ACCOUNTING INFORMATION

SYSTEMS

Chapter 7

© 2009 The McGraw-Hill Companies,

Inc.,
C1

FUNDAMENTAL SYSTEM PRINCIPLES

Control Principle
Internal controls for
management to monitor
the business.
Relevance Principle Flexibility Principle
Provide relevant, timely System needs to meet the
and pertinent changing needs of
information. company.
Compatibility Principle Cost-Benefit Principle
System must be Benefits of the system
compatible with aims of must outweigh the costs
the company. incurred.
McGraw-Hill/Irwin Slide 2
C2 COMPONENTS OF ACCOUNTING
SYSTEMS
Source Documents
Invoice from
supplier Increasingly, source
documents are
electronic files
creating a “paperless”
Employee
system.
earnings
records

Billings to
customers
McGraw-Hill/Irwin Slide 3
C2 COMPONENTS OF ACCOUNTING
SYSTEMS

Source
Documents
Input Devices

Keyboards
Scanners
Modems

McGraw-Hill/Irwin
Bar-Code Reader Slide 4
C2 COMPONENTS OF ACCOUNTING
SYSTEMS

Source
Documents
Input Devices

Hardware
Software
Professional Judgment

Information Processor
McGraw-Hill/Irwin Slide 5
C2 COMPONENTS OF ACCOUNTING
SYSTEMS

Source
Documents
Input Devices

CD/DVD
Hard Drive
Tape
Paper Document
Information Processor Storage
McGraw-Hill/Irwin Slide 6
C2 COMPONENTS OF ACCOUNTING
SYSTEMS

Printer
Monitor
LCD projectors
Source
Web
Documents
Input Devices communications

Information Processor Storage Output Devices

McGraw-Hill/Irwin Slide 7
C3

SPECIAL JOURNALS IN ACCOUNTING

Cash Receipts
Sales Journal
Journal

For recording For recording

credit sales cash receipts
Purchases
Journal

Cash For recording General

Disbursements credit purchases Journal
Journal
For transactions
For recording
not in special
cash payments
journals

McGraw-Hill/Irwin Slide 8
C4

SUBSIDIARY LEDGERS
Characteristic Controlling Account Subsidiary Ledger

Amounts due from customers Accounts Receivable Accounts Receivable Ledger

Amounts owed to creditors Accounts Payable Accounts Payable Ledger

Subsidiary ledgers are a listing of individual

accounts with common characteristics.

McGraw-Hill/Irwin Slide 9
C4

ACCOUNTS RECEIVABLE LEDGER

After all items are posted,
Accounts Receivable Subsidiary
the balance in the accounts
Adams Company
receivable controlling
account is equal to the sum Date PR Debit Credit Balance
of the balances in the AccountsJan. 1 S5
Receivable 500
Subsidiary 500
accounts receivable Baine Company
subsidiary ledger.
Date PR Debit Credit Balance
Jan.
Accounts 16 S5 Subsidiary
Receivable 1,000 1,000
Cook Company
Date PR Debit Credit Balance
Jan. 25 S5 415 415
GENERAL LEDGER
Accounts Receivable No. 106
Date PR Debit Credit Balance
Jan. 31 S5 1,915 1,915

McGraw-Hill/Irwin Slide 10
C4

ACCOUNTS PAYABLE LEDGER

After all items are posted, Accounts Payable Subsidiary
the balance in the accounts
Western Office Supply
payable controlling account
is equal to the sum of the Date PR Debit Credit Balance
Accounts Payable Subsidiary
balances in the accounts Jan. 1 P5 635 635
payable subsidiary ledger. State Utilities
Date PR Debit Credit Balance
Jan. 16 P5 220 220
Accounts Payable Subsidiary
Ajex Cleaning Service
Date PR Debit Credit Balance
Jan. 25 P7 800 800

GENERAL LEDGER
Accounts Payable No. 201
Date PR Debit Credit Balance
Jan. 31 AP 1,655 1,655

McGraw-Hill/Irwin Slide 11
P1

SALES JOURNAL
SALES JOURNAL
Accounts
Invoice Receivable Dr.
Date Account Debited Number PR Sales Cr.
Feb 2 Janson Henry 307 450

Each transaction yields a debit to Accounts

Receivable and a credit to Sales. Also, we need to
record the cost of the sale for the transaction. This
column total is posted monthly.

