Accounting Information Systems: Horngren Harrison Bamber Best Fraser Willett

Accounting
Information
Systems
Chapter
6
HORNGREN ♦ HARRISON ♦ BAMBER ♦ BEST ♦ FRASER ♦ WILLETT

Objectives
1. Describe the features of an effective accounting
information system.
2. Understand how computerised and manual
accounting systems work.
3. Understand how spreadsheets are used in
accounting
4. Use the sales journal, the cash receipts journal
and the accounts receivable subsidiary ledger
5. Use the purchases journal, the cash payments
journal and the accounts payable subsidiary
ledger
Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia 6-2
Objective 1
Describe the
features of
an effective
accounting
information system.
Basic Features
Control
Control
Comparability
Comparability
Flexibility
Flexibility
Cost/benefit
Cost/benefit relationship
relationship
Basic Features
 Internal controls are the methods and

procedures used to authorise
transactions and safeguard assets.
 Comparability means that the system
works smoothly with operations,
personnel, and the organisational
structure.
Basic Features
 Flexibility relates to the system’s ability

to accommodate changes in the
organisation.
 A cost/benefit relationship indicates that
the cost of controls do not exceed their
value to the organisation.
Computerised Accounting
System
Hardware
Hardware
Software
Software
Company
Company
Personnel
Personnel
Computerised Accounting
System
 Hardware is the electronic equipment
that makes up a computer system.
 Software is a system of instructions that
drive the computer to perform various
functions.
 Properly trained personnel are critical to
the successful operations of the system.
Objective 2
Understand how both

computerised and manual
accounting systems work.
Three Stages of
Data Processing
(Source documents) Input

Input
Processing
Processing
Output (Financial
Output statements)
Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia 6 - 10
Computerised
Accounting System
ACCOUNTING RECORDS
PERSONNEL Journals,
input transactions, request Ledgers,
reports, protect records Other records
posted accessed for
reports
HARDWARE
printed to
INPUT entered, paper, OUTPUT
edited SOFTWARE screen
DATA PROCESSING REPORTS
Designing an Accounting
System
 Design of the accounting system begins
with the chart of accounts.
 The chart of accounts lists all accounts
and their account number in the ledger.
Menu-Driven Accounting
System
 Computer systems are organised by
function or task.
 Computer systems usually have a
choice of processing options on a
“menu.”
Menu-Driven Accounting
System
General Receivables Payables Inventory Payroll Reports
Posting COMPUTERISED
Account Maintenance ACCOUNTING
SYSTEM
Closing
Use arrow keys to make choice.

Press <return> to access choice. MAIN
Press F7 <escape> to leave menu.
Preparing Accounting Reports
Trial Financial Accounts Accounts Daily Cash

Balance Statements Receivable Detail Payable Detail Report
Statement of Financial Performance Statement of Owners’ Equity

Statement of Financial Position Statement of Cash Flows
Use arrow keys to make choice.

Press <return> to access choice. REPORTS
Press F7 <escape> to leave menu.
Objective 3
Understand how
spreadsheets
are used in accounting.
Integrated Accounting Systems
 Computerised accounting systems are

organised by modules.
 These modules are separate but
integrated units.
 A sales transaction entry will update two
modules:
1 Accounts Receivable / Sales
2 Inventory / Cost of Goods Sold
Ana’s Boutique Example
 Ana wants to budget for expected cash

collections in the month of May.
 Past experience indicates that 50% of
credit sales are collected in the month
of sales and 50% the following month.
 May sales were $250,000.

 $50,000 were cash sales.
 April credit sales amounted to
$120,000.
 What are the expected cash collections
during the month of May?
 May cash sales $ 50,000
 Collection of April’s credit sales 60,000
 Collection of May’s credit sales 100,000
 Total $210,000
 Spreadsheets make calculations like these

easier.
Spreadsheet Example
Formula for B4: =B2–B3

Column: A B C
Row: 1 Statement of Financial Performance:
2 Revenues 150,000
3 Expenses 90,000
4 Net Profit 60,000
5
Cursor is on cell B4.
Objective 4
Use the sales journal,

the cash receipts
journal,
and the accounts
receivable
subsidiary ledger.
Special Journals
 What are special journals?

