and used for recording only a specified type of
transaction.
D. The ledger that contains the financial statement accounts of a business.
E. A subsidiary ledger that contains a separate account for each creditor (supplier) to the
company.
AICPA BB: Industry
Difficulty: Medium
79. The use of an Accounts Payable controlling account:

A. Reduces the number of accounts in the subsidiary ledger.
B. Reduces the total number of accounts maintained.
C. Reduces the number of entries in the general journals.
D. Reduces the number of accounts in the general ledger.
E. Increases the number of columns in the journals.
AICPA BB: Industry
Difficulty: Medium
80. Subsidiary ledgers:

A. Remove excessive detail from the general ledger.
B. Provide up-to-date information on customer or other specific account balances.
C. Aid in error identification for individual accounts.
D. Help with division of labor (recordkeeping tasks).
E. All of these.
AICPA BB: Industry
Difficulty: Medium
7-26
81. The accounts receivable ledger:

A. Is for storing transaction data for customers.
B. Is for storing transaction data for individual customers.
C. Is for storing transaction data for individual creditors.
D. Is for storing transaction date for creditors.
E. Is also the controlling account.
AICPA BB: Industry
Difficulty: Medium
82. Enterprise-resource planning software:

A. Refers to programs that help manage a company's vital operations.
B. Is another name for spreadsheet programs.
C. Uses batch processing of business information.
D. Is substantially declining in use.
E. Is another name for database programs.
AACSB: Technology
Difficulty: Easy
83. An approach that enters and processes data as soon as source documents are available is
called:
A. Date storage.
B. Batch processing.
C. Online processing.
D. Computer programming
E. Web communications.
AACSB: Technology
Difficulty: Medium
7-27
84. Enterprise resource planning software:

A. Refers to programs that help manage a company's vital operations.
B. Can include programs that extend from order taking to manufacturing to accounting.
C. Can speed up business decision making and help reduce costs.
D. Can be designed to link every part of a company's operations.
E. All of these.
AACSB: Technology
Difficulty: Medium
85. A business segment:

A. Requires only internal reporting.
B. Is a part of a company that is separately identified by its products, services, or geographic
market.
C. Requires special journals.
D. Requires subsidiary ledgers.
E. Cannot report its results separately.
AICPA BB: Industry
Difficulty: Easy
7-28
86. Coca-Cola's Latin American segment had revenues of $2,089 million, operating income of
$1,033 million, and average assets of $1,443 millions. The Latin American segment return on
assets is:
A. 49.4%
B. 69.0%
C. 71.6%
D. 139.7%
E. 144.8%
$1,033/$1,443 = 71.6%
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: Medium
87. The segment return on assets:

A. Can only be determined for international companies.
B. Reflects the profitability of a segment.
C. Is difficult to calculate because companies with traded stock are not required to report
segment information.
D. Is calculated as segment average assets divided by segment operating income.
E. Is calculated as segment sales divided by segment average assets.
AICPA BB: Industry
Difficulty: Medium
7-29
88. When the sales journal's column for accounts receivable and sales is totaled at the end of
the month, its total is:
A. Debited to Sales and credited to Accounts Receivable.
B. Debited to Accounts Receivable and credited to Cash.
C. Debited to Cash and credited to Accounts Receivable.
D. Debited to Accounts Receivable and credited to Sales.
E. Debited to Cash and credited to Sales.
AICPA BB: Industry
Difficulty: Medium
89. A list of all the accounts in the accounts receivable ledger with their balances and the total
is a(n):
A. Schedule of accounts.
B. Controlling account.
C. Schedule of accounts receivable.
D. Subsidiary ledger.
E. Special journal.
AICPA BB: Industry
Difficulty: Easy
90. The Accounts Payable account in the general ledger is:

A. A controlling account for the subsidiary accounts payable ledger.
B. The account that controls the purchases journal.
C. The subsidiary account to the purchases journal.
D. Part of a special journal.
E. Part of a subsidiary ledger.
AICPA BB: Industry
Difficulty: Medium
7-30
91. After posting is completed, there may be an error if:

