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CHAPTER7
Accounting
Information
System

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 PreviewofCHAPTER7

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 Basic Concepts of AIS

Accounting information system (AIS) collects and

processes transaction data and communicates financial
information to decision makers.

Includes:
 All steps in the accounting cycle.
 Documents that provide evidence of transactions.
 Manual or computerized accounting system.

7-4 SO 1 Identify the basic concepts of an accounting information system.

 Basic Concepts of AIS

Cost Effectiveness - Benefits

must outweigh the costs.

Illustration 7-1
Principles of an efficient Useful
and effective AIS.
Output

Flexibility - The system should

be sufficiently flexible to meet the
resulting changes in the
demands made upon it.

7-5 SO 1 Identify the basic concepts of an accounting information system.

 Basic Concepts of AIS

Computerized Accounting Systems

 Software programs (functions include sales, purchases,
receivables, payables, cash receipts and disbursements,
and payroll).
 Generate financial statements.
 Advantages:
► Typically enter data only once.
► Many human errors are eliminated.
► More timely information.

7-6 SO 1 Identify the basic concepts of an accounting information system.

 Basic Concepts of AIS

Computerized Accounting Systems

 Choosing a software package.
 Entry-Level Software.
► Easy data access and report preparation
► Audit trail
► Internal control
► Customization
► Network Compatibility
 Enterprise Resource Planning Systems.

7-7 SO 1 Identify the basic concepts of an accounting information system.

 Basic Concepts of AIS

Manual Accounting Systems

 Perform each step in the accounting cycle by hand.
 Satisfactory with a low volume of transactions.
 Must understand manual accounting systems to
understand computerized accounting systems.

7-8 SO 1 Identify the basic concepts of an accounting information system.

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 Subsidiary Ledgers

Used to keep track of individual balances.

Two common subsidiary ledgers are:
1. Accounts receivable (customers’)
2. Accounts payable (creditors’)
Illustration 7-2

7-10 SO 2 Describe the nature and purpose of a subsidiary ledger.

 Subsidiary Ledgers

Subsidiary Ledger Example

Illustration 7-3

7-11 SO 2
 Subsidiary Ledgers

Advantages of Subsidiary Ledgers

1. Show in a single account transactions affecting one
customer or one creditor.
2. Free the general ledger of excessive details.
3. Help locate errors in individual accounts.
4. Make possible a division of labor.

7-12 SO 2 Describe the nature and purpose of a subsidiary ledger.

7-13
 Special Journals

Used to record similar types of transactions.

Illustration 7-5

If a transaction cannot be recorded in a special journal, the

company records it in the general journal.

7-14 SO 3 Explain how companies use special journals in journalizing.

 Special Journals

Question
Each of the following is a subsidiary ledger except the:

a. accounts receivable ledger.

b. accounts payable ledger.

c. customer’s ledger.

d. general ledger.

7-15 SO 3 Explain how companies use special journals in journalizing.

 Special Journals

Sales Journal Illustration 7-6

Perpetual inventory system, one entry at selling price in 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.

7-16 SO 3 Explain how companies use special journals in journalizing.

 Special Journals
Posting the Sales Journal Illustration 7-7

Companies make daily postings from

the sales journal to the individual
accounts receivable in the
subsidiary ledger.
7-17 SO 3 Explain how companies use special journals in journalizing.
 Special Journals
Posting the Sales Journal Illustration 7-7

Posting to the general ledger is done

monthly.

7-18 SO 3 Explain how companies use special journals in journalizing.

 Special Journals

Proving the Ledgers

Illustration 7-8

7-19 SO 3 Explain how companies use special journals in journalizing.

 Special Journals

Advantages of Sales Journal

 One-line entry for each sales transaction saves time.

 Only totals, rather than individual entries, are posted to

the general ledger.

 A division of labor results.

7-20 SO 3 Explain how companies use special journals in journalizing.

 Special Journals

Cash Receipts Journal Illustration 7-9

In the cash receipts journal, companies record all receipts of cash.

7-21 SO 3 Explain how companies use special journals in journalizing.

 Special Journals

Proving the Ledgers

Illustration 7-11

7-22 SO 3 Explain how companies use special journals in journalizing.

 Special Journals

Question
Cash sales of merchandise are recorded in the:

a. cash payments journal.

b. cash receipts journal.

c. general journal.

d. sales journal.

7-23 SO 3 Explain how companies use special journals in journalizing.

 Special Journals

Question
Which of the following is not one of the credit columns in the
cash receipts journal:

a. Other accounts.

b. Accounts payable.

c. Accounts receivable.

d. Sales.

7-24 SO 3 Explain how companies use special journals in journalizing.

 Special Journals Illustration 7-13

Purchases Journal

Daily postings are made from the

purchases journal to the accounts
payable subsidiary ledger.

