CHAPTER 7 Accounting Information Systems

Objective 1: Describe an effective accounting information system

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While the design of the system varies from business to business, depending on the type of business, various features are common to all systems. The system should provide control, compatibility, flexibility and a good cost/benefit relations ip. 1. . #. An effective system utilizes internal controls to help safeguard assets and eliminate waste. The system design must be compatible with operations, personnel, and the organizational structure. The system should be flexible enough to accommodate changes in the organization without having to be completely redone. It should be structured so that all phases of the information system function together effectively. The cost of the system should not outweigh its benefits% managers desire a system that gives ma&imum benefits at minimum cost.

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A computeri!ed accounting information system has two basic components( 1. Hard"are)the electronic e*uipment such as computers, dis+ drives, monitors, and printers. In larger businesses, the hardware can be net"or#ed so that information can be shared% a ser$er stores the programs and data. %oft"are&the set of programs that tells the computer what tas+s to perform. Accounting software may be integrated within the company,s management information system or database, the storehouse of computerized information.

Objective 2: Understand both computerized and manual accounting systems

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In both a computeri!ed and a manual accounting system there are t ree stages of data processing. -&hibit ./1 illustrates these steps. 1. . 'nputs are data from source documents. Similar transactions are grouped together to ma+e recording easier. Processing in a manual system includes 0ournalizing, posting, and preparing financial statements. A computerized system performs some of these tas+s for the operator. (utputs are reports, such as the financial statements that are used for decision ma+ing. -&hibit ./ provides an overview of a computerized accounting system.

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The design for both types of accounting systems is similar( 1. !oth begin with the c art of accounts. a. b. !oth systems assign account numbers to the various accounts. These account numbers identify which accounts are assets, liabilities, and so on. In a computerized system, account number ranges are used to translate accounts and their balances into financial statements and other reports. 12efer to -&hibit ./# for an e&ample of a chart of accounts for a computerized system.3

-ach transaction must be classified before it can be processed or recorded. a. In a manual system, similar transactions are grouped together and recorded in a special 0ournal 1i.e., credit sales are recorded in the sales journal and credit purchases are recorded in the purchases journal3. "omputerized systems are organized by function or tas+. The appropriate 0ournal is selected from a menu. See -&hibit ./$ illustrating the main menu in a computerized accounting system. 113 In a menu)dri$en system, the main menu is accessed first, then that menu directs the user to submenues until the desired function is reached. Posting in a computerized system is automatic and can be performed continuously, called on)line processing, or in groups, called batc processing*

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2eports are the final stage of data processing.

Objective 3: Understand how spreadsheets are used in accounting

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%preads eets are computer programs that lin+ data by means of formulas and functions. These electronic wor+sheets may be used to solve many different +inds of problems. A simple income statement prepared on a spreadsheet is illustrated in -&hibit ./4. Spreadsheets are organized into cells, each defined by a row number and a column number. 1. . "ells can contain words or labels, numbers, or formulas. The cursor, or electronic highlighter, indicates which cell is active, and it can be moved around the spreadsheet.

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!asic arit metic operations of spreadsheet programs such as -&cel are listed in -&hibit ./5.

Objective : Use the sales journal! the cash receipts journal! and the accounts receivable ledger
A. While all businesses must use a general 0ournal 1to record transactions that do not fit into one of the special 0ournals3, special +ournals are designed to record specific types of transactions. 1. . See -&hibit ./. for an overview of an accounting system with special 0ournals. The four special 0ournals that most businesses use are( a. b. c. d. %ales 0ournal 1S3 Cas receipts 0ournal 1"23 Purc ases 0ournal 163 Cas payments 0ournal 1"63

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The sales +ournal is used to record all sales on account. 12efer to -&hibit ./7.3 1. -very transaction in the sales 0ournal is a debit to Accounts Recei$able and a credit to %ales Re$enue*

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The date, invoice number, and customer account name 1or number3 are entered along with the amount of the transaction. This procedure saves time in a manual system. In a computerized system, the transaction may be entered at a cash register computer terminal that records both the sale and the related cost of goods sold as well as the decrease in the perpetual inventory. Totals from the sales 0ournal are posted mont ly to the general ledger. Individual amounts from the sales 0ournal are posted daily to the subsidiary ledger. a. b. A subsidiary ledger is a record of accounts that provides supporting details on individual customer balances. The total of the subsidiary ledger should e*ual the total of Accounts 2eceivable in the general ledger. When a subsidiary ledger is used, the general ledger account is called the control account. Since the subsidiary ledger is not part of the general ledger, posting to it is not indicated with an account number but with a chec+ mar+. The 0ournal reference for items posted from the sales 0ournal will all begin with 8S9, followed by the page number. Small businesses may alternatively use actual documents 1such as sales invoices3 as the 0ournal.