A. The sum of the customer account balances does not equal the total in the sales journal.
B. The sum of the accounts receivable ledger does not equal the balance in the Sales account.
C. The sum of the customer account balances does not equal the general ledger Accounts
Receivable controlling account balance.
D. The balance in the sales journal does not equal the Accounts Receivable account balance.
E. The sum of the accounts receivable ledger does not equal the balance in the sales journal.
AICPA BB: Industry
Difficulty: Hard
92. Assume that a company using a purchases journal made an error in totaling the journal's
columns. The error should be discovered:
A. When the purchases journal is posted to the general ledger.
B. When the trial balance is prepared.
C. When the total of the schedule of accounts payable is compared with the balance of the
Accounts Payable account.
D. When the creditors receive their payments.
E. When the financial statements are prepared.
AICPA BB: Industry
Difficulty: Hard
7-31
93. The main difference in the sales journal under the perpetual and periodic inventory system
is:
A. The column to record cost of goods sold and inventory amounts sold that is used under the
perpetual system but not the periodic.
B. The sales tax receivable column that is used under the perpetual system but not the
periodic.
C. The sales tax payable column that is used under the perpetual system but not the periodic.
D. The accounts receivable column that is used under the perpetual system but not the
periodic.
E. The column for recording cash that is used under the perpetual system but not the periodic.
AICPA BB: Industry
Difficulty: Medium
7-32
Matching Questions
94. Identify the accounting information system principle below that applies to each of these
situations
Global Company's accounting information system has
policies to ensure that financial statements will be reliable,
assets are protected, and relevant laws and regulations are
1. Control complied with. 1
Global Company has world-wide operations that must
handle several thousand different products, so the accounting
information system is fairly complex, encompassing
2. Cost-benefit marketing and manufacturing. 5
Global Company has designed their accounting
information system so that key managers can obtain the
information they need to make decisions relating to new
3. Relevance products, sales, and controlling costs. 3
Global Company has designed their accounting
information system to be adaptable to changes in technology,
4. Flexibility the business environment, the needs of decision makers. 4
Global Company's accounting information system can be
improved markedly for a cost of about $30,000,000.
However, the incremental benefits from such improvements
5. Compatibility are not expected to outweigh this cost. 2
AICPA BB: Industry
Difficulty: Medium
7-33
95. Match the following accounting system components a through e with the appropriate
application(s) 1 through 10:
a. Source document
b. Input devices
c. Information processor
d. Information storage
e. Output devices
1. Journals b 7
2. Invoice from suppliers d 8
3. Journal entries b 3
4. Financial statements c 1
5. Electronic files e 4
6. Computer monitor a 2
7. Computer keyboard e 10
8. Computer hard drive e 6
9. Software c 9
10. Employee paychecks a 5
AICPA BB: Industry
Difficulty: Hard
7-34
96. Match the following terms with the appropriate definition(s).
1. Computer The special journal that is used to record all payments

network of cash. 3
2. Relevance A list of each customer from the accounts receivable
principle ledger with their balances and the total. 6
3. Cash An information system principle requiring that an
disbursements accounting system report useful, understandable, timely,
journal and pertinent information for decision making. 2
The people, records, methods, and equipment that
collect and process data from transactions and events,
4. Enterprise organize them in useful forms, and communicate results
resource planning to decision makers. 8
Links among computers giving different users and
5. Information different computers access to common databases and
processor programs. 1
6. Schedule of An information system principle requiring that an
accounts accounting information system aid managers in
receivable controlling and monitoring business activities. 7
A part of a company that can be separately identified
7. Control by the products or services that it provides, or by the
principle geographic market that it serves. 10
The component of an accounting system that
8. Accounting interprets, transforms, and summarizes information for
information system use in analysis and reporting. 5
Programs that manage a company's vital operations
9. Cash receipts which range from order-taking to manufacturing to
journal. accounting. 4
10. Business
segment The special journal used to record all receipts of cash. 9
AICPA BB: Industry
Difficulty: Medium
Learning Objective: C1-C5
7-35
97. Match the following terms with the appropriate definitions.
A journal used to record sales of merchandise on