7-25 SO 4 Indicate how companies post a multi-column journal.

 Special Journals Illustration 7-13

Purchases Journal

At the end of the accounting

period, the company posts totals to
the general ledger.

7-26 SO 4 Indicate how companies post a multi-column journal.

 Special Journals

Proving the Ledgers

Illustration 7-14

7-27 SO 4 Indicate how companies post a multi-column journal.

 Special Journals

Question
All of the following are advantages of using subsidiary
ledgers except they:

a. show transactions affecting one customer or one

creditor in a single account.

b. free the general ledger of excessive details.

c. eliminate errors in individual accounts.

d. make possible a division of labor.

7-28 SO 4 Indicate how companies post a multi-column journal.

 Special Journals

Cash Payments Journal Illustration 7-16

In a cash payments (cash disbursements) journal, companies

record all disbursements of cash.

7-29 SO 4 Indicate how companies post a multi-column journal.

 Special Journals Illustration 7-16

Cash Payments
Journal

7-30 SO 4 Indicate how companies post a multi-column journal.

 Special Journals Illustration 7-16

Cash Payments Journal

7-31 SO 4 Indicate how companies post a multi-column journal.

 Special Journals

Proving the Ledgers Illustration 7-17

7-32 SO 4 Indicate how companies post a multi-column journal.

 Special Journals

Question
Credit purchases of equipment or supplies other than
merchandise are recorded in the:

a. cash payments journal.

b. cash receipts journal.

c. general journal.

d. purchases journal.

7-33 SO 4 Indicate how companies post a multi-column journal.

 Special Journals

Question
Cash payments of merchandise are recorded in the:

a. cash payments journal.

b. cash receipts journal.

c. general journal.

d. purchases journal.

7-34 SO 4 Indicate how companies post a multi-column journal.

 Special Journals

Effects of Special Journals on General Journal

 Special journals substantially reduce the number of
entries that companies make in the general journal.

 Only transactions that cannot be entered in a special

journal are recorded in the general journal.

 Also, correcting, adjusting, and closing entries are

made in the general journal.

7-35 SO 4 Indicate how companies post a multi-column journal.

 Special Journals
Illustration 7-18
Journalizing and
posting the
general journal

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 Key Points
 The basic concepts related to an accounting information
system are the same under GAAP and IFRS.
 The use of subsidiary ledgers and control accounts, as well as
the system used for recording transactions, are the same under
GAAP and IFRS.
 The overriding principle in converting to IFRS is full
retrospective application of IFRS. Retrospective application—
recasting prior financial statements on the basis of IFRS—
provides financial statement users with comparable
information.

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 Key Points
 As indicated, the objective of the conversion process is to
present a set of IFRS statements as if the company always
reported under IFRS. To achieve this objective, a company
follows these steps.

1. Identify the timing of its first IFRS statements.

2. Prepare an opening balance sheet at the date of transition

to IFRS.

3. Select accounting principles that comply with IFRS, and

apply these principles retrospectively.

4. Make extensive disclosures to explain the transition to

IFRS.
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 Key Points
 Once a company decides to convert to IFRS, it must decide on
the transition date and the reporting date. The transition date is
the beginning of the earliest period for which full comparative
IFRS information is presented. The reporting date is the closing
balance sheet date for the first IFRS financial statements.
 Upon first-time adoption of IFRS, a company must present at
least one year of comparative information under IFRS.

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 Looking to the Future
The definitional structure of assets, liabilities, equity, revenues,
and expenses may change over time as the IASB and FASB
evaluate their overall conceptual framework for establishing
accounting standards. In addition, high-quality international
accounting requires both high-quality accounting standards and
high-quality auditing. Similar to the convergence of U.S. GAAP and
IFRS, there is a movement to improve international auditing
standards. The International Auditing and Assurance Standards
Board (IAASB) functions as an independent standard-setting body.
It works to establish high-quality auditing and assurance and
quality-control standards throughout the world.
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 IFRS Self-Test Questions
Information in a company’s first IFRS statements must:

a) have a cost that does not exceed the benefits.

b) be transparent.

c) provide a suitable starting point.

d) All the above.

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 IFRS Self-Test Questions
Indicate which of these statements is false.

a) The use of subsidiary ledgers is the same under IFRS and

GAAP.

b) GAAP and IFRS use the same accounting principles.

c) The use of special journals is the same under IFRS and

GAAP.

d) At conversion, companies should retrospectively adjust

the financial statements presented following IFRS.

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 IFRS Self-Test Questions
The transition date is the date:

a) when a company no longer reports under its national

standards.

b) when the company issues its most recent financial

statement under IFRS.

c) three years prior to the reporting date.

d) None of the above.

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 Copyright

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