ACCOUNTING INFORMATION

SYSTEMS

Chapter 7

© 2009 The McGraw-Hill Companies, Inc.,

All Rights Reserved
C1

FUNDAMENTAL SYSTEM PRINCIPLES

Control Principle
Internal controls for
management to monitor
the business.
Relevance
Relevance Principle
Principle Flexibility
Flexibility Principle
Principle
Provide relevant, timely System needs to meet the
and pertinent changing needs of
information.. company.
Compatibility Principle Cost-Benefit Principle
System must be Benefits of the system
compatible with aims of must outweigh the costs
the company. incurred.
McGraw-Hill/Irwin Slide 2
C2 COMPONENTS OF ACCOUNTING
SYSTEMS
Source Documents
Invoice from
supplier Increasingly, source
documents are
electronic files
Employee
creating a “paperless”
earnings system.
records

Billings to
customers
McGraw-Hill/Irwin Slide 3
C2 COMPONENTS OF ACCOUNTING
SYSTEMS

Source
Documents
Input Devices

Keyboards
Keyboards
Scanners
Scanners
Modems
Modems

McGraw-Hill/Irwin
Bar-Code
Bar-Code Reader
Reader Slide 4
C2 COMPONENTS OF ACCOUNTING
SYSTEMS

Source
Documents
Input Devices

Hardware
Hardware
Software
Software
Professional
Professional Judgment
Judgment

Information Processor
McGraw-Hill/Irwin Slide 5
C2 COMPONENTS OF ACCOUNTING
SYSTEMS

Source
Documents
Input Devices

CD/DVD
CD/DVD
Hard
Hard Drive
Drive
Tape
Tape
Paper
Paper Document
Document
Information Processor Storage
McGraw-Hill/Irwin Slide 6
C2 COMPONENTS OF ACCOUNTING
SYSTEMS

Printer
Printer
Monitor
Monitor
LCD
LCD projectors
projectors
Source
Web
Web
Documents
Input Devices communications
communications

Information Processor Storage Output Devices

McGraw-Hill/Irwin Slide 7
C3

SPECIAL JOURNALS IN ACCOUNTING

Cash
Cash Receipts
Receipts
Sales
Sales Journal
Journal
Journal
Journal

For
For recording
recording For
For recording
recording
credit
credit sales
sales cash
cash receipts
receipts
Purchases
Purchases
Journal
Journal
Cash
Cash For
For recording
recording General
General
Disbursements
Disbursements credit
credit purchases
purchases Journal
Journal
Journal
Journal
For
For transactions
transactions
For
For recording
recording not
not in
in special
special
cash
cash payments
payments journals
journals

McGraw-Hill/Irwin Slide 8
C4

SUBSIDIARY LEDGERS
Characteristic Controlling Account Subsidiary Ledger

Amounts due from customers Accounts Receivable Accounts Receivable Ledger

Amounts owed to creditors Accounts Payable Accounts Payable Ledger

Subsidiary
Subsidiary ledgers
ledgers are
are aa listing
listing of
of individual
individual
accounts
accounts with
with common
common characteristics.
characteristics.

McGraw-Hill/Irwin Slide 9
C4

ACCOUNTS RECEIVABLE LEDGER

After
After all
all items
items are
are posted,
posted,
Accounts Receivable Subsidiary
the
the balance
balance in in the
the accounts
accounts Adams Company
receivable
receivable controlling
controlling
account
account is is equal
equal toto the
the sum
sum Date PR Debit Credit Balance
of
of the
the balances
balances in in the
the AccountsJan. 1 S5
Receivable 500
Subsidiary 500
accounts
accounts receivable
receivable Baine Company
subsidiary
subsidiary ledger.
ledger. Date PR Debit Credit Balance
Jan.
Accounts 16 S5 Subsidiary
Receivable 1,000 1,000
Cook Company
Date PR Debit Credit Balance
Jan. 25 S5 415 415

McGraw-Hill/Irwin Slide 10
C4

ACCOUNTS PAYABLE LEDGER

After
After all
all items
items areare posted,
posted, Accounts Payable Subsidiary
the
the balance
balance in in the
the accounts
accounts Western Office Supply
payable
payable controlling
controlling account
account
is
is equal
equal to to the
the sum
sum of
of the
the Date PR Debit Credit Balance
Accounts Payable Subsidiary
balances
balances in in the
the accounts
accounts Jan. 1 P5 635 635
payable
payable subsidiary
subsidiary ledger.
ledger. State Utilities
Date PR Debit Credit Balance
Jan. 16 P5 220 220
Accounts Payable Subsidiary
Ajex Cleaning Service
Date PR Debit Credit Balance
Jan. 25 P7 800 800

McGraw-Hill/Irwin Slide 11
P1

SALES JOURNAL
SALES JOURNAL
Accounts
Invoice Receivable Dr.
Date Account Debited Number PR Sales Cr.
Feb 2 Janson Henry 307 450

Each transaction yields a debit to Accounts

Receivable and a credit to Sales. Also, we need to
record the cost of the sale for the transaction. This
column total is posted monthly.

McGraw-Hill/Irwin Slide 12
P1

SALES JOURNAL
On February 2nd, Jason
Henry purchased $450
of merchandise on
account from our
company. The cost of
the merchandise was
$315. Record the entry
in the Sales Journal.
(Assume the use of a perpetual
inventory system.)

McGraw-Hill/Irwin Slide 13
P1

SALES JOURNAL
SALES JOURNAL Page 17
Cