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Prepared by

Coby Harmon
University of California, Santa Barbara
Westmont College

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Accounting Information
Systems

Learning Objectives
After studying this chapter, you should be able to:
[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.

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Preview of Chapter 7

Accounting Principles
Eleventh Edition
Weygandt Kimmel Kieso
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Basic Concepts of AIS


Accounting information system (AIS) collects and
processes transaction data and communicates financial
information to decision makers.
Includes:

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All steps in the accounting cycle.

Documents that provide evidence of transactions.

Manual or computerized accounting system.

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

Basic Concepts of AIS


Computerized Accounting Systems

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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.

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

Basic Concepts of AIS


Computerized Accounting Systems

Choosing a software package.

Entry-Level Software.

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Easy data access and report preparation

Audit trail

Internal control

Customization

Network Compatibility

Enterprise Resource Planning Systems.


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

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Basic Concepts of AIS


Manual Accounting Systems

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Perform each step in the accounting cycle by hand.

Satisfactory with a low volume of transactions.

Must understand manual accounting systems to


understand computerized accounting systems.

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

Subsidiary Ledgers
Used to keep track of individual balances.
Two common subsidiary ledgers are:
1. Accounts receivable (customers)
2. Accounts payable (creditors)

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Illustration 7-2
Relationship of general ledger
and subsidiary ledgers

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

Subsidiary Ledgers

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Illustration 7-2
Relationship of general and
subsidiary ledgers

LO 2

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.

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

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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.

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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Question
Each of the following is a subsidiary ledger except the:
a. accounts receivable ledger.
b. accounts payable ledger.
c. customers ledger.
d. general ledger.

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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Sales Journal

Illustration 7-6

2014

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 Inventory.
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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Posting the Sales Journal

2014

Illustration 7-7

2014

2014

2014

2014

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Companies make daily postings from


the sales journal to the individual
accounts receivable in the
subsidiary ledger.
LO 3 Explain how companies use special journals in journalizing.

Special Journals
Posting the Sales Journal

2014

Illustration 7-7

2014

2014

2014

Posting to the general ledger is done


monthly.
2014

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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Proving the Ledgers
Illustration 7-8

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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Advantages of Sales Journal

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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.

LO 3 Explain how companies use special journals in journalizing.

Special Journals
Cash Receipts Journal

Illustration 7-9

2014

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


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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Posting
the Cash
Receipts
Journal
Not all of the
subsidiary or
general ledger
accounts are
shown on the
illustration to the
right. See
Illustration 7-9
for the complete
illustration.
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Illustration 7-9

Illustration 7-9

Special Journals
Proving the Ledgers

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Illustration 7-11

LO 3 Explain how companies use special journals in journalizing.

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

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LO 3 Explain how companies use special journals in journalizing.

Special Journals
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

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LO 3 Explain how companies use special journals in journalizing.

Special Journals

Illustration 7-13

Purchases Journal
2014

2014

2014

2014

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Daily postings are made from the


purchases journal to the accounts
payable subsidiary ledger.
LO 3 Explain how companies use special journals in journalizing.

Special Journals

Illustration 7-13

Purchases Journal
2014

2014

2014

At the end of the accounting


period, the company posts totals to
the general ledger.
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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Proving the Ledgers
Illustration 7-14

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LO 3 Explain how companies use special journals in journalizing.

Special Journals
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.

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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Cash Payments Journal

Illustration 7-16

2014

In a cash payments (cash disbursements) journal, companies


record all disbursements of cash.
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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Cash Payments
Journal

Illustration 7-16

2014

2014

2014

2014

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LO 3 Explain how companies use special journals in journalizing.

Special Journals

Illustration 7-16

2014

2014
2014
2014

2014

2014

Cash Payments Journal

2014

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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Proving the Ledgers

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Illustration 7-17

LO 3 Explain how companies use special journals in journalizing.

Special Journals
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.

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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Question
Cash payments of merchandise are recorded in the:
a. cash payments journal.
b. cash receipts journal.
c. general journal.
d. purchases journal.

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LO 3 Explain how companies use special journals in journalizing.

Special Journals
Effects of Special Journals on General Journal

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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.

LO 3 Explain how companies use special journals in journalizing.

Special Journals
Illustration 7-18
Journalizing and
posting the
general journal

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LO 3 Explain how companies use special journals in journalizing.

A Look at IFRS
Key Points

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The basic concepts related to an accounting information system are


the same under GAAP and IFRS.

The use of subsidiary ledgers and control accounts, as well as the


system used for recording transactions, are the same under GAAP
and IFRS.

The overriding principle in converting to IFRS is full retrospective


application of IFRS. Retrospective applicationrecasting prior
financial statements on the basis of IFRSprovides financial
statement users with comparable information.

LO 4 Compare the procedures for accounting information


systems under GAAP and IFRS.

A Look at IFRS
Key Points

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As indicated, the objective of the conversion process is to present a


set of IFRS statements as if the company always reported under
IFRS. To achieve this objective, a company follows these steps.
1.

Identify the timing of its first IFRS statements.

2.

Prepare an opening balance sheet at the date of transition to


IFRS.

3.

Select accounting principles that comply with IFRS, and apply


these principles retrospectively.

4.

Make extensive disclosures to explain the transition to IFRS.

LO 4 Compare the procedures for accounting information


systems under GAAP and IFRS.

A Look at IFRS
Key Points

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Once a company decides to convert to IFRS, it must decide on the


transition date and the reporting date. The transition date is the
beginning of the earliest period for which full comparative IFRS
information is presented. The reporting date is the closing balance
sheet date for the first IFRS financial statements.

Upon first-time adoption of IFRS, a company must present at least


one year of comparative information under IFRS.

LO 4 Compare the procedures for accounting information


systems under GAAP and IFRS.

A Look at IFRS
Looking to the Future
The definitional structure of assets, liabilities, equity, revenues, and
expenses may change over time as the IASB and FASB evaluate their
overall conceptual framework for establishing accounting standards. In
addition, high-quality international accounting requires both
high-quality accounting standards and high-quality auditing. Similar to
the convergence of U.S. GAAP and IFRS, there is a movement to
improve international auditing standards. The International Auditing
and Assurance Standards Board (IAASB) functions as an independent
standard-setting body. It works to establish high-quality auditing and
assurance and quality-control standards throughout the world. Whether
the IAASB adopts internal control provisions similar to those in SOX
remains to be seen. You can follow developments in the international
audit arena at http://www.ifac.org/laasb/.
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LO 4

A Look at IFRS
IFRS Self-Test Questions
Information in a companys first IFRS statements must:
a. have a cost that does not exceed the benefits.
b. be transparent.
c. provide a suitable starting point.
d. All the above.

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LO 4 Compare the procedures for accounting information


systems under GAAP and IFRS.

A Look at IFRS
IFRS Self-Test Questions
Indicate which of these is false.
a. The use of subsidiary ledgers is the same under IFRS
and GAAP.
b. GAAP and IFRS use the same accounting principles.
c. The use of special journals is the same under IFRS
and GAAP.
d. At conversion, companies should retrospectively adjust
the financial statements presented following IFRS.

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LO 4 Compare the procedures for accounting information


systems under GAAP and IFRS.

A Look at IFRS
IFRS Self-Test Questions
The transition date is the date:
a. when a company no longer reports under its national
standards.
b. when the company issues its most recent financial
statement under IFRS.
c. three years prior to the reporting date.
d. None of the above.

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LO 4 Compare the procedures for accounting information


systems under GAAP and IFRS.

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