1. Information storage credit. 2
A general ledger account, the balance of which
(after posting) equals the sum of the balances of the
2. Sales journal accounts in a related subsidiary ledger. 7
An information system principle requiring that the
3. Cost-benefit benefits from an activity in an accounting information
principle system outweigh the costs of that activity. 3
4. Schedule of The component of an accounting system that keeps
accounts receivable data in a form accessible to information processors. 1
The special journal that is used to record all
5. Special journal receipts of cash. 6
6. Cash receipts A list of each customer from the accounts
journal receivable ledger with their balances and the total. 4
A measure of the profitability of a segment,
calculated as segment operating income divided by
7. Controlling account segment average assets. 9
An information system principle requiring that an
accounting information system conform with a
8. Purchases journal company's activities, personnel, and structure. 10
9. Segment return on Any journal used for recording and posting
assets transactions of a similar type. 5
10. Compatibility
principle A journal used to record all purchases on credit. 8
AICPA BB: Industry
Difficulty: Medium
7-36
98. A company entered into the following transactions. Match each transaction with the
appropriate journal.
a. Sales journal
b. Purchases journal
c. Cash receipts journal
d. Cash disbursements journal
e. General journal
1. A customer returned a $250 item purchased on account. c 3

2. Purchased a display rack on account for $4,700. e 1
3. Borrowed $5,000 cash from the bank. b 9
4. Recorded depreciation on store equipment of $4,000. b 2
5. Recorded cash sales of $14,700. d 6
6. Paid $65,000 cash in wages and salaries. d 7
7. Paid a utility bill for $3,400 cash. b 8
8. Purchased $1,590 of store supplies on account. e 4
9. Purchased merchandise on account, $2,700. e 10
10. Returned defective inventory purchased on account, $2,900. c 5
AICPA BB: Industry
Difficulty: Easy
7-37
99. A company entered into the following transactions. For each transaction, indicate the
appropriate journal.
a. Sales Journal
b. Purchases Journal
c. Cash Receipts Journal
d. Cash Disbursements Journal
e. General Journal
1. Paid cash to settle the utility bill. d 9

