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  1. 1. Accounting Information Systems Chapter 7
  2. 2. <ul><li>An accounting information system is the combination of personnel, records and procedures that provides financial data </li></ul>ACCOUNTING INFORMATION SYSTEMS
  3. 3. <ul><li>An accounting information system involves collecting and processing data and disseminating financial information to interested parties. </li></ul><ul><li>An AIS may either be manual or computerized. </li></ul>ACCOUNTING INFORMATION SYSTEMS
  4. 4. Basic Features Control Compatibility Flexibility Cost / benefit relationship
  5. 5. Basic Features <ul><li>Internal controls are the methods and procedures used to authorize transactions and safeguard assets. </li></ul><ul><li>Compatibility means that the system works smoothly with operations, personnel, and the organizational structure. </li></ul>
  6. 6. Basic Features <ul><li>Flexibility relates to the system’s ability to accommodate changes in the organization. </li></ul><ul><li>A cost/benefit relationship indicates that the cost of controls do not exceed their value to the organization. </li></ul>
  7. 7. PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM Government Regulation and Deregulation Organizational Growth Increased Competition Changing Accounting Principles Technological Advances
  8. 8. <ul><li>The accounting system must be cost effective . </li></ul><ul><li>Benefits of information must outweigh the cost of providing it. </li></ul>PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM Cost Effectiveness Costs Benefits
  9. 9. <ul><li>In a manual accounting system, each of the steps in the accounting cycle is performed by hand. </li></ul><ul><li>This means that transactions are entered into a journal and then posted to the ledger. </li></ul><ul><li>Financial statements are thus derived from many manual computations from ledger balances. </li></ul><ul><li>So.....why study manual systems if the real world uses computerized systems? </li></ul>MANUAL ACCOUNTING SYSTEMS
  10. 10. <ul><li>Small businesses still abound and most of them begin operations with manual accounting systems and convert to computerized systems as business grows. </li></ul><ul><li>To understand what computerized accounting systems do, one must understand how manual accounting systems work. </li></ul>MANUAL VS. COMPUTERIZED SYSTEMS
  11. 11. Computerized Accounting System Company Personnel Hardware Software
  12. 12. Computerized Accounting System <ul><li>Hardware is the electronic equipment that makes up a computer system. </li></ul><ul><li>Software is a system of instructions that drive the computer to perform various functions. </li></ul><ul><li>Properly trained personnel are critical to the successful operations of the system. </li></ul>
  13. 13. Three Stages of Data Processing Processing Input ( Source documents ) ( Financial statements ) Output
  14. 14. Computerized Accounting System entered, edited printed to paper, screen ACCOUNTING RECORDS Journals, Ledgers, Other records SOFTWARE PROCESSING PERSONNEL input transactions, request reports, protect records REPORTS DATA INPUT OUTPUT posted accessed for reports HARDWARE
  15. 15. Designing an Accounting System <ul><li>Design of the accounting system begins with the chart of accounts. </li></ul><ul><li>The chart of accounts lists all accounts and their account number in the ledger. </li></ul>
  16. 16. Menu-Driven Accounting System <ul><li>Computer systems are organized by function or task. </li></ul><ul><li>Computer systems usually have a choice of processing options on a “menu.” </li></ul>
  17. 17. Menu-Driven Accounting System General Receivables Payables Payroll Reports Posting Account Maintenance COMPUTERIZED ACCOUNTING SYSTEM Use arrow keys to make choice. Press <return> to access choice. Press F7 <escape> to leave menu. MAIN Inventory Utilities Closing
  18. 18. Preparing Accounting Reports Trial Balance Financial Statements Accounts Receivable Detail Accounts Payable Detail Daily Cash Report Income Statement Balance Sheet Statement of Owners’ Equity Statement of Cash Flows Use arrow keys to make choice. Press <return> to access choice. Press F7 <escape> to leave menu. REPORTS
  19. 19. Integrated Accounting Systems <ul><li>Computerized accounting systems are organized by modules. </li></ul><ul><li>These modules are separate but integrated units. </li></ul><ul><li>A sales transaction entry will update two modules: </li></ul><ul><li>Accounts Receivable/Sales </li></ul><ul><li>Inventory/Cost of Goods Sold </li></ul>
