Chapter

7

Accounting Information Systems

Chapter 7-1

Accounting Principles, Ninth Edition

Study Objectives
1. Identify the basic concepts of an accounting information system.

2. Describe the nature and purpose of a subsidiary ledger. 3. Explain how companies use special journals in journalizing.

4. Indicate how companies post a multi-column journal.

Chapter 7-2

Accounting Information Systems

Basic Concepts of Accounting Information Systems
Computerized accounting systems Manual accounting systems

Subsidiary Ledgers

Special Journals

Example Advantages

Chapter 7-3

Sales journal Cash receipts journal Purchases journal Cash payments journal Effects of special journals on general journal

Basic Concepts of AIS
The accounting information system (AIS) collects and processes transaction data and communicates financial information to decision makers. Includes:
All steps in the accounting cycle.
Documents that provide evidence of transactions. Manual or computerized accounting system.

Chapter 7-4

SO 1 Identify the basic concepts of an accounting information system.

Basic Concepts of AIS
Cost Effectiveness - Benefits must outweigh the costs.
Illustration 7-1 Principles of an efficient and effective AIS.

Useful Output

Flexibility - The system should be sufficiently flexible to meet the resulting changes in the demands made upon it.
Chapter 7-5

SO 1 Identify the basic concepts of an accounting information system.

Basic Concepts of AIS

Computerized Accounting Systems
Software programs (functions include sales, purchases, receivables, payables, cash receipts and disbursements, and payroll).
Generate financial statements. Advantages:
 Typically enter data only once.

 Many human errors are eliminated.
 More timely information.
Chapter 7-6

SO 1 Identify the basic concepts of an accounting information system.

Basic Concepts of AIS

Computerized Accounting Systems
Choosing a software package
Entry-Level Software

Common features and benefits:
 Easy data access and report preparation  Audit trail

Enterprise Resource Planning Systems

Chapter 7-7

SO 1 Identify the basic concepts of an accounting information system.

Basic Concepts of AIS

Manual Accounting Systems
Perform each step in the accounting cycle by hand.
Satisfactory in a company with a low volume of transactions. Must understand manual accounting systems to understand computerized accounting systems.

Chapter 7-8

SO 1 Identify the basic concepts of an accounting information system.

Components of Accounting Systems

Source Documents
Invoice from supplier

Employee earnings records

Increasingly, source documents are electronic files creating a “paperless” system.

Chapter 7-9

Billings to customers

Components of Accounting Systems

Source Documents

Input Keyboards

Scanners
Modems
Chapter 7-10

Bar-Code Reader

Components of Accounting Systems

Source Documents

Input Hardware Software Professional Judgment

Chapter 7-11

Processor

Components of Accounting Systems

Source Documents

Input CD Hard Drive Tape Paper Document

Chapter 7-12

Processor

Storage

Components of Accounting Systems

Source Documents

Input

Printer Monitor Telephone CD Tape Disk Electronic File

Chapter 7-13

Processor

Storage

Output

Chapter 7-14

Subsidiary Ledgers
Used to keep track of individual balances.

Two common subsidiary ledgers are:
1. Accounts receivable (customers’)

2. Accounts payable (creditors’)
Each general ledger control account balance must equal the composite balance of the individual accounts in the related subsidiary ledger.

Chapter 7-15

SO 2 Describe the nature and purpose of a subsidiary ledger.

Subsidiary Ledgers
Relationship of general ledger and subsidiary ledgers
Illustration 7-3

Chapter 7-16

SO 2 Describe the nature and purpose of a subsidiary ledger.

Subsidiary Ledgers

Advantages of Subsidiary Ledgers
1. Show in a single account transactions affecting one customer or one creditor. 2. Free the general ledger of excessive details. 3. Help locate errors in individual accounts. 4. Make possible a division of labor.

Chapter 7-17

SO 2 Describe the nature and purpose of a subsidiary ledger.

Chapter 7-18

Special Journals
Used to record similar types of transactions.
Illustration 7-5

If a transaction cannot be recorded in a special journal, the company records it in the general journal.
Chapter 7-19

SO 3 Explain how companies use special journals in journalizing.

Special Journals

Review Question
Each of the following is a subsidiary ledger except the:
a. accounts receivable ledger.

b. accounts payable ledger.
c. customer’s ledger. d. general ledger.

Chapter 7-20

Special Journals
Sales Journal
Illustration 7-6

Under a perpetual inventory system, one entry at selling price in 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.
Chapter 7-21

SO 3 Explain how companies use special journals in journalizing.

