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

Objectives Describe the features of an effective accounting information system. Understand how computerised and manual accounting systems work. Understand how spreadsheets are used in accounting Use the sales journal, the cash receipts journal and the accounts receivable subsidiary ledger Use the purchases journal, the cash payments journal and the accounts payable subsidiary ledger

Describe the features of an effective accounting Objective 1 Describe the features of an effective accounting information system.

Cost/benefit relationship Basic Features Control Comparability Flexibility Cost/benefit 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 Software Company 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.

computerised and manual accounting systems work. Objective 2 Understand how both computerised and manual accounting systems work.

Three Stages of Data Processing Input (Source documents) Processing (Financial statements) Output

Computerised Accounting System ACCOUNTING RECORDS Journals, Ledgers, Other records PERSONNEL input transactions, request reports, protect records posted accessed for reports HARDWARE printed to paper, screen INPUT SOFTWARE PROCESSING entered, edited OUTPUT DATA 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 ACCOUNTING SYSTEM Account Maintenance Closing Use arrow keys to make choice. MAIN Press <return> to access choice. Press F7 <escape> to leave menu.

Preparing Accounting Reports Trial Balance Financial Statements Accounts Receivable Detail Accounts Payable Detail Daily Cash Report Statement of Financial Performance Statement of Owners’ Equity Statement of Financial Position Statement of Cash Flows Use arrow keys to make choice. REPORTS Press <return> to access choice. Press F7 <escape> to leave menu.

Understand how spreadsheets 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: Accounts Receivable / Sales 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.

Ana’s Boutique Example 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?

Ana’s Boutique Example 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 2 3 4 5 Statement of Financial Performance: Revenues 150,000 Expenses 90,000 Net Profit 60,000 Cursor is on cell B4.

the cash receipts journal, and the accounts receivable 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

Using the Sales Journal Sales Journal Page 5 Invoice Account Account Post Date Number Debited Number Ref. Amount 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

Using the Sales Journal Sales Journal Page 5 Invoice Account Account Post Date Number Debited Number Ref. Amount 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 31 1,882 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.

Use the purchase journal, the and the accounts payable 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