  20. 20. <ul><li>Use the sales journal, </li></ul><ul><li>the cash receipts journal, </li></ul><ul><li>and the accounts receivable </li></ul><ul><li>ledger. </li></ul>
  21. 21. <ul><li>Special journals are accounting journals used to record one specific type of transaction. </li></ul><ul><li>They are used to group similar types of transactions. </li></ul><ul><li>If a transaction cannot be recorded in a special journal, it is recorded in the general journal . </li></ul><ul><li>Special journals permit greater division of labor and reduce time needed to complete the posting process. </li></ul>SPECIAL JOURNALS
  22. 22. <ul><li>The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise. </li></ul>USE OF SPECIAL JOURNALS AND THE GENERAL JOURNAL Sales Journal Cash Receipts Journal Purchases Journal Cash Payments Journal General Journal Used for: All sales of merchandise on account Used for: All cash received (including cash sales) Used for: All purchases of merchandise on account Used for: All cash paid (including cash purchases) Used for: Transactions that cannot be entered in a special journal, including correcting, adjusting, and closing entries
  23. 23. <ul><li>Under a perpetual inventory system , one entry at selling price in the Sales Journal results in a debit to Accounts Receivable and a credit to Sales. </li></ul><ul><li>Another entry at cost results in a debit to Cost of Goods Sold and a credit to Merchandise Inventory. </li></ul><ul><li>Only one line is needed to record each transaction and all entries are made from sales invoices . </li></ul>JOURNALIZING THE SALES JOURNAL PERPETUAL INVENTORY SYSTEM
  24. 24. Subsidiary Ledger <ul><li>A subsidiary ledger is often used to provide details on individual balances of... </li></ul><ul><li>customers (accounts receivable) and... </li></ul><ul><li>suppliers (accounts payable). </li></ul>
  25. 25. <ul><li>A subsidiary ledger is a group of accounts with a common characteristic, such as accounts receivable. </li></ul><ul><li>The subsidiary ledger is assembled together to facilitate the recording process by freeing the general ledger from details concerning individual balances. </li></ul>SUBSIDIARY LEDGERS
  26. 26. A Control Account <ul><li>What is a control account? </li></ul><ul><li>It is the general ledger account. </li></ul><ul><li>It equals the sum of the individual account balances in a subsidiary ledger. </li></ul>
  27. 27. <ul><li>The general ledger account that summarizes subsidiary ledger data is called a control account. </li></ul><ul><li>Each general ledger control account balance must equal the composite balance of the individual accounts in the subsidiary ledger . </li></ul>CONTROL ACCOUNT
  28. 28. <ul><li>To prove the ledgers it is necessary to determine that 1 the total of the general ledger debit balances must equal the total of the general ledger credit balances and 2 the sum of the subsidiary ledger balances must equal the balance in the control account. </li></ul>PROVING THE EQUALITY OF THE POSTINGS FROM THE SALES JOURNAL
  29. 29. <ul><li>1 One-line entry for each sales transaction saves time. It is not necessary to write out the four account titles for each transaction. </li></ul><ul><li>2 Only totals, rather than individual entries, are posted to the general ledger. This saves posting time and reduces the possibilities of errors in posting. </li></ul><ul><li>3 A division of labor results, because one individual can take responsibility for the sales journal. </li></ul>ADVANTAGES OF A SALES JOURNAL
  30. 30. Cash Receipts Journal <ul><li>Additional columns are provided to enter other account descriptions and amounts. </li></ul><ul><li>Cash receipts amounts affecting subsidiary ledger accounts are posted daily to keep customer balances up to date. </li></ul><ul><li>At month end, foot and crossfoot the journal and post to the general ledger. </li></ul>
  31. 31. <ul><ul><li>The total of the Other Accounts column is not posted. The individual amounts comprising the total are posted separately to the general ledger accounts specified in the Accounts Credited column </li></ul></ul><ul><ul><li>The individual amounts in a column are posted daily to the subsidiary ledger account specified in the Accounts Credited column </li></ul></ul>CASH RECEIPTS JOURNAL
  32. 32. <ul><li>Has debit columns for cash and sales discounts and credit columns for accounts receivable, sales, and other accounts </li></ul><ul><li>Posting the cash receipts journal involves posting all column totals once at the end of the month to the appropriate accounts </li></ul>CASH RECEIPTS JOURNAL