McGraw-Hill/Irwin Slide 12
P1

SALES JOURNAL
On February 2nd, Jason
Henry purchased $450
of merchandise on
account from our
company. The cost of the
merchandise was $315.
Record the entry in the
Sales Journal.
(Assume the use of a perpetual
inventory system.)

McGraw-Hill/Irwin Slide 13
P1

SALES JOURNAL
SALES JOURNAL Page 17
Cost of Goods
Invoice Dr. Accts. Rec. Sold Dr.
Date Account Debited Number PR Cr. Sales Inventory Cr.
Feb 2 Jason Henry 307  450 315

Daily, each sales

transaction is posted ACCOUNTS RECEIVABLE LEDGER
to the appropriate Jason Henry
accounts receivable Date SJ Debit Credit Balance
subsidiary account. Feb 2 17 450 450
McGraw-Hill/Irwin Slide 14
P1

SALES JOURNAL
SALES JOURNAL Page 17
Cost of Goods
Invoice Dr. Accts. Rec. Sold Dr.
Date Account Debited Number PR Cr. Sales Inventory Cr.
Feb 2 Jason Henry 307  450 315
7 Albert Company 314  500 355
28 Frank Booth 317  250 107
Totals 1,200 777
(106)/(413) (119)/(502)
Accounts Receivable Sales
No. 106 No. 413
Date PR Debit Credit Balance Date PR Debit Credit Balance
Feb 28 SJ 1,200 1,200 Feb 28 SJ 1,200 1,200

McGraw-Hill/Irwin Slide 15
P1

SALES JOURNAL
SALES JOURNAL Page 17
Cost of Goods
Invoice Dr. Accts. Rec. Sold Dr.
Date Account Debited Number PR Cr. Sales Inventory Cr.
Feb 2 Jason Henry 307  450 315
7 Albert Company 314  500 355
28 Frank Booth 317  250 107
Totals 1,200 777
(106)/(413) (502)/(119)
Cost of Goods Sold Inventory
No. 502 No. 119
Date PR Debit Credit Balance Date PR Debit Credit Balance
Feb 28 SJ 777 777 Feb 28 SJ 777 777

McGraw-Hill/Irwin Slide 16
P2

PROVING THE LEDGERS

Schedule of Accounts Receivable
February 28
The Accounts Jason Henry $ 450
Receivable Albert Company 500
controlling Frank Booth 250
account and Total accounts receivable $1,200
the subsidiary
ledger are in Accounts Receivable
balance. No. 106
Date PR Debit Credit Balance
Feb 28 SJ 1,200 1,200

McGraw-Hill/Irwin Slide 17
P1

SALES TAXES

SALES JOURNAL Page 1

Sales Taxes Cost of Goods
Accts. Rec. Payable Sold Dr.
Date Account Debited Inv. No. PR Debit Credit Sales Credit Inventory Cr
Dec. 1 Farve Company 7-1698 103 3 100 75

On December 1, Farve Company purchased merchandise

with a selling price of $100 plus 3% sales tax on credit.
The cost of the merchandise was $75.

