Accounting Principles

Thirteenth Edition
Weygandt ● Kimmel ● Kieso

Chapter 7

Accounting Information Systems

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Chapter Outline
Learning Objectives
LO 1 Explain the basic concepts of an accounting
information system.
LO 2 Describe the nature and purpose of a subsidiary
ledger.
LO 3 Record transactions in special journals.

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Accounting Information Systems (1 of 2)
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 and
the records, trial balances, worksheets, and financial
statements that result
• Manual or computerized accounting system

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Accounting Information Systems (2 of 2)
Cost-Effectiveness
• Benefits of information must outweigh costs of providing it
Useful Output
• Information must be understandable, relevant, reliable,
timely, and accurate
• Must consider needs and knowledge of various users
Flexibility
• Should accommodate a variety of users and changing
information needs
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Computerized Accounting Systems (1 of 2)
• Software programs (functions include sales, purchases,
receivables, payables, cash receipts and disbursements, and
payroll)
• Generate financial statements
• Advantages:
o Typically enter data only once
o Many human errors are eliminated
o More timely information

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Computerized Accounting Systems (2 of 2)
Choosing a Software Package
Entry-Level Software
• Easy data access and report preparation
• Audit trail
• Internal control
• Customization
• Network-Compatibility
Enterprise Resource Planning Systems

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

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Do It! 1: Basic AIS Concepts (1 of 2)
Indicate whether the following statements are true or false. If false, indicate how
to correct the statement.
1. An accounting information system collects and processes transaction data
and communicates financial information to decision-makers.
2. A company typically enters data only once in a manual accounting system.
3. Enterprise resource planning (ERP) systems are typically used by companies
with revenues of less than $5 million and up to 20 employees.
Solution:
1.
2.

3.

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Do It! 1: Basic AIS Concepts (2 of 2)
Indicate whether the following statements are true or false. If false, indicate how
to correct the statement.
1. An accounting information system collects and processes transaction data
and communicates financial information to decision-makers.
2. A company typically enters data only once in a manual accounting system.
3. Enterprise resource planning (ERP) systems are typically used by companies
with revenues of less than $5 million and up to 20 employees.
Solution:
1. True
2. False. A company typically enters data only once in a computerized
accounting system.
3. False. Enterprise resource planning (ERP) systems are typically used by
manufacturing companies with more than 500 employees and $500
million in sales.
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Subsidiary Ledgers (1 of 2)
Used to keep track of individual balances.
Two common subsidiary ledgers are:
1. Accounts receivable (customers’)
2. Accounts payable (creditors’)

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Subsidiary Ledgers (2 of 2)

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Subsidiary Ledgers Example

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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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Do It! 2: Subsidiary Ledgers (1 of 2)
Presented below is information related to Sims Company for its first month of
operations. Determine the balances that appear in the accounts payable
subsidiary ledger for each company.

Devon Co.: $4,000 ($11,000 − $7,000)

Shelby Co.: $5,000 ($7,000 − $2,000)
Taylor Co.: $5,000 ($14,000 − $9,000)

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Do It! 2: Subsidiary Ledgers (2 of 2)
Presented below is information related to Sims Company for its first month of
operations. What Accounts Payable balance appears in the general ledger at
the end of January?

General ledger Accounts Payable balance: $14,000 ($4,000 + $5,000 +

$5,000)

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Special Journals

If a transaction cannot be recorded in a special journal, the

company records it in the general journal.
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Special Journals (1 of 4)
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

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Special Journals (2 of 4)
Each of the following is a subsidiary ledger except the:
a. Accounts receivable ledger
b. Accounts payable ledger
c. Customer’s ledger
d. Answer: General ledger

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Special Journals (3 of 4)
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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Special Journals (4 of 4)
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. Answer: Eliminate errors in individual accounts.
d. Make possible a division of labor.

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Sales Journals (1 of 5)
Journalizing Credit Sales

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Posting the Sales Journal (2 of 5)

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Posting the Sales Journal (3 of 5)

Note: This posting sequence results in a credit balance in

Inventory, which exists only until the other journals are posted.