  33. 33. <ul><li>When the journalizing of a multi-column journal has been completed, the amount columns are totaled ( footing ), and the totals are compared to prove the equality of the debits and credits ( cross-footing ). </li></ul>PROVING THE EQUALITY OF THE CASH RECEIPTS JOURNAL
  34. 34. <ul><li>After the posting of the cash receipts journal is completed, it is necessary to prove the ledgers. The general ledger totals are in agreement . Also, the sum of the subsidiary ledger balances equals the control account balance. </li></ul>PROVING THE LEDGERS AFTER POSTING THE SALES AND THE CASH RECEIPTS JOURNALS
  35. 35. Purchases Journal <ul><li>This is designed to account for all purchases of inventory, supplies, services, and other assets on account. </li></ul>
  36. 36. Purchases Journal <ul><li>Cash purchases are recorded in the cash disbursements journal. </li></ul><ul><li>At month end the journal is footed and crossfooted. </li></ul><ul><li>Posting to the general ledger is similar to posting from sales and cash receipts journals. </li></ul>
  37. 37. <ul><li>Each entry results in a debit to Merchandise Inventory and a credit to Accounts Payable </li></ul><ul><li>All entries are made from purchase invoices </li></ul><ul><li>Postings are made daily to the accounts payable subsidiary journal and monthly to the general ledger </li></ul>PURCHASES JOURNAL
  38. 38. <ul><li>To prove the ledgers it is necessary to determine that 1 the total of the general ledger debit balances equals the total of the general ledger credit balances and 2 the sum of the subsidiary ledger balances equals the balance in the control account. </li></ul>PROVING THE EQUALITY OF THE PURCHASES JOURNAL
  39. 39. Cash Disbursements (Payment) Journal <ul><li>Most payments are by check and are recorded in the cash disbursements journal. </li></ul><ul><li>The cash disbursements journal is also called: </li></ul><ul><li>check register </li></ul><ul><li>cash payments journal </li></ul>
  40. 40. Cash Disbursements Journal <ul><li>This has columns for : </li></ul><ul><li>date </li></ul><ul><li>check number </li></ul><ul><li>payee </li></ul><ul><li>cash amount (credit) </li></ul><ul><li>accounts payable (debit) </li></ul><ul><li>description and amount of other debits and credits </li></ul>
  41. 41. <ul><li>Has multiple columns because of the multiple reasons that cash payments may be made </li></ul><ul><li>Journalizing procedures are similar to cash receipts journal </li></ul><ul><li>All entries are made from pre-numbered checks </li></ul><ul><li>Posting procedures are also like the cash receipts journal </li></ul>CASH PAYMENTS JOURNAL
  42. 42. <ul><li>Only transactions that cannot be entered in a special journal are recorded in the general journal. </li></ul><ul><li>When the entry involves both control and subsidiary accounts: </li></ul><ul><li>1 In journalizing, control and subsidiary accounts must be identified </li></ul><ul><li>2 In posting there must be a dual posting (to the control account and subsidiary ledger) </li></ul>EFFECTS ON GENERAL JOURNAL
  43. 43. General Journal <ul><li>Special journals save much time in recording repetitive transactions and posting to the ledger. </li></ul><ul><li>However, some transactions do not fit into any of the special journals. </li></ul>
  44. 44. General Journal <ul><li>Every accounting system needs a general journal. </li></ul><ul><li>What entries are recorded in the general journal? </li></ul><ul><li>depreciation </li></ul><ul><li>expiration of prepaid insurance </li></ul><ul><li>accrual of salaries payable </li></ul><ul><li>adjusting and closing entries </li></ul>
  45. 45. General Journal <ul><li>Many companies record sales returns and allowances and purchase returns in the general journal. </li></ul><ul><li>A credit memorandum is the document issued by the seller for a credit to a customer’s Accounts Receivable. </li></ul>
  46. 46. Purchase Returns and Allowances <ul><li>A debit memorandum is the business document that states that the buyer no longer owes the seller for the amount of the returned purchases. </li></ul><ul><li>The buyer debits the Accounts Payable to the seller and credits Inventory. </li></ul>
  47. 47. Balancing the Ledgers <ul><li>At the end of the accounting period: </li></ul><ul><li>Total debits and credits of account balances in the general ledger are equal. </li></ul><ul><li>Control account balances are equal to the sum of the appropriate subsidiary ledger accounts. </li></ul>
  49. 49. End of Chapter 7