 They are accounting journals used to
record one specific type of transaction.
 What are some examples?
Sales Cash Receipts Payroll
Purchases Cash Payments

Using the Sales Journal
Sales Journal Page 5

Invoice Account Account Post
Date Number Debited Number Ref. Amount
Jan. 2 201 Joe Co. 120-122  600.00
Jan. 2 202 May Co. 120-033  700.00
Jan. 2 203 XYZ Co. 120-111  900.00
TOTAL 2,200.00
120 / 410

Jan. 2 203 XYZ Co. 120 -111  900.00
TOTAL 2,200.00
120 / 410
General Ledger
Account: Accounts Receivable Account Number: 120
Date Description Post Ref Debit Credit Balance
Jan. 2 Sales SJ5 2,200 2,200

Jan. 2 203 XYZ Co. 120-111 900.00
TOTAL 2,200.00
120/410
General Ledger Account: Credit Sales

Account Number: 410 Date Description Post Ref Debit
Credit Balance Jan. 2 Sales SJ5 2,200 2,200
Subsidiary Ledger
 A subsidiary ledger is often used to

provide details on individual balances
of...
– customers (accounts receivable) and...
– suppliers (accounts payable).
A Control Account
 What is a control account?

 It is the general ledger account.
 It equals the sum of the individual
account balances in a subsidiary ledger.
Cash Receipts Journal — Page
6
Debits Credits
Sales Accounts Sales
Date Cash Discounts Receivable Revenue
Jan. 2 200 200
11 882 18 900
30 800 800
311,882 18 900 1,000
(101)
(420) (112) (410)
Accounts Receivable
XYZ Company Subsidiary Ledger

Jrnl.
Date Ref. Debit Credit Balance
Jan. 2 S.5 900 900
11 CR.6 900 -0-
General Ledger
Cash No. 101

Jrnl. Debit
Date Ref. Debit Credit Balance
Jan. 31 CR.6 1,882
Cash Receipts Journal
 Additional columns are provided to enter

other account descriptions and amounts.
 Cash receipts amounts affecting subsidiary
ledger accounts are posted daily to keep
customer balances up to date.
 At month end, foot and crossfoot the journal
and post to the general ledger.
Objective 5
Use the purchase journal, the

cash payments journal,
and the accounts payable
subsidiary ledger.
Purchases Journal
 This is designed to account for all

purchases of inventory, supplies,
services, and other assets on account.
Purchases Journal
 Cash purchases are recorded in the

cash payments journal.
 At month end the journal is footed
(totaled) and crossfooted.
 Posting to the general ledger is similar
to posting from sales and cash receipts
journals.
Cash Payments Journal
 Most payments are by check and are

recorded in the cash payments journal.
 The cash payments journal is also
called:
– cheque register
– cash disbursements journal
Cash Payments Journal
 This has columns for:
– Date
– Cheque number (or transfer number)
– Account Debited
– Debits;
– Other Accounts, Accounts payable
– Credits
– Discounts Received, Cash at Bank
General Journal
 Special journals save much time in

recording repetitive transactions and
posting to the ledger.
 However, some transactions do not fit
into any of the special journals.
General Journal
 Every accounting system needs a
general journal.
 What entries are recorded in the
general journal?
– depreciation
– expiration of prepaid insurance
– accrual of salaries payable
– adjusting and closing entries
General Journal
 Many companies record sales returns

and allowances and purchase returns in
the general journal.
 A credit note (or credit memo) is the
document issued by the seller for a
credit to a customer’s Accounts
Receivable.
Purchase Returns and
Allowances
 A debit note or debit memorandum is
the business document that states that
the buyer no longer owes the seller for
the amount of the returned purchases.
 The buyer debits the Accounts Payable
to the seller and credits Inventory.
Balancing the Ledgers
 At the end of the accounting period:

 Total debits and credits of account
balances in the general ledger are
equal.
 Control account balances are equal to
the sum of the appropriate subsidiary
ledger accounts.
End of Chapter 6

Accounting Information Systems: Horngren Harrison Bamber Best Fraser Willett

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Accounting

HORNGREN ♦ HARRISON ♦ BAMBER ♦ BEST ♦ FRASER ♦ WILLETT

 Internal controls are the methods and

 Flexibility relates to the system’s ability

Understand how both

(Source documents) Input

Use arrow keys to make choice.

Trial Financial Accounts Accounts Daily Cash

Statement of Financial Performance Statement of Owners’ Equity

Use arrow keys to make choice.

 Computerised accounting systems are

 Ana wants to budget for expected cash

 May sales were $250,000.

 Spreadsheets make calculations like these

Formula for B4: =B2–B3

4 Net Profit 60,000

Use the sales journal,

 What are special journals?

Sales Cash Receipts Payroll

Purchases Cash Payments

Sales Journal Page 5

Sales Journal Page 5

Sales Journal Page 5

General Ledger Account: Credit Sales

 A subsidiary ledger is often used to

 What is a control account?

XYZ Company Subsidiary Ledger

Cash No. 101

 Additional columns are provided to enter

Use the purchase journal, the

 This is designed to account for all

 Cash purchases are recorded in the

 Most payments are by check and are

 Special journals save much time in

 Many companies record sales returns

 At the end of the accounting period:

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