© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Accounting Information Systems Chapter 7 7

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Fundamental System Principles Control Principle Internal controls for management to monitor the business. Relevance Principle Provide relevant, timely and pertinent information. Compatibility Principle System must be compatible with aims of the company. Flexibility Principle Need to change as company and environment change. Cost-Benefit Principle Benefits of the system must outweigh the costs incurred.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Components of Accounting Systems Increasingly, source documents are electronic files creating a “paperless” system. Source Documents Invoice from supplier Billings to customers Employee earnings records

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Components of Accounting Systems KeyboardsScannersModems Bar-Code Reader KeyboardsScannersModems Input Source Documents

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Processor Components of Accounting Systems HardwareSoftware Professional Judgment HardwareSoftware Input Source Documents

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Storage Components of Accounting Systems CD Hard Drive Tape Paper Document CD Hard Drive Tape Paper Document Processor Input Source Documents

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin PrinterMonitorTelephoneCDTapeDisk Electronic File PrinterMonitorTelephoneCDTapeDisk Output Components of Accounting Systems Storage Processor Input Source Documents

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Now, let’s look at how we use special journals in accounting.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Special Journals in Accounting General Journal For transactions not in special journals Cash Disbursements Journal For recording cash payments Purchases Journal For recording credit purchases Cash Receipts Journal For recording cash receipts Sales Journal For recording credit sales

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Subsidiary Ledgers Subsidiary ledgers are a listing of individual accounts with common characteristics.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Accounts Receivable Ledger equal to After all items are posted, the balance in the accounts receivable controlling account is equal to the sum of the balances in the subsidiary ledger.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Sales Journal On January 1, Jim Carson purchased $600 of merchandise on account from Barry’s Bikes. Record the entry in the Sales Journal. (Assume the use of a periodic inventory system.)

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Each transaction yields a debit to Accounts Receivable and a credit to Sales. We need only one column for this transaction. This column total is posted monthly. Sales Journal

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Daily, each transaction is posted to the appropriate accounts receivable subsidiary account. Sales Journal

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin A in the posting reference column indicates the transaction was posted to the subsidiary account. Sales Journal

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Here is the Sales Journal after recording some additional sales. Sales Journal

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Sales Journal Post the total to the General Ledger accounts.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Sales Journal

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Sales Journal

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Proving the Ledgers The Accounts Receivable controlling account and the subsidiary ledger are in balance.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Sales Taxes On January 4, Jeri’s Jewelry sold a necklace for $450 plus 8% sales tax on credit to Joan Oakes. $450 .08 = $36 On January 4, Jeri’s Jewelry sold a necklace for $450 plus 8% sales tax on credit to Joan Oakes. $450 .08 = $36

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Sales Tax Each transaction is posted daily to the appropriate Accounts Receivable Ledger account. Column totals are posted monthly.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Sales Returns and Allowances If a company has few sales returns, they may be recorded in the General Journal. A company with many sales returns, may use a Sales Returns and Allowances Journal.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Column totals are posted monthly. Each transaction is posted daily to the appropriate Accounts Receivable subsidiary account. Sales Returns and Allowances

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Cash Receipts Journal Categories of Cash Receipts Cash from cash sales Cash from cash sales Cash from credit customers Cash from credit customers Cash from other sources Cash from other sources Categories of Cash Receipts Cash from cash sales Cash from cash sales Cash from credit customers Cash from credit customers Cash from other sources Cash from other sources

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Amount is not posted individually to an account. Amount is posted individually to subsidiary ledger. Acct. No.Amount is posted to specified account. Cash Receipts Journal

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Purchases Journal The Purchases Journal is used to record all purchases on credit.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Purchases Journal

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Cash Disbursements Journal The Cash Disbursements Journal is used to record all payments of cash.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Cash Disbursements Journal ( )

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin General Journal Transactions Adjusting Entries Closing Entries Reversing Entries Other transactions not recorded in Special Journals

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Technology-Based Accounting Systems Hardware Processing units Hard Drives RAMModems CD-ROM Drives SpeakersMonitorsServersPrintersHardware Processing units Hard Drives RAMModems CD-ROM Drives SpeakersMonitorsServersPrintersSoftware Programs with a series of commands directing operations of computer hardware such as data input, storage, processing, or output Software

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Computer Technology in Accounting Integrated accounting programs automatically update related accounts, journals, and ledgers for a single transaction. Integrated accounting programs automatically update related accounts, journals, and ledgers for a single transaction.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 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).  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).

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Computer Networks in Accounting Computer networks are links among computers giving different users access to a common database and programs. Server Work Stations

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Enterprise Resource Planning Software Enterprise resource planning software, such as SAP or Oracle, links ordering, inventory, production, purchasing, planning, tracking and human resources for many of the world’s largest companies.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin A good AIS collects financial data for a company’s various segments. Segment Return on Assets A segment is a part of a company that is separately identified by its products, services, or geographic market.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin This ratio reflects the profitability of the segment. Segment Return on Assets Segment return on assets = Segment operating income Segment average assets

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin End of Chapter 7