7 Accounting Information Systems CHAPTER PowerPoint Slides to accompany Fundamental Accounting Principles, 14ce Prepared by Joe Pidutti, Durham College

© 2013 McGraw-Hill Ryerson Limited. Learning Objectives Explain the relationship of the accounting information system (AIS) to the management information system (MIS) and identify the components of an AIS. (LO1) Explain the goals and uses of special journals. (LO2) Describe the use of controlling accounts and subledgers. (LO3) © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Learning Objectives Journalize and post transactions using special journals. (LO4) Journalize and post transactions using special journals in a periodic inventory system. (Appendix 7A) (LO5) © 2013 McGraw-Hill Ryerson Limited.

Management Information Systems A system designed to collect and process data within an organization for the purpose of providing users with information. LO 1 © 2013 McGraw-Hill Ryerson Limited.

Management Information System Internal External Community Competitors Customers Government Industry Suppliers Sales and Marketing System Finance System Accounting Information System Human Resources System Production System LO 1 © 2013 McGraw-Hill Ryerson Limited.

Accounting Information Systems (AIS) A group of components that collect and process raw financial data into timely, accurate, relevant, and cost-effective information to meet the purposes of internal and external users. LO 1 © 2013 McGraw-Hill Ryerson Limited.

Components of an AIS Inputs Outputs LO 1 Feedback Loop Accounting Information System Inputs Source Documents Accounts Receivable Accounts Payable Outputs Reports/ Information to Internal/ External Users PP & E Payroll LO 1 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Special Journals Most organizations use Special Journals to enhance efficiency of transaction processing. Types Sales Journal Cash Receipts Journal Purchases Journal Cash Disbursements Journal LO 2 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Subledgers A listing of individual accounts with a common characteristic. Common Subledgers Accounts Receivable Accounts Payable Merchandise Inventory LO 3 © 2013 McGraw-Hill Ryerson Limited.

Accounts Receivable Subledger A separate subledger account is used to show how much each individual customer owes. LO 3 © 2013 McGraw-Hill Ryerson Limited.

Accounts Receivable Subledger After all items are posted, the balance in the Accounts Receivable controlling account must equal the sum of the balances in the subledger. LO 3 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Mini-Quiz A subsidiary ledger:    A) Includes transactions not covered by special journals.   B) Is a listing of all of the accounts of a business.   C) Is a listing of individual accounts with a common characteristic.   D) Is a listing of all accounts with balances.   E) Is a listing of all special journals. © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Mini-Quiz A subsidiary ledger:    A) Includes transactions not covered by special journals.   B) Is a listing of all of the accounts of a business.   C) Is a listing of individual accounts with a common characteristic.   D) Is a listing of all accounts with balances.   E) Is a listing of all special journals. © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Sales Journal The sales journal is used to record sales of merchandise on credit. LO 4 © 2013 McGraw-Hill Ryerson Limited.

Sales Journal - Example On February 2, Jason Henry purchased $450 of merchandise on account from Outdoors Unlimited. The goods originally cost Outdoors $315. Record the entry in the Sales Journal. (Assume the use of a perpetual merchandise inventory system.) LO 4 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Sales Journal Since each transaction yields a debit to Accounts Receivable and a credit to Sales, we need only one column for these two accounts. This column total is posted monthly. LO 4 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Sales Journal Similarly, each transaction yields a debit to Cost of Goods Sold and a credit to Merchandise Inventory. Therefore, these accounts can also be included together in one column. This column total would also be posted monthly. LO 4 © 2013 McGraw-Hill Ryerson Limited.

Sales Journal-Posting Daily, each transaction is posted to the appropriate Accounts Receivable subledger account. LO 4 © 2013 McGraw-Hill Ryerson Limited.

Sales Journal-Posting A  in the PR column indicates the transaction has been posted to the subledger account. LO 4 © 2013 McGraw-Hill Ryerson Limited.