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Proving the Ledgers (4 of 5)

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Advantages of the Sales Journal (5 of 5)
• One-line entry for each sales transaction saves time
• Only totals, rather than individual entries, are posted to
general ledger
• Division of labor results

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Cash Receipts Journal (1 of 4)
To illustrate we continue with May transactions of Karns Wholesale Supply.
Entries in the cash receipts journal are based on the following cash receipts.
May 1 D. A. Karns makes an investment of $5,000 in the business.
7 Cash sales of merchandise total $1,900 (cost, $1,240).
10 Received a check for $10,388 from Abbot Sisters in payment of invoice No.
101 for $10,600 less a 2% discount.
12 Cash sales of merchandise total $2,600 (cost, $1,690).
17 Received a check for $11,123 from Babson Co. in payment of invoice No. 102
for $11,350 less a 2% discount.
22 Received cash by signing a note for $6,000.
23 Received a check for $7,644 from Carson Bros. in full for invoice No. 103 for
$7,800 less a 2% discount.
28 Received a check for $9,114 from Deli Co. in full for invoice No. 104 for $9,300
less a 2% discount.

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Cash Receipts Journal (2 of 4)

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Cash Receipts Journal (3 of 4)
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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Proving the Ledgers (4 of 4)

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Cash Receipt Journal (1 of 4)
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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Cash Receipt Journal (2 of 4)
Cash sales of merchandise are recorded in the
a. Cash payments journal
b. Answer: Cash receipts journal
c. General journal
d. Sales journal

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Cash Receipt Journal (3 of 4)
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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Cash Receipt Journal (4 of 4)
Which of the following is not one of the credit columns in
the cash receipts journal:
a. Other accounts
b. Answer: Accounts payable
c. Accounts receivable
d. Sales

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Journalizing and Posting Purchases Journal
(1 of 3)

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Posting Purchases Journal to General Ledger
(2 of 3)

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Proving the Ledgers (3 of 3)

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Journalizing Cash Payments Journal (1 of 3)

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Posting Cash Payments Journal (2 of 3)

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Posting Cash Payments Journal to General
Ledger

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Proving the Ledgers (3 of 3)

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Purchase Journal (1 of 2)
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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Purchase Journal (2 of 2)
Credit purchases of equipment or supplies other than
merchandise are recorded in the:
a. Cash payments journal
b. Cash receipts journal
c. Answer: General journal
d. Purchases journal

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Cash Payment Journal (1 of 2)
Cash payment of merchandise are recorded in the:
a. Cash payments journal
b. Cash receipts journal
c. General journal
d. Purchases journal

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Cash Payment Journal (2 of 2)
Cash payment of merchandise are recorded in the:
a. Answer: Cash payments journal
b. Cash receipts journal
c. General journal
d. Purchases journal

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Effects of Special Journals on the General
Journal (1 of 3)
• 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
• Correcting, adjusting, and closing entries are made in
the general journal

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Effects of Special Journals on the General
Journal (2 of 3)
To illustrate, assume that on May 31, Karns Wholesale
Supply returns $500 of merchandise for credit to Fabor
and Son. Illustration 7.18 shows the entry in the general
journal and the posting of the entry.

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Effects of Special Journals on the General
Journal (3 of 3)

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Do It! 3: Special Journals
Swisher Company had the following transactions during March.
1. Collected cash on account from Oakland Company.
2. Purchased equipment by signing a note payable.
3. Sold merchandise on account.
4. Purchased merchandise on account.
5. Paid $2,400 for a 2-year insurance policy.
Identify the journal in which each transactions is recorded.
Solution:
1. Cash receipts journal 4. Purchases journal
2. General journal 5. Cash payments journal
3. Sales journal

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A Look at IFRS (1 of 3)
Key Points
Similarities
• 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.

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A Look at IFRS (2 of 3)
Key Points
Differences
• Many companies will be going through a substantial
conversion process to switch from their current
reporting standards to IFRS.
• Upon first-time adoption of IFRS, a company must
present at least one year of comparative information
under IFRS.

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A Look at IFRS (3 of 3)
Looking to the Future
The basic recording process shown in this textbook is followed
by companies around the globe. It is unlikely to change in the
future. The definitional structure of assets, liabilities, equity,
revenues, and expenses may change over time as the I ASB
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 GAAP and IFRS, there is a movement to
improve international auditing standards.

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Copyright
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from the use of the information contained herein.

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