Accounting Principles

Second Canadian Edition
Weygandt · Kieso · Kimmel · Trenholm

Carole Bowman, Sheridan College

Prepared by:

CHAPTER

7
ACCOUNTING INFORMATION SYSTEMS

.Accounting Information System   An accounting information system (AIS) involves collecting and processing data and disseminating financial information to interested parties. An AIS may either be manual or computerized.

Benefits of information must outweigh the cost of providing it. Costs Benefits .PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM The accounting system must be cost effective.

PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM It must be relevant! It must be reliable! Balance Sheet Income Statement Other Financial Reports It must be timely! It must be accurate! .

PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM Technological Advances Government Regulation and Deregulation Changing Accounting Principles .

documents.ILLUSTRATION 7-2 PHASES IN THE DEVELOPMENT OF AN ACCOUNTING SYSTEM Analysis Planning and identifying information needs and sources Follow up Design Creating forms. and reports Evaluating and monitoring effectiveness and efficiency and correcting any weaknesses Implementation Installing the system. procedures. and making the system operational . job descriptions. training personnel.

. Two common subsidiary ledgers are the Accounts Receivable Ledger and the Accounts Payable Ledger. such as customer accounts.SUBSIDIARY LEDGERS    A subsidiary ledger is a group of accounts with a common characteristic. The subsidiary ledger is assembled to facilitate the recording process by freeing the general ledger from details concerning individual balances.

. Each general ledger control account balance must equal the composite balance of the individual accounts in the subsidiary ledger.CONTROL ACCOUNT   The general ledger account that summarizes subsidiary ledger data is called a control account.

ILLUSTRATION 7-3 RELATIONSHIP OF GENERAL LEDGERS AND SUBSIDIARY LEDGERS Accounts receivable controls a subsidiary ledger of many different customers. Accounts payable controls a subsidiary ledger of many different creditors. General Ledger Cash Accounts Receivable Accounts Payable Owner’s Capital Subsidiary Ledgers Customer Customer Customer A B C Creditor X Creditor Y Creditor Z .

Create a division of labour in posting by allowing one employee to post to the general ledger and a different employee to post to the subsidiary ledger. 3. . Free the general ledger of excessive details. Help locate errors in individual accounts by reducing the number of accounts combined in one ledger and by using controlling accounts. 4.SUBSIDIARY LEDGERS Advantages of using subsidiary ledgers are that they: 1. Show transactions affecting one customer or one creditor in a single account. 2.

it is recorded in the general journal.  .SPECIAL JOURNALS Special journals are used to group similar types of transactions.  Special journals permit greater division of labour and reduce time necessary to complete the posting process.  If a transaction cannot be recorded in a special journal.

including correcting.ILLUSTRATION 7-5 USE OF SPECIAL JOURNALS AND THE GENERAL JOURNAL Sales Journal Used for: All sales of merchandise on account Cash Cash Purchases Payments Receipts Journal Journal Journal Used for: All cash received (including cash sales) Used for: Used for: All All cash purchases paid of merchan. adjusting. and closing entries The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise. .(including cash dise on account purchases) General Journal Used for: Transactions that cannot be entered in a special journal.

400 21.JOURNALIZING THE SALES JOURNAL – PERPETUAL INVENTORY SYSTEM Karns Wholesale Supply Sales Journal Date May 3 7 14 19 21 24 27 Account Debited Abbot Sisters Babson Co.210 14.070 6. Postings are made monthly to the general ledger and daily to the accounts receivable subsidiary ledger. Invoice # 101 102 103 104 105 106 107 Ref        Accts Receivable Dr Sales Cr 10.230 S1 Cost of Goods Sold Dr Merchandise Inventory Cr 6.510 10.360 7. Deli Co.780 15.800 9.350 7.900 10. Babson Co. one entry at selling price in the Sales Journal results in a debit to Accounts Receivable and a credit to Sales.600 11.570 90. Another entry at cost results in a debit to Cost of Goods Sold and a credit to Merchandise Inventory. Carson Bros. Abbot Sisters Deli Co.200 62.370 5. .300 15.190   Under a perpetual inventory system.

$26.800 30. Deli Co.510 $90.000 25. Carson Bros.230 To prove the accuracy of the ledgers it is necessary to determine whether the sum of the accounts receivable subsidiary ledger balances equals the balance in the general ledger’s Accounts Receivable control account.230 Accounts Receivable Subsidiary Ledger Abbot Sisters Babson Co.ILLUSTRATION 7-8 PROVING THE ACCURACY OF THE ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER General Ledger Accounts Receivable $90.920 7. .

and other accounts.550 Accounts Receivable Cr Sales Cr 1.600 11. .240 Other Accounts Cr 5.000 7.000 1.690 CGS Dr/ Inventory Cr 1. A.300 39.930 11.000 54. Capital Abbot Sisters Babson Co.000 4. Deli Co.350 6.600 11.500 2.800 9.CASH RECEIPTS JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Cash Receipts Journal Date May 3 7 10 12 17 21 24 28 Accounts Credited D.600 2.000 7.350 6.900 10. Ref 50   21   Cash Dr 5.800 9.900 10.050 1.300 54.600 2. sales. Notes Payable – Carson Bros. inventory.550  The debit columns for cash and cost of goods sold must be equal to the total of the credit columns for accounts receivable. Karns.

