2. 6 - 1 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Accounting Information Systems Chapter 6

3. 6 - 2 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Describe the features of an effective accounting information system. Objective 1

4. 6 - 3 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Control Comparability Flexibility Cost/benefit relationship Basic Features

5. 6 - 4 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Basic Features l Internal controls are the methods and procedures used to authorize transactions and safeguard assets. l Comparability means that the system works smoothly with operations, personnel, and the organizational structure.

6. 6 - 5 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Basic Features l Flexibility relates to the system’s ability to accommodate changes in the organization. l A cost/benefit relationship indicates that the cost of controls do not exceed their value to the organization.

7. 6 - 6 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Company Personnel Company Personnel Hardware Software Computerized Accounting System

8. 6 - 7 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Computerized Accounting System l Hardware is the electronic equipment that makes up a computer system. l Software is a system of instructions that drive the computer to perform various functions. l Properly trained personnel are critical to the successful operations of the system.

9. 6 - 8 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Objective 2 Understand how both computerized and manual accounting systems work.

10. 6 - 9 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Processing Input (Source documents) (Financial statements) Output Three Stages of Data Processing

11. 6 - 10 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Computerized Accounting System entered, edited printed to paper, screen ACCOUNTING RECORDS Journals, Ledgers, Other records SOFTWARE PROCESSING PERSONNEL input transactions, request reports, protect records REPORTSDATA INPUT OUTPUT posted accessed for reports HARDWARE

12. 6 - 11 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Designing an Accounting System l Design of the accounting system begins with the chart of accounts. l The chart of accounts lists all accounts and their account number in the ledger.

13. 6 - 12 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Menu-Driven Accounting System l Computer systems are organized by function or task. l Computer systems usually have a choice of processing options on a “menu.”

14. 6 - 13 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Menu-Driven Accounting System GeneralReceivablesPayablesPayrollReports Posting Account Maintenance COMPUTERIZED ACCOUNTING SYSTEM Use arrow keys to make choice. Press to access choice. Press F7 to leave menu. MAIN InventoryUtilities Closing

15. 6 - 14 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Preparing Accounting Reports Trial Balance Financial Statements Accounts Receivable Detail Accounts Payable Detail Daily Cash Report Income Statement Balance Sheet Statement of Owners’ Equity Statement of Cash Flows Use arrow keys to make choice. Press to access choice. Press F7 to leave menu. REPORTS

16. 6 - 15 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Objective 3 Understand how spreadsheets are used in accounting.

17. 6 - 16 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Integrated Accounting Systems l Computerized accounting systems are organized by modules. l These modules are separate but integrated units. l A sales transaction entry will update two modules: 1 Accounts Receivable/Sales 2 Inventory/Cost of Goods Sold

18. 6 - 17 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Ana’s Boutique Example l Ana wants to budget for expected cash collections in the month of May. l Past experience indicates that 50% of credit sales are collected in the month of sales and 50% the following month.

19. 6 - 18 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Ana’s Boutique Example l May sales were $250,000. l $50,000 were cash sales. l April credit sales amounted to $120,000. l What are the expected cash collections during the month of May?

20. 6 - 19 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Ana’s Boutique Example l May cash sales$ 50,000  Collection of April’s credit sales 60,000  Collection of May’s credit sales 100,000  Total$210,000 l Spreadsheets make computations like these easier.

21. 6 - 20 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Spreadsheet Example Income Statement: Revenues100,000 Expenses 60,000 Net Income Row:1 2 3 4 5 Column: A B C Formula for B4: =B2–B3 Cursor is on cell B4. 40,000

22. 6 - 21 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Objective 4 Use the sales journal, the cash receipts journal, and the accounts receivable subsidiary ledger.

