Chapter 3: Introduction to Tally ERP9 (Account Executive) Chapter 3: Introduction to Tally ERP9 Prof. Sachin K. Jadhav

ACCOUNTING INFORMATION SYSTEMS CHAPTER 3 ACCOUNTING INFORMATION SYSTEMS

Accounting Information System An accounting information system (AIS) involves collecting and processing data and disseminating financial information to interested parties. An AIS may either be manual or computerized.

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. Costs Benefits

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

PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM Government Regulation and Deregulation Organizational Growth Increased Competition Changing Accounting Principles Technological Advances

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

SUBSIDIARY LEDGERS A subsidiary ledger is a group of accounts with a common characteristic, such as customer accounts. The subsidiary ledger is assembled 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.

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.

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

SUBSIDIARY LEDGERS Advantages of using subsidiary ledgers are that 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 combined in one ledger and by using controlling accounts. 4. Create a division of labour in posting by allowing one employee to post to the general ledger and a different employee to post to the subsidiary ledger.

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 labour and reduce time necessary to complete the posting process.

ILLUSTRATION 7-5 USE OF SPECIAL JOURNALS AND THE GENERAL JOURNAL Cash Receipts Journal Cash Payments Journal Sales Journal Purchases Journal General Journal Used for: All purchases of merchan-dise on account Used for: All cash paid (including cash purchases) Used for: Transactions that cannot be entered in a special journal, including correcting, adjusting, and closing entries Used for: All sales of merchan-dise on account Used for: All cash received (including cash sales) The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise.

JOURNALIZING THE SALES JOURNAL – PERPETUAL INVENTORY SYSTEM Karns Wholesale Supply Sales Journal S1 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. Postings are made monthly to the general ledger and daily to the accounts receivable subsidiary ledger.

Accounts Receivable Subsidiary Ledger ILLUSTRATION 7-8 PROVING THE ACCURACY OF THE ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER General Ledger Accounts Receivable $90,230 Accounts Receivable Subsidiary Ledger Abbot Sisters $26,000 Babson Co. 25,920 Carson Bros. 7,800 Deli Co. 30,510 $90,230 To prove the accuracy of the ledgers it is necessary to determine whether the sum of the accounts receivable subsidiary ledger balances equals the balance in the general ledger’s Accounts Receivable control account.

CASH RECEIPTS JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Cash Receipts Journal 54,550 The debit columns for cash and cost of goods sold must be equal to the total of the credit columns for accounts receivable, sales, inventory, and other accounts.

CASH RECEIPTS JOURNAL Column totals are posted at the end of each month. The total of the Other Accounts column is not posted. The individual amounts comprising the total are posted separately to the general ledger accounts specified in the Accounts Credited column. The individual amounts in the Accounts Receivable column are posted daily to the subsidiary ledger account specified in the Accounts Credited column.

ILLUSTRATION 7-11 PROVING THE LEDGERS AFTER POSTING THE SALES AND THE CASH RECEIPTS JOURNALS Accounts Receivable Subsidiary Ledger Abbot Sisters $15,400 Babson Co. 14,570 Deli Co. 21,210 $51,180 General Ledger Debits Cash $54,550 Accounts Receivable 51,180 Cost of Goods Sold 65,120 $170,850 Credits Merchandise Inventory $ 65,120 Notes Payable 6,000 D. A. Karns, Capital 5,000 Sales 94,730 After the posting of the cash receipts journal is completed, it is necessary to prove the ledgers. The general ledger totals are in agreement and the sum of the subsidiary ledger balances equals the control account balance.

PURCHASES JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Purchases Journal  In a perpetual system, each entry results in a debit to Merchandise Inventory and a credit to Accounts Payable. Postings are made daily to the accounts payable subsidiary journal and monthly to the general ledger.

ILLUSTRATION 7-13 PROVING THE ACCURACY OF THE ACCOUNTS PAYABLE SUBSIDIARY LEDGER General Ledger Merchandise Inventory $63,900 Accounts Payable $63,900 Accounts Payable Subsidiary Ledger Eaton and Howe, Inc. $19,800 Fabor and Son 15,600 Jasper Manufacturing Inc. 28,500 $63,900 To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account.

CASH PAYMENTS JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Cash Payments Journal Journalizing procedures are similar to cash receipts journal Posting procedures are also like the cash receipts journal

ILLUSTRATION 7-16 PROVING THE ACCURACY OF THE ACCOUNTS PAYABLE SUBLEDGER General Ledger Debits Cash $ 9,750 Accounts Receivable 51,180 Prepaid Insurance 1,200 D. A. Karns, Drawings 500 Purchases 64,300 Freight In 100 $127,030 Credits Accounts Payable $ 21,300 Notes Payable 6,000 D. A. Karns, Capital 5,000 Sales 94,730 Accounts Payable Subsidiary Ledger Eaton and Howe, Inc. $12,600 Fabor and Son 8,700 $21,300 To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account.

EFFECTS ON GENERAL JOURNAL Only transactions that cannot be recorded in a special journal are recorded in the general journal. When the entry involves both control and subsidiary accounts: 1. In journalizing, control and subsidiary accounts must be identified, and 2. In posting there must be a dual posting (to the control account and subsidiary ledger).

ILLUSTRATION 7-17 JOURNALIZING AND POSTING THE GENERAL JOURNAL

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