Here is the Sales Journal after recording some additional sales. LO 4 © 2013 McGraw-Hill Ryerson Limited.

On Feb. 28th , post the column total to Accounts Receivable and Sales. Sales Journal On Feb. 28th , post the column total to Accounts Receivable and Sales. 2014 Feb. 28 S3 2,150 2,150 2014 Feb . 28 S3 2,150 2,150 LO 4 © 2013 McGraw-Hill Ryerson Limited.

Now post to the COGS and Merchandise Inventory accounts … Sales Journal Now post to the COGS and Merchandise Inventory accounts … 2014 Feb. 28 S3 1,500 14,750 2014 Feb. 28 S3 1,500 15,600 LO 4 © 2013 McGraw-Hill Ryerson Limited.

… and include the posting references. Sales Journal … and include the posting references. 2014 Feb. 28 S3 1,500 14,750 2014 Feb. 28 S3 1,500 15,600 LO 4 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Testing the Ledger The Accounts Receivable controlling account and the subledger are in balance. LO 4 © 2013 McGraw-Hill Ryerson Limited.

Sales Returns and Allowances If a company has few sales returns, they may record them in the General Journal. But, if a company has lots of sales returns, they may use a Sales Returns and Allowances Journal. © 2013 McGraw-Hill Ryerson Limited. LO 4

© 2013 McGraw-Hill Ryerson Limited. Cash Receipts Journal The cash receipts journal is used to record all receipts of cash. LO 4 © 2013 McGraw-Hill Ryerson Limited.

Cash Receipts Journal - Example Categories of Cash Receipts Cash from cash sales Cash from credit customers Cash from other sources LO 4 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Cash Receipts Journal LO 4 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Purchases Journal The Purchases Journal is used to record all purchases on credit. LO 4 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Purchases Journal LO 4 © 2013 McGraw-Hill Ryerson Limited.

Cash Disbursements Journal The Cash Disbursements Journal is used to record all payments of cash. Outdoors Unlimited LO 4 © 2013 McGraw-Hill Ryerson Limited.

Cash Disbursements Journal LO 4 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. General Journal Used for all transactions not recorded in a special journal. Closing entries Adjusting entries Correcting entries Other entries LO 4 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Mini-Quiz Give the name of the journal in which the following transactions should be recorded. Purchased equipment on credit. Sold merchandise for cash. Paid for supplies that were purchased on account. Sold merchandise on account. PJ CRJ CDJ SJ © 2013 McGraw-Hill Ryerson Limited.

Special Journals Under a Periodic System-Appendix 7A Recording and posting is similar to a perpetual system. Some of the columns change in a periodic system. LO 5 © 2013 McGraw-Hill Ryerson Limited.

Sales Journal — Periodic System The column for Cost of Goods Sold and Merchandise Inventory is not needed with the periodic system. LO 5 © 2013 McGraw-Hill Ryerson Limited.

Cash Receipts Journal Periodic System The column for Cost of Goods Sold and Merchandise Inventory are not needed with the periodic system. LO 5 © 2013 McGraw-Hill Ryerson Limited.

Purchases Journal — Periodic System The Merchandise Inventory column in the perpetual system is replaced with Purchases column in the periodic system. LO 5 © 2013 McGraw-Hill Ryerson Limited.

Cash Disbursements Journal Periodic System The Merchandise Inventory column in the perpetual system is replaced with Purchases Discounts column in the periodic system. LO 5 © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Review What is the purpose of special journals? Special journals help reduce the costs related to the time and effort of posting accounts. © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. Review Why should sales to and receipts of cash from credit customers be recorded and posted daily? Daily recording and posting of credit sales and cash receipts from customers provides up-to-date information used in decisions about granting credit to customers. Also, up-to-date account balances are needed if customers inquire about the amount of their balances. © 2013 McGraw-Hill Ryerson Limited.

© 2013 McGraw-Hill Ryerson Limited. End of Chapter © 2013 McGraw-Hill Ryerson Limited.