23. 6 - 22 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Special Journals l What are special journals? l They are accounting journals used to record one specific type of transaction. l What are some examples? SalesCash Receipts Payroll Cash DisbursementsPurchases

24. 6 - 23 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Sales Journal Page 5 InvoiceAccountAccountPost DateNumberDebitedNumberRef. Amount Jan. 2 201Joe Co. 120-122  600.00 Jan. 2 202May Co.120-033  700.00 Jan. 2 203XYZ Co.120-111  900.00 TOTAL 2,200.00 120/410 Using the Sales Journal

25. 6 - 24 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Sales Journal Page 5 InvoiceAccountAccountPost DateNumberDebitedNumberRef. Amount Jan. 2 203XYZ Co.120-111  900.00 TOTAL 2,200.00 120/410 General Ledger Account: Accounts Receivable Account Number: 120 DateDescriptionPost RefDebit Credit Balance Jan. 2SalesSJ52,200 2,200 Using the Sales Journal

26. 6 - 25 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Using the Sales Journal Sales Journal Page 5 InvoiceAccountAccountPost DateNumberDebitedNumberRef. Amount Jan. 2 203XYZ Co.120-111  900.00 TOTAL 2,200.00 120/410 General Ledger Account: Credit Sales Account Number: 410 DateDescriptionPost RefDebit Credit Balance Jan. 2SalesSJ5 2,200 2,200

27. 6 - 26 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Subsidiary Ledger l A subsidiary ledger is often used to provide details on individual balances of... – customers (accounts receivable) and... – suppliers (accounts payable).

28. 6 - 27 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber A Control Account l What is a control account? l It is the general ledger account. l It equals the sum of the individual account balances in a subsidiary ledger.

29. 6 - 28 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Debits Credits Sales Accounts Sales Date Cash Discounts Receivable Revenue Jan. 2 200 200 11 88218900 30 800 800 311,882189001,000 (101) (420) (112)(410) Cash Receipts Journal — Page 6

30. 6 - 29 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Accounts Receivable XYZ CompanySubsidiary Ledger Jrnl. DateRef.DebitCreditBalance Jan. 2S.5 900 900 11CR.6 900 -0-

31. 6 - 30 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber General Ledger Jrnl.Debit DateRef.DebitCreditBalance Jan. 31CR.61,882 CashNo. 101

32. 6 - 31 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Cash Receipts Journal l Additional columns are provided to enter other account descriptions and amounts. l Cash receipts amounts affecting subsidiary ledger accounts are posted daily to keep customer balances up to date. l At month end, foot and crossfoot the journal and post to the general ledger.

33. 6 - 32 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Objective 5 Use the purchase journal, the cash disbursements journal, and the accounts payable subsidiary ledger.

34. 6 - 33 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Purchases Journal l This is designed to account for all purchases of inventory, supplies, services, and other assets on account.

35. 6 - 34 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Purchases Journal l Cash purchases are recorded in the cash disbursements journal. l At month end the journal is footed and crossfooted. l Posting to the general ledger is similar to posting from sales and cash receipts journals.

36. 6 - 35 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Cash Disbursements Journal l Most payments are by check and are recorded in the cash disbursements journal. l The cash disbursements journal is also called: – check register – cash payments journal

37. 6 - 36 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Cash Disbursements Journal l This has columns for : – date – check number – payee – cash amount (credit) – accounts payable (debit) – description and amount of other debits and credits

38. 6 - 37 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber General Journal l Special journals save much time in recording repetitive transactions and posting to the ledger. l However, some transactions do not fit into any of the special journals.

39. 6 - 38 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber General Journal l Every accounting system needs a general journal. l What entries are recorded in the general journal? – depreciation – expiration of prepaid insurance – accrual of salaries payable – adjusting and closing entries

40. 6 - 39 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber General Journal l Many companies record sales returns and allowances and purchase returns in the general journal. l A credit memorandum is the document issued by the seller for a credit to a customer’s Accounts Receivable.

41. 6 - 40 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Purchase Returns and Allowances l A debit memorandum is the business document that states that the buyer no longer owes the seller for the amount of the returned purchases. l The buyer debits the Accounts Payable to the seller and credits Inventory.

42. 6 - 41 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Balancing the Ledgers l At the end of the accounting period: l Total debits and credits of account balances in the general ledger are equal. l Control account balances are equal to the sum of the appropriate subsidiary ledger accounts.

43. 6 - 42 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber End of Chapter 6