McGraw-Hill/Irwin Slide 18
P1

SALES TAX

SALES JOURNAL Page 1

Sales Taxes Cost of Goods
Accts. Rec. Payable Sold Dr.
Date Account Debited Inv. No. PR Debit Credit Sales Credit Inventory Cr
Dec. 1 Farve Company 7-1698  103 3 100 75

Each transaction Column totals are

is posted daily to posted monthly.
the appropriate
Accounts ACCOUNTS RECEIVABLE LEDGER
Receivable Farve Company
Ledger account. Date PR Debit Credit Balance
Jan. 2 SJ1 103 103
McGraw-Hill/Irwin Slide 19
P1

SALES RETURNS AND ALLOWANCES

If a company has few sales returns, they may
be recorded in the General Journal.
Date Description PR Debit Credit
Feb. 5 Sales Returns and Allowances 414 150
Accounts Receivable--Jill Day 106/  150

Merchandise Inventory 119 100

Cost of Goods Sold 502 100

A company with many sales returns may use

a Sales Returns and Allowances Journal.

McGraw-Hill/Irwin Slide 20
P1

CASH RECEIPTS JOURNAL

CASH RECEIPTS JOURNAL Page 1
Accts. Cost of Goods
Cash Sales Rec. Other Sold Dr.
Accounts Credited Explanation PR Dr. Disc. Dr. Cr. Sales Cr. Accts. Cr. Inventory Cr

Categories of Cash Receipts

• Cash from cash sales
• Cash from credit customers
• Cash from other sources
McGraw-Hill/Irwin Slide 21
P1

CASH RECEIPTS JOURNAL

CASH RECEIPTS JOURNAL Page 1
Sales Accts.
Accounts Cash Disc. Rec. Other
Date Credited Explanation PR Dr. Dr. Cr. Sales Cr. Accts. Cr.
Feb 7 Sales Cash Sales 4,450 4,450
üü
16 Jason Henry Invoice 656 441 9 450
ü
31 Interest Revenue Bank Acct. 409 250 250
31 Total 5,141 9 450 4,450 250
(101) (415) (106) (413) (üü )

Amount is not posted individually to an account.

ü
Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.

McGraw-Hill/Irwin Slide 22
P1 FOOTING, CROSSFOOTING, AND
POSTING

Debit Columns Credit Columns

Cash Dr. $ 5,141 Accounts Receivable Cr. $ 450
Sales Discount Dr. 9 Sales Cr. 4,450
Other Accounts Cr. 250
$ 5,150 $ 5,150

McGraw-Hill/Irwin Slide 23
P1

PURCHASES JOURNAL
Purchases Journal Page 3
Accts. Offc.
Invoice Pay. Inventory Sup. Other
Date Account Date Terms PR Cr. Dr. Dr. Accts. Dr.
Feb 3 Ace Mfg. Company 2/5 2/10,n/30 200 200
18 Homing Supply 2/18 n/30 125/ 350 200 75
28 Smith Company 2/28 2/10,n/30 300 300
28 Total 850 700 75 0
(201) (119) (124)

The Purchases Journal is used to

record all purchases on credit.

McGraw-Hill/Irwin Slide 24
P1

PURCHASES JOURNAL
Purchases Journal Page 3
Accts. Offc.
Invoice Pay. Inventory Sup. Other
Date Account Date Terms PR Cr. Dr. Dr. Accts. Dr.
Feb 3 Ace Mfg. Company 2/5 2/10,n/30  200 200
18 Homing Supply 2/18 n/30 125/  350 275 75
28 Smith Company 2/28 2/10,n/30  300 300
28 Total 850 775 75 0
(201) (119) (124) 

 Amount is not posted individually to an account.

 Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.

McGraw-Hill/Irwin Slide 25
P2

PROVING THE LEDGER

Schedule of Accounts Payable
February 28
The Accounts Ace Mfg. Company $ 200
Payable Homing Supply 350
controlling Smith Company 300
account and Total accounts payable $ 850
the subsidiary
ledger are in Accounts Payable
balance. No. 201
Date PR Debit Credit Balance
Feb 28 PJ 850 850

McGraw-Hill/Irwin Slide 26
P1

CASH DISBURSEMENTS JOURNAL

Cash Disbursements Journal Page 1
Other
Ch. Inventory. Accts. Accts.
Date No. Payee Account Debited PR Cash Cr. Cr. Dr. Pay. Dr.
Jun. 2 101 Fife Company Fife Company 196 4 200
15 102 Jane Hooks Salary Expense 622 300 300
28 103 Langley Products Purchases 505 100 100
30 Total 596 4 400 200
(101) (119) ( )(201)

The Cash Disbursements Journal is used to

record all payments of cash.