2. Purchased merchandise on credit. c 5
3. Sold merchandise on credit b 2
4. Recorded depreciation for the period. a 3
5. Sold merchandise for cash. d 1
6. Bought store supplies for cash. c 10
7. Borrowed cash from the bank. e 4
8. Customer sent in cash to settle an account receivable. c 7
9. Purchased merchandise for cash. d 6
10. Owner invested more cash in the business. c 8
AICPA BB: Industry
Difficulty: Medium
Short Answer Questions
100. List the five basic principles of accounting information systems.
Accounting information systems are guided by five main principles: control, relevance,
compatibility, flexibility, and cost-benefit.
AICPA BB: Industry
Difficulty: Easy
7-38
101. What are the five basic components of accounting information systems?
The five basic components of accounting information systems are source documents, input
devices, information processors, information storage, and output devices.
AICPA BB: Industry
Difficulty: Easy
102. Explain the purposes, types, and uses of special journals.
Special journals are used for recording and posting similar types of transactions. The most
common special journals are cash receipts, cash disbursements, purchases, and sales. Special
journals provide a structure for more efficient data entry and posting. In addition, the efficient
division of labor adds an effective internal control procedure to the accounting system.
AICPA BB: Industry
Difficulty: Medium
103. What are controlling accounts and subsidiary ledgers? What is the relationship between
them?
The controlling accounts are part of the general ledger. Details on individual accounts such as
accounts receivable are kept in their own specific subsidiary ledger. The balance in the
controlling account must match the sum of the balances in the matching subsidiary ledger.
The use of subsidiary ledgers removes unnecessary details from the general ledger.
AICPA BB: Industry
Difficulty: Medium
7-39
104. Discuss how technology based information systems affect accounting.
Technology based information systems have increased the speed, accuracy and efficiency of
performing accounting tasks. Moreover, information for business decision making is provided
in a more timely fashion than with manual systems. Technology based systems can also help
account for complex business structures and transactions. Enterprise resource planning
software can further unify complex accounting systems and support the management decision
making process.
AACSB: Technology
Difficulty: Hard
105. What is the segment return on assets ratio? What is it used for?
The segment return on assets is segment operating income divided by segment average assets.
It is a measure of profitability of a segment. Users of financial statements are interested in
segment information to better understand a company's activities because segments vary on
profitability, and growth.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
106. Describe the posting process for special journals.
Posting to special journals is a three-step process: (1) individual amounts in the Other
Accounts column are posted to their general ledger accounts on a regular basis, (2) individual
amounts in a column that are posted in total to a controlling account at the end of a period are
posted regularly to the appropriate account in the subsidiary ledger, and (3) total amounts for
all columns except the Other Accounts column are posted at the end of a period to their
appropriate accounts for each column.
AICPA BB: Industry
Difficulty: Hard
7-40
107. Explain how the amounts in the subsidiary ledgers are tested for accuracy.
The two-step procedure begins after the posting process is complete. First, a trial balance of
the general ledger is prepared to confirm the equality of debits and credits. Second, schedules
are prepared for each subsidiary ledger to verify that the controlling account balances (from
the general ledger) equal the balances in their matching subsidiary ledgers.
AICPA BB: Industry
Difficulty: Hard
108. Discuss the differences in the special journals between a company using a perpetual
inventory systems and one using a periodic inventory system.
Under the perpetual inventory system, the sales journal (and the cash receipts journal) has an
additional column to record the cost of goods sold and inventory amounts for each sale. The
periodic system does not record the increase in cost of goods sold and decrease in inventory at
the time of sale. The purchase journal and the cash disbursements journal in the perpetual
system use an Inventory column instead of a Purchases (or Purchases Discount) column.
AICPA BB: Industry
Difficulty: Hard
109. Tom Szaky, founder of Terra Cycle, knew that accounting systems were important to his
success. Explain how Tom used accounting systems to help him assess business operations.
Tom knew that to get current and reliable information, he would need to apply internal
controls and systems technology. He used special journals for sales, cash receipts, purchases,
and cash disbursements. Being able to keep track of detailed information allowed him
measure, summarize, and report on business operations.
AICPA BB: Industry
Difficulty: Medium
7-41
Problems
110. The following information is available for some of Coca-Cola's segments (all amounts
are in millions):
a. Determine the segment return on assets for each geographic segment.

b. Comment on the results. How do the segments compare with respect to profitability?
a.
b. Latin America is the most profitable, followed by Africa and then North America.
AACSB: Analytic
AICPA BB: Critical Thinking
Difficulty: Medium
7-42
111. The Woodview Company uses a sales journal, purchases journal, cash receipts journal,
cash disbursements journal, and general journal. They use the perpetual method. The
following transactions occurred during the current month of December:
Record the above transactions into the appropriate journals shown below.
7-43
7-44
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
7-45
112. A company uses a sales journal, purchases journal, cash receipts journal, cash
disbursements journal, and general journal. A perpetual inventory system is used. The
following transactions were completed by the company during the current month of October:
Record these transactions in the appropriate journal shown below.
7-46
7-47
7-48
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
7-49
113. Renton Co. uses special journals to record its transactions. They use the perpetual
inventory system. Shown below are the purchasing and cash disbursement transactions for
current month of May:
Record these transactions in the following journals.
7-50
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
7-51
114. The following special journal is taken from a merchandising company that uses the
perpetual inventory system:
1. What is the name of the journal shown above?

2. Write an explanation for each entry in this journal.
3. What do the numbers in parentheses at the bottom of the journal indicate?
1. This is a cash receipts journal (perpetual system).

2. Journal entries explanation:
3. The numbers indicate that the column totals have been posted to the accounts indicated. For
instance, the 411 indicate that $6,815 was posted as a credit to the sales account.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
7-52
115. A company records its transactions and events in four special journals and a general
journal. The amount columns of these journals are numbered as follows:
Show how each of the following transactions would be recorded in the above set of
accounting journals by inserting the number(s) of the columns in which the debit(s) would
appear in the column labeled "Debits" below and by inserting the number(s) of the columns in
which the credits would appear in the column labeled "Credits" below.
7-53
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
7-54
116. A company uses four special journals: purchases, sales, cash receipts, and cash
disbursements. The following transactions were incurred during August:
Record these transactions in the appropriate special journals below.
7-55
7-56
7-57
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
7-58
117. Williams Company began business on May 1. They use the perpetual inventory method.
The following transactions involving purchases and cash disbursements occurred during the
first week of May.
a. Use the purchases journal and the cash disbursements journal to record these transactions.
b. Prepare a schedule of accounts payable. There were no accounts payable on May 1.
7-59
a.
b.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
7-60
118. The Sun Company completed the following sales and cash receipts transactions during
the first week of December. The Sun Company uses the perpetual inventory system.
a. Use the sales journal and the cash receipts journal to record these transactions.
b. Prepare a schedule of accounts receivable. There were no accounts receivable at December
1.
7-61
b.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
7-62
119. Outdoors Unlimited uses special journals to record its daily transactions. They use the
perpetual inventory system. Shown below is its cash receipts journal and selected ledger
accounts. Post the cash receipts journal to the appropriate ledger accounts.
7-63
7-64
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
7-65
120. The Woodview Company uses a sales journal, purchases journal, cash receipts journal,
cash disbursements journal, and general journal. They use the periodic inventory method. The
following transactions occurred during the month of December:
Record these transactions using the journals below.
7-66
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
7-67
121. Williams Company began business on May 1. They use the periodic inventory method.
The following transactions involving purchases and cash disbursements occurred during the
first week of May.
a. Use the purchases journal and the cash disbursements journal to record these transactions.
b. Prepare a schedule of accounts payable. There were no accounts payable on May 1.
7-68
a.
b.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
7-69
122. The Sun Company completed the following sales and cash receipts transactions during
the first week of December. The Sun Company uses the periodic inventory system.
a. Use the sales journal and the cash receipts journal to record these transactions.
b. Prepare a schedule of accounts receivable. There were no accounts receivable at December
1.
7-70
b.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
Fill in the Blank Questions
123. The __________________ principle requires that the benefits from an activity in an
accounting information system outweigh the costs of that activity.
Cost-benefit
AICPA BB: Industry
Difficulty: Easy
7-71
124. The _____________________ principle requires that an accounting information system

aid managers in controlling and monitoring business activities.
Control
AICPA BB: Industry
Difficulty: Medium
125. _____________________________________ consist of people, records, methods, and

equipment that collect and process data from transactions and events, organize them in useful
reports and communicate results to decision makers.
Accounting information systems
AICPA BB: Industry
Difficulty: Medium
126. The __________________ principle requires that an accounting information system

report useful, understandable, timely, and pertinent information for effective decision
making.
Relevance
AICPA BB: Industry
Difficulty: Medium
7-72

conform with a company's activities, personnel, and structure, and must adapt to a company's
unique characteristics.
Compatibility
AICPA BB: Industry
Difficulty: Medium

must be able to adapt to changes in the company, business environment, and needs of decision
makers.
Flexibility
AICPA BB: Industry
Difficulty: Medium
129. ______________________ provide the basic information processed by an accounting

system, and can include bank statements, billings to customers, and employee earnings
records.
Source documents
AICPA BB: Industry
Difficulty: Medium
7-73
130. ______________________ capture information from source documents and enable its
transfer to the system's information processing component.
Input devices
AICPA BB: Industry
Difficulty: Medium
131. _____________________ are systems that interpret, transform, and summarize