Special Journals
POSTING THE SALES JOURNAL

Illustration 7-7

Companies make daily postings from the sales journal to the individual accounts receivable in the subsidiary ledger.
Chapter 7-22

SO 3 Explain how companies use special journals in journalizing.

Special Journals
POSTING THE SALES JOURNAL

Illustration 7-7

Posting to the general ledger is done monthly.
Chapter 7-23

SO 3 Explain how companies use special journals in journalizing.

Special Journals

Advantages of Sales Journal
One-line entry for each sales transaction saves time. Only totals, rather than individual entries, are posted to the general ledger. A division of labor results.

Chapter 7-24

SO 3 Explain how companies use special journals in journalizing.

Special Journals
Cash Receipts Journal
Illustration 7-9

In the cash receipts journal, companies record all receipts of cash.

The posting of the cash receipts journal is similar to the posting of the sale journal. See complete Illustration 7-9 in the text.
Chapter 7-25

SO 3 Explain how companies use special journals in journalizing.

Special Journals

Review Question
Cash sales of merchandise are recorded in the:
a. cash payments journal. b. cash receipts journal. c. general journal. d. sales journal.

Chapter 7-26

SO 3 Explain how companies use special journals in journalizing.

Special Journals

Review Question
Which of the following is not one of the credit columns in the cash receipts journal:
a. Other accounts.

b. Accounts payable.
c. Accounts receivable. d. Sales.

Chapter 7-27

SO 3 Explain how companies use special journals in journalizing.

Special Journals
Purchases Journal

Illustration 7-13

Daily postings are made from the purchases journal to the accounts payable subsidiary ledger.
Chapter 7-28

SO 4 Indicate how companies post a multi-column journal.

Special Journals
Purchases Journal

Illustration 7-13

At the end of the accounting period, the company posts totals to the general ledger.
Chapter 7-29

SO 4 Indicate how companies post a multi-column journal.

Special Journals

Review Question
All of the following are advantages of using subsidiary ledgers except they:
a. show transactions affecting one customer or one creditor in a single account. b. free the general ledger of excessive details. c. eliminate errors in individual accounts.

d. make possible a division of labor.

Chapter 7-30

Special Journals
Cash Payments Journal
Illustration 7-16

In a cash payments (cash disbursements) journal, companies record all disbursements of cash. The procedures for posting the cash payments journal are similar to those for other journals.
Chapter 7-31

SO 4 Indicate how companies post a multi-column journal.

Special Journals

Review Question
Credit purchases of equipment or supplies other than merchandise are recorded in the:
a. cash payments journal.

b. cash receipts journal.
c. general journal. d. purchases journal.

Chapter 7-32

SO 4 Indicate how companies post a multi-column journal.

Special Journals

Review Question
Cash payments of merchandise are recorded in the:
a. cash payments journal.

b. cash receipts journal.
c. general journal. d. purchases journal.

Chapter 7-33

SO 4 Indicate how companies post a multi-column journal.

Special Journals
Effects of Special Journals on the General Journal Special journals substantially reduce the number of entries that companies make in the general journal.

Only transactions that cannot be entered in a special journal are recorded in the general journal. Also, correcting, adjusting, and closing entries are made in the general journal.
Chapter 7-34

SO 4 Indicate how companies post a multi-column journal.

Technology-Based Accounting Systems
Hardware Processing units Hard Drives RAM Modems CD-ROM Drives Speakers Monitors Servers Printers Software Programs with a series of commands directing operations of computer hardware such as data input, storage, processing, or output

Chapter 7-35

Computer Technology in Accounting
Integrated accounting programs automatically update related accounts, journals, and ledgers for a single transaction.
Chapter 7-36

Data Processing in Accounting

On-line processing enters and processes data immediately. Batch processing accumulates information for a period of time and then processes all the data at one time (daily, weekly, or monthly).

Chapter 7-37

Computer Networks in Accounting

Server

Work Stations

Computer networks are links among computers giving different users access to a common database and programs.
Chapter 7-38

Enterprise Resource Planning Software
Enterprise resource planning software, such as SAP or Oracle, links ordering, inventory, production, purchasing, planning, tracking and human resources for many of the world’s largest companies.

Chapter 7-39

Segment Return on Assets

A good AIS collects financial data for a company’s various segments. A segment is a part of a company that is separately identified by its products, services, or geographic market.
Chapter 7-40

Segment Return on Assets

Segment return on assets

=

Segment operating income Segment average assets

This ratio reflects the profitability of the segment.
Chapter 7-41

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