McGraw-Hill/Irwin Slide 27
P1

CASH DISBURSEMENTS JOURNAL

Cash Disbursements Journal Page 1
Other
Ch. Inventory. Accts. Accts.
Date No. Payee Account Debited PR Cash Cr. Cr. Dr. Pay. Dr.
Feb 2 105 Ace Mfg. Company Ace Mfg. Company  196 4 200
15 106 Jerry Hale Salary Expense 622 250 250
28 103 Smith Company Smith Company  294 6 300
30 Total 740 10 250 500
(101) (119) (
( ) )(201)

 Amount is not posted individually to an account.


Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.

McGraw-Hill/Irwin Slide 28
P1

GENERAL JOURNAL TRANSACTIONS

Adjusting
Entries

Reversing
Entries

Closing
Entries
Other
transactions not
recorded in
Special Journals
McGraw-Hill/Irwin Slide 29
C5 TECHNOLOGY-BASED ACCOUNTING
SYSTEMS
Off-the-Shelf Software Integrated Software
Familiar accounting Actions taken in one
programs such as part of the system
Peachtree® and automatically affect
QuickBooks® are
related parts. For
designed to be user
friendly and menu instance, when a
driven. credit sale is entered,
several parts of the
system are
automatically
updated.
McGraw-Hill/Irwin Slide 30
C5

DATA PROCESSING IN ACCOUNTING

 On-line processing enters and
processes data immediately.

 Batch processing accumulates

information for a period of time
and then processes all the data
at one time (daily, weekly, or
monthly).

McGraw-Hill/Irwin Slide 31
C5 COMPUTER NETWORKS IN
ACCOUNTING

Server

Work Stations

Computer networks are links among computers

giving different users access to common
databases and programs.
McGraw-Hill/Irwin Slide 32
C5 ENTERPRISE RESOURCE PLANNING
SOFTWARE (ERP)
Enterprise resource planning software, such as SAP ®
or Oracle®, include the programs that manage a
company’s vital operations. They extend from order
taking to manufacturing to accounting. When working
properly, these integrated systems can speed the
decision process, identify costs for reduction, and
give managers control over operations.

McGraw-Hill/Irwin Slide 33
A1

SEGMENT RETURN ON ASSETS

A good AIS collects financial data for a

company’s various segments.

A segment is a part of a
company that is
separately identified by its
products, services, or
geographic market.

McGraw-Hill/Irwin Slide 34
A1

SEGMENT RETURN ON ASSETS

Segment return Segment operating income

on assets = Segment average assets

This ratio reflects the

profitability of the
segment.
McGraw-Hill/Irwin Slide 35
A1

SEGMENT RETURN ON ASSETS

Number of Companies with Different Reportable Segments

28%
Major Customers

Export Sales 27%

Geographic 43%

Industry 59%

0% 10% 20% 30% 40% 50% 60%

Total exceeds 100% because companies can report

more than one type of segment.
McGraw-Hill/Irwin Slide 36
A1

SEGMENT RETURN ON ASSETS

Harley-Davidson's Segment
Return on Assets ($ millions)
2006 2005 2004
Operating Average Return on Operating Average Return on Return on
Segment* Income Assets Assets Income Assets Assets Assets
Motorcycles $ 1,414 $ 1,765 80% $ 1,300 $ 1,746 74% 70%
Financial Services 211 2,658 8% 192 2,294 8% 9%
* A segment's operating income is income before taxes, and assets is identifiable assets

McGraw-Hill/Irwin Slide 37
 END OF CHAPTER 7

McGraw-Hill/Irwin Slide 38