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The cas receipts +ournal is used for all transactions that involve a receipt of cash. 1See -&hibit ./:.3 1. . #. $. All transactions in the cash receipts 0ournal involve a debit to Cas * The main sources of cas are collections on account and cash sales, thus the cash receipts 0ournal includes columns for Accounts 2eceivable 1"r.3 and Sales 1"r.3. ;ther sources of cash are recorded in the (t er Accounts column. Individual customer names are also listed in the 8Account Title9 column. "olumn totals, e&cept for ;ther Accounts, are posted mont ly. a. b. 4. The accounts that appear in the ;ther Accounts column are posted individually, either daily or at the end of the month. The 0ournal reference will begin with 8"29, followed by the page number.

"ollections of accounts receivable must be posted to t e subsidiary ledger daily.

Objective ": Use the purchases journal! the cash payments journal! and the accounts payable ledger
A. The purc ases +ournal is used to record all purc ases on account. 12efer to -&hibit ./1<.3 1. . #. $. -very transaction in the purchases 0ournal includes a credit to Accounts Payable* 6urchases on account of inventory and supplies are recorded in this 0ournal% a 1'r3 column is provided for each. 6urchases of other assets are recorded in the ;ther Accounts column. 6osting procedures are similar to those of other special 0ournals. a. b. 4. 5. !. "olumn totals, e&cept for ;ther Accounts, are posted mont ly to the general ledger. The 0ournal reference will begin with 869, followed by the page number.

Items in the ;ther Accounts column are posted indi$idually, usually at the end of the month. A subsidiary ledger is also used for accounts payable. All credits to Accounts 6ayable are posted daily to the subsidiary ledger.

The cas payments +ournal ,also called the c ec# register or cas disbursements +ournal- is used to record all payments of cash. 1See -&hibit ./11.3 1. . #. $. All transactions in the cash payments 0ournal involve a credit to Cas * =any cash payments are for payments on account% therefore, an Accounts 6ayable 1'r3 column appears in the cash payments 0ournal. ;ther payments of cash are recorded in the (t er Accounts column. "olumn totals, e&cept for ;ther Accounts, are posted mont ly. a. b. 4. The amounts that appear in the ;ther Accounts column are posted indi$idually, either daily or at the end of the month. The 0ournal reference will begin with 8"69, followed by the page number.

6ayments on accounts payable must be posted to t e subsidiary ledger daily.

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At the end of each accounting period, a list of individual creditors, account balances should be made and the total balanced with the related control account in the general ledger. While special 0ournals save time when recording repetitive transactions, a business still has need for a general +ournal. -&amples of transactions recorded in the general 0ournal include ad+usting and closing entries, sales returns and allo"ances, purc ase returns and allo"ances, and other non)routine entries* 1. %ales returns and allo"ances( The business will issue a credit memorandum or credit memo to notify the customer that he has received credit for returned merchandise. The related 0ournal entry includes a credit to both the customer,s account receivable and the accounts receivable control account. 2efer to -&hibit ./1 . Purc ase returns and allo"ances( The business may issue a debit memorandum or debit memo to notify a vendor that merchandise has been returned. The related 0ournal entry includes a debit to both the vendor,s account payable and to the accounts payable control account.

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At the end of each period, balancing t e ledgers or pro$ing t e ledgers helps ensure that certain e*ualities e&ist( 1. . In the general ledger( there should be e*ual debit account and credit account totals. In the general ledger and the subsidiary ledger( the control account should be e*ual to the sum of the individual balances in the ledger 1for both accounts receivable and accounts payable3.

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?enerally, computerized special 0ournals re*uire no drastic changes in system design.

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