Accounting Information Systems

Chapter 6

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 Objective 1

Describe the features of

an effective accounting
information system.

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 Basic Features

Control

Comparability

Flexibility

Cost/benefit relationship

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 Basic Features

 Internal controls are the methods and

procedures used to authorize transactions
and safeguard assets.
 Comparability means that the system works
smoothly with operations, personnel, and
the organizational structure.

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 Basic Features

 Flexibility relates to the system’s ability to

accommodate changes in the organization.
 A cost/benefit relationship indicates that the
cost of controls do not exceed their value to
the organization.

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 Computerized Accounting
System

Hardware

Software

Company
Personnel
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 Computerized 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.

©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber 6-7
 Objective 2

Understand how both

computerized and manual
accounting systems work.

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 Three Stages of
Data Processing

(Source documents) Input

Processing

(Financial
Output statements)
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 Computerized
Accounting System
ACCOUNTING RECORDS
PERSONNEL Journals,
input transactions, request Ledgers,
reports, protect records Other records
posted accessed for
reports

HARDWARE
printed to
INPUT entered, paper, OUTPUT
edited SOFTWARE screen
DATA PROCESSING REPORTS

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 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.

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 Menu-Driven Accounting
System
 Computer systems are organized by
function or task.
 Computer systems usually have a choice
of processing options on a “menu.”

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 Menu-Driven Accounting
System
General Receivables Payables Inventory Payroll Reports Utilities

Posting COMPUTERIZED
Account Maintenance ACCOUNTING
SYSTEM
Closing

Use arrow keys to make choice.

Press <return> to access choice. MAIN
Press F7 <escape> to leave menu.

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 Preparing Accounting Reports

Trial Financial Accounts Accounts Daily Cash

Balance Statements Receivable Detail Payable Detail Report

Income Statement Statement of Owners’ Equity

Balance Sheet Statement of Cash Flows

Use arrow keys to make choice.

Press <return> to access choice. REPORTS
Press F7 <escape> to leave menu.

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 Objective 3

Understand how spreadsheets

are used in accounting.

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 Integrated Accounting Systems

 Computerized accounting systems are

organized by modules.
 These modules are separate but integrated
units.
 A sales transaction entry will update two
modules:
1 Accounts Receivable/Sales
2 Inventory/Cost of Goods Sold
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 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.

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 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?

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 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 computations like these
easier.

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 Spreadsheet Example

Formula for B4: =B2–B3

Column: A B C
Row: 1 Income Statement:

2 Revenues 100,000

3 Expenses 60,000

4 Net Income 40,000

5
Cursor is on cell B4.
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 Objective 4

Use the sales journal,

the cash receipts journal,
and the accounts receivable
subsidiary ledger.

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 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 Disbursements

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 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

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 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
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 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
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 Subsidiary Ledger

 A subsidiary ledger is often used to provide

details on individual balances of...
– customers (accounts receivable) and...
– suppliers (accounts payable).

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 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.

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 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)

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 Accounts Receivable

XYZ Company Subsidiary Ledger

Jrnl.
Date Ref. Debit Credit Balance
Jan. 2 S.5 900 900
11 CR.6 900 -0-

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 General Ledger

Cash No. 101

Jrnl. Debit
Date Ref. Debit Credit Balance
Jan. 31 CR.6 1,882

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 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.

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 Objective 5

Use the purchase journal, the

cash disbursements journal,
and the accounts payable
subsidiary ledger.

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 Purchases Journal

 This is designed to account for all purchases

of inventory, supplies, services, and other
assets on account.

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 Purchases Journal

 Cash purchases are recorded in the cash

disbursements journal.
 At month end the journal is footed and
crossfooted.
 Posting to the general ledger is similar to
posting from sales and cash receipts
journals.

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 Cash Disbursements Journal

 Most payments are by check and are

recorded in the cash disbursements journal.
 The cash disbursements journal is also
called:
– check register
– cash payments journal

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 Cash Disbursements Journal

 This has columns for :

– date
– check number
– payee
– cash amount (credit)
– accounts payable (debit)
– description and amount of other debits
and credits
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 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.

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 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
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 General Journal

 Many companies record sales returns and

allowances and purchase returns in the
general journal.
 A credit memorandum is the document
issued by the seller for a credit to a
customer’s Accounts Receivable.

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 Purchase Returns and Allowances

 A 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.

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 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.

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 End of Chapter 6

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