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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 Subsidiary Special
Information Ledgers Journals
Systems

Computerized Example Sales journal


accounting Advantages Cash receipts
systems journal
Manual Purchases
accounting journal
systems
Cash payments
journal
Effects of special
journals on
Chapter general journal
7-3
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 Useful
efficient and
effective AIS. 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 Increasingly, source
documents are
electronic files
Employee
creating a “paperless”
earnings system.
records

Billings to
Chapter customers
7-9
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
Processor
Chapter
7-11
Components of Accounting Systems

Source
Documents
Input

CD
Hard Drive
Tape
Paper
Processor
Chapter Storage Document
7-12
Components of Accounting Systems

Printer
Monitor
Telephone
Source CD
Documents Tape
Input Disk
Electronic File

Processor
Chapter Storage Output
7-13
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 Illustration 7-7

POSTING THE SALES JOURNAL

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 Illustration 7-7

POSTING THE SALES JOURNAL

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 Illustration 7-13

Purchases Journal

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 Illustration 7-13

Purchases Journal

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

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 Segment operating income


on assets = Segment average assets

This ratio reflects the


profitability of the
segment.
Chapter
7-41