1. CHAPTER 7 ACCOUNTING INFORMATION SYSTEMS
After studying this chapter, you should be able to:
1 Identify the basic principles of accounting information systems.
2 Explain the major phases in the development of an accounting system.
3 Describe the nature and purpose of a subsidiary ledger.
4 Explain how special journals are used in journalizing.
5 Indicate how a multi-column journal is posted.

2. ACCOUNTING INFORMATION SYSTEMS
An accounting information system involves collecting and processing data and disseminating financial information to interested parties.
An AIS may either be manual or computerized.

3. The accounting system must be cost effective.
ILLUSTRATION PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM
The accounting system must be cost effective.
Benefits of information must outweigh the cost of providing it.
Cost Effectiveness
Costs
Benefits

4. Other Financial Reports
ILLUSTRATION PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM
It must be relevant!
It must be reliable!
It must be accurate!
It must be timely!
Balance Sheet
Income Statement
Other Financial Reports

5. ILLUSTRATION 7-1 PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM
Government Regulation and Deregulation
Organizational Growth
Increased Competition
Changing Accounting Principles
Technological Advances

6. ILLUSTRATION 7-2 PHASES IN THE DEVELOPMENT OF AN ACCOUNTING SYSTEM
Analysis
Planning and identifying information needs and sources
Follow-up
Design
Monitoring and correcting any weaknesses
Creating forms, documents, procedures, job descriptions, and reports
Implementation
Installing the system, training personnel, and making the system wholly operational

7. MANUAL ACCOUNTING SYSTEMS
In a manual accounting system, each of the steps in the accounting cycle is performed by hand.
This means that transactions are entered into a journal and then posted to the ledger.
Financial statements are thus derived from many manual computations from ledger balances.
So.....why study manual systems if the real world uses computerized systems?

8. MANUAL VS. COMPUTERIZED SYSTEMS
Small businesses still abound and most of them begin operations with manual accounting systems and convert to computerized systems as business grows.
To understand what computerized accounting systems do, one must understand how manual accounting systems work.

9. SUBSIDIARY LEDGERS
A subsidiary ledger is a group of accounts with a common characteristic, such as accounts receivable.
The subsidiary ledger is assembled together to facilitate the recording process by freeing the general ledger from details concerning individual balances.
Two common subsidiary ledgers are the Accounts Receivable Ledger and the Accounts Payable Ledger.

10. CONTROL ACCOUNT
The general ledger account that summarizes subsidiary ledger data is called a control account.
Each general ledger control account balance must equal the composite balance of the individual accounts in the subsidiary ledger.

11. ILLUSTRATION 7-3 RELATIONSHIP OF GENERAL LEDGERS AND SUBSIDIARY ACCOUNTS
Accounts receivable controls a Accounts payable controls a subsidiary ledger of many different subsidiary ledger of many different customers creditors.
General
Ledger
Accounts
Receivable
Accounts
Payable
Owner’s
Capital
Cash
Subsidiary
Ledgers
Customer A
Customer B
Customer C
Creditor X
Creditor Y
Creditor Z

12. ILLUSTRATION 7-4 RELATIONSHIP BETWEEN LEDGERS
The subsidiary ledger is separate from the general ledger.
Accounts Receivable is a control account.

13. SUBSIDIARY LEDGERS Subsidiary ledgers have several advantages. They:
1 Show transactions affecting one customer or one creditor in a single account.
2 Free the general ledger of excessive details.
3 Help locate errors in individual accounts by reducing the number of accounts in one ledger and by using control accounts.
4 Make possible a division of labor in posting One employee posts to the general ledger while someone else posts to the subsidiary ledger.

14. SPECIAL JOURNALS
Special journals are used to group similar types of transactions.
If a transaction cannot be recorded in a special journal, it is recorded in the general journal.
Special journals permit greater division of labor and reduce time needed to complete the posting process.

15. ILLUSTRATION 7-6 USE OF SPECIAL JOURNALS AND THE GENERAL JOURNAL
Sales
Journal
Cash Receipts
Purchases Journal
Cash Payments
General
Used for:
All sales of
merchandise
on account
All cash
received
(including
cash sales)
All purchases
of merchandise
All cash paid
cash
purchases)
Transactions
that cannot
be entered
in a special
journal, including
correcting, adjusting, and closing entries
The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise.

16. ILLUSTRATION 7-7 JOURNALIZING THE SALES JOURNAL PERPETUAL INVENTORY SYSTEM
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.
Another entry at cost results in a debit to Cost of Goods Sold and a credit to Merchandise Inventory.
Only one line is needed to record each transaction and all entries are made from sales invoices.

17. ILLUSTRATION 7-9 PROVING THE EQUALITY OF THE POSTINGS FROM THE SALES JOURNAL
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.

18. ADVANTAGES OF A SALES JOURNAL
1 One-line entry for each sales transaction saves time. It is not necessary to write out the four account titles for each transaction.
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.
3 A division of labor results, because one individual can take responsibility for the sales journal.

19. CASH RECEIPTS JOURNAL
Has debit columns for cash and sales discounts and credit columns for accounts receivable, sales, and other accounts
Posting the cash receipts journal involves posting all column totals once at the end of the month to the appropriate accounts

20. ILLUSTRATION 7-11 PROVING THE EQUALITY OF THE CASH RECEIPTS JOURNAL
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).

21. ILLUSTRATION 7-12 PROVING THE LEDGERS AFTER POSTING THE SALES AND THE CASH RECEIPTS JOURNALS
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.

22. PURCHASES JOURNAL
Each entry results in a debit to Merchandise Inventory and a credit to Accounts Payable
All entries are made from purchase invoices
Postings are made daily to the accounts payable subsidiary journal and monthly to the general ledger

23. ILLUSTRATION 7-15 PROVING THE EQUALITY OF THE PURCHASES JOURNAL
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.

24. CASH PAYMENTS JOURNAL
Has multiple columns because of the multiple reasons that cash payments may be made
Journalizing procedures are similar to cash receipts journal
All entries are made from pre-numbered checks
Posting procedures are also like the cash receipts journal

25. ILLUSTRATION 7-19 JOURNALIZING AND POSTING THE GENERAL JOURNAL
500
500
500