information for use in analysis and reporting.
Information processors
AICPA BB: Industry
Difficulty: Medium
132. ____________________ is the accounting system component that keeps data in a form
accessible to information processors.
Information storage
AICPA BB: Industry
Difficulty: Medium
133. ____________________ are the means to take information out of an accounting system
and make it available to users.
Output devices
AICPA BB: Industry
Difficulty: Medium
7-74
134. A __________________ journal is used to record and post transactions of similar type.
Special
AICPA BB: Industry
Difficulty: Easy
135. A __________________ is an all-purpose journal that can record any transaction.

General journal
AICPA BB: Industry
Difficulty: Easy
136. Using __________________ ledgers removes unnecessary details from the general
ledger.
Subsidiary
AICPA BB: Industry
Difficulty: Medium
137. _______________________________________ refers to the programs that help

managers direct a company's vital operations.
Enterprise resource planning software.
AACSB: Technology
Difficulty: Medium
7-75
138. ___________________ processing enters and processes data as soon as source

documents are available.
Online
AACSB: Technology
Difficulty: Medium
139. __________________ processing accumulates source documents for a period of time

and then processes them all at once such as daily, weekly, or monthly.
Batch
AACSB: Technology
Difficulty: Medium
140. _______________________ are links among computers giving different users and
different computers access to common databases and programs.
Computer networks
AACSB: Technology
Difficulty: Medium
141. A ____________________ is a part of a company that is separately identified by its

products, or services, or by the geographic market it serves.
Business segment
AICPA BB: Industry
Difficulty: Easy
7-76
142. The _______________________ ratio is a measure of a segment's profitability and is

calculated as segment operating income divided by segment average assets.
Segment return on assets
AICPA BB: Industry
Difficulty: Medium
143. Individual transactions in the sales journal are posted regularly to customers' accounts in
the ________________________________________.
Accounts receivable ledger
AICPA BB: Industry
Difficulty: Medium
144. A _______________________________________ is a listing of accounts from the

accounts payable ledger with their balances and the sum of all balances.
Schedule of accounts payable
AICPA BB: Industry
Difficulty: Medium
145. The difference in the sales journal between the perpetual and periodic inventory systems
is a column to record ___________________________ and __________________ for each
sale. This column is used in the perpetual system but not in the periodic.
Cost of goods sold, inventory (okay to reverse order)
AICPA BB: Industry
Difficulty: Hard
7-77
Problems
146. The following information is available for AllBev, Inc. (all amounts are in millions):
a. Determine the segment return on assets for each geographic segment.

b. Comment on the results. How do the segments compare with respect to profitability?
c. What measures could be taken to improve segment return?
a.
b. America is the most profitable, followed by Europe and then Asia.

c. The company should focus on the segment profit and assets invested in Asia. Perhaps this is
a new market and segment profit was initially expected to be lower. If segment return does not
improve for Asia, the company should focus on its other markets where higher profit is
generated.
AACSB: Analytic
Difficulty: Medium
147. What is purpose of footing and crossfooting the column totals in special journals?
To foot a column of numbers is to add it. To crossfoot is to add all Debit columns, add all
credit columns and make sure that debits equal credits.
AICPA BB: Industry
Difficulty: Easy
7-78
148. Argon Sales uses special journals to record business transactions. Argon sells
construction equipment. Argon completed the following transactions a through j. Identify the
journal in which each transaction should be recorded.
AICPA BB: Industry

Difficulty: Medium
7-79
149. Lester Company uses special journals to record transactions. All of the companies listed
below supply inventory to Lester except Harry Co. that supplies equipment. Use the purchases
journal given below to answer the following questions:
a. Foot and crossfoot the journal for accuracy.
b. Identify the error and indicate how to correct the error.