The total of the Other Accounts column is not posted. The individual amounts comprising the total are posted separately to the general ledger accounts specified in the Accounts Credited column. The individual amounts in the Accounts Receivable column are posted daily to the subsidiary ledger account specified in the Accounts Credited column.CASH RECEIPTS JOURNAL    Column totals are posted at the end of each month. .

850 .570 21.850 After the posting of the cash receipts journal is completed. Karns.550 51. Deli Co.000 5.180 65.210 $51.180 General Ledger Debits Cash Accounts Receivable Cost of Goods Sold $54. $15. The general ledger totals are in agreement and the sum of the subsidiary ledger balances equals the control account balance. Credits Merchandise Inventory Notes Payable D.120 6.400 14. Capital Sales $ 65. A.ILLUSTRATION 7-11 PROVING THE LEDGERS AFTER POSTING THE SALES AND THE CASH RECEIPTS JOURNALS Accounts Receivable Subsidiary Ledger Abbot Sisters Babson Co.120 $170.730 $170.000 94. it is necessary to prove the ledgers.

Merchandise Inventory Dr. Terms n/20 n/20 n/20 n/20 n/20 n/20 Ref. 11.200 6.700 12.PURCHASES JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Purchases Journal Date May 6 10 14 19 26 29 Account Credited Jasper Manufacturing Inc.900        In a perpetual system. Fabor and Son Eaton and Howe Inc. Fabor and Son Jasper Manufacturing Inc. . each entry results in a debit to Merchandise Inventory and a credit to Accounts Payable.500 8.000 7.  Postings are made daily to the accounts payable subsidiary journal and monthly to the general ledger.600 63. Eaton and Howe Inc.900 17. Accounts Payable Cr.

800 Fabor and Son 15.900 Accounts Payable Subsidiary Ledger Eaton and Howe. $19.ILLUSTRATION 7-13 PROVING THE ACCURACY OF THE ACCOUNTS PAYABLE SUBSIDIARY LEDGER General Ledger Merchandise Inventory $63. Inc.500 $63. 28. .900 To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account.900 Accounts Payable $63.600 Jasper Manufacturing Inc.

Inc. Eaton & Howe. Fabor and Son Jasper Manufaturing Inc. 100 4. Eaton & Howe.400 11.A.500 42.200 100 4.200 306 500 1. Fabor and Son Jasper Manufaturing Inc.A.400 11.900 17.000 7.900 17.800 Merchandise Accounts Inventory Payable Dr.200 6.700  Journalizing procedures are similar to cash receipts journal  Posting procedures are also like the cash receipts journal . Karns. D. Dr.600 Jasper Manufaturing Inc.500 4.CASH PAYMENTS JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Cash Payments Journal Date May 3 3 7 10 19 24 28 31 Cheque # 101 102 103 104 105 106 107 108 Payee Corporate General Ins. Inc.200 6. Drawings Account Debited Prepaid insurance Other Accounts Ref Dr.000 7. D. 130 1.Karns Cash Cr 1.500 500 48. Canpar Zwicker Jasper Manufaturing Inc.

000 94. . Inc.700 $21.ILLUSTRATION 7-16 PROVING THE ACCURACY OF THE ACCOUNTS PAYABLE SUBLEDGER General Ledger Accounts Payable Subsidiary Ledger Eaton and Howe.200 500 64.730 $127.300 100 $127. A.750 51.000 5.180 1.300 Credits Accounts Payable Notes Payable D. Karns. Fabor and Son $12.300 6.600 8. Capital Sales Debits Cash Accounts Receivable Prepaid Insurance D. A. Drawings Purchases Freight In $ 9.030 $ 21. Karns.030 To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account.

In posting there must be a dual posting (to the control account and subsidiary ledger).EFFECTS ON GENERAL JOURNAL Only transactions that cannot be recorded in a special journal are recorded in the general journal.  .  When the entry involves both control and subsidiary accounts: 1. In journalizing. control and subsidiary accounts must be identified. and 2.

ILLUSTRATION 7-17 JOURNALIZING AND POSTING THE GENERAL JOURNAL General Journal Date Account Title and Explanation 31-May Accounts Payable-Fabor and Sons Merchandise Inventory Record goods returned.900 8.900 8.900 6. Ref Debit 500 J1 Credit 500 Date 2002 May 14 24 26 31 Fabor and Son Ref Debit Credit P1 CP1 P1 G1 6.200 General Ledger Merchandise Inventory Date Ref Debit Credit 2002 May 31 S1 62.300 31 G1 500 20.700 500 Balance 6.900 31 CP1 4.700 8.500 31 G1 500 120 Balance (62.800 .600 21.190 31 CR1 2.900 31 CP1 42.120) (1.190) (65.780 Accounts Payable 201 Date Ref Debit Credit Balance 2002 May 31 P1 63.930 31 P1 63.900 63.280 2.220) 3.

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