c. When Lester compares the general ledger Accounts Payable account to the Accounts
Payable ledger, it notices that the general ledger control account is $10,000 more that the
schedule of Accounts Payable. What is the most likely cause and how should it be corrected?
a.
b. The May 8 purchase from Steve Co. should also contain a debit to Inventory. Post a
$10,000 entry in the Inventory Dr. column.
c. The $10,000 purchase was also not posted to the subsidiary for Steve Co. The company
should post the $10,000 credit to the subsidiary of Steve Co.
AACSB: Analytic
Difficulty: Medium
7-80
150. Philip Company uses special journals to record transactions. Below are the sales journal
and cash receipts journal for Philip. Prepare the following:
a. Open an accounts receivable subsidiary ledger having a T-account for each customer. Post
the invoices to the subsidiary ledger.
b. Open an Accounts Receivable controlling T-Account. Post the end-of the month totals that
effect the Accounts Receivable account only.
c. Prepare a schedule of accounts receivable and prove that its total equals the Accounts
Receivable controlling account balance.
a. Yazoo 6,900 - 6,900 =0

Barge 3,400 - 3,400 = 0
Amper 7,200 - 0 = 7,200
Jason 3,000 - 0 = 3,000
b. Debit of $20,500 - 10,300 credit = 10,200 balance in A/R control account
c.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
7-81

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Chapter 007 Accounting Information Systems

Summary of Questions by Difficulty Level (DL) and Learning Objective (LO)

True / False Questions

6. The compatibility principle requires that an accounting system report useful,

7. The cost-benefit principle affects all other accounting system principles.

8. Accounting information systems are designed to capture information about a company's

18. A sales journal is used to record cash sales.

19. The purchases journal is used to record cash purchases of merchandise.

25. A subsidiary ledger is a listing of individual accounts with a common characteristic.

31. An advantage of online processing is up-to-date databases.

42. A columnar journal is any journal with only one column.

Multiple Choice Questions

55. Accounting information systems:

56. Internal control procedures include:

60. The five fundamental principles of accounting information systems are:

61. Accounting information systems consist of:

62. The basic components of an accounting information system include:

63. Source documents:

64. Input devices include:

65. Information storage:

66. Output devices include:

67. Information processors:

68. The special journals of many accounting systems include the:

69. The sales journal is used for recording:

70. The purchases journal is used for recording:

74. A subsidiary ledger:

76. An accounts payable ledger is:

78. An accounts receivable ledger is:

79. The use of an Accounts Payable controlling account:

80. Subsidiary ledgers:

81. The accounts receivable ledger:

82. Enterprise-resource planning software:

84. Enterprise resource planning software:

85. A business segment:

87. The segment return on assets:

90. The Accounts Payable account in the general ledger is:

91. After posting is completed, there may be an error if:

96. Match the following terms with the appropriate definition(s).

1. Computer The special journal that is used to record all payments

97. Match the following terms with the appropriate definitions.

A journal used to record sales of merchandise on

1. A customer returned a $250 item purchased on account. c 3

1. Paid cash to settle the utility bill. d 9

Short Answer Questions

100. List the five basic principles of accounting information systems.

102. Explain the purposes, types, and uses of special journals.

104. Discuss how technology based information systems affect accounting.

106. Describe the posting process for special journals.

a. Determine the segment return on assets for each geographic segment.

Record these transactions in the appropriate journal shown below.

Record these transactions in the following journals.

1. What is the name of the journal shown above?

1. This is a cash receipts journal (perpetual system).

Record these transactions in the appropriate special journals below.

Record these transactions using the journals below.

Fill in the Blank Questions

124. The _____________________ principle requires that an accounting information system

125. _____________________________________ consist of people, records, methods, and

126. The __________________ principle requires that an accounting information system

127. The __________________ principle requires that an accounting information system

128. The __________________ principle requires that an accounting information system

129. ______________________ provide the basic information processed by an accounting

131. _____________________ are systems that interpret, transform, and summarize

135. A __________________ is an all-purpose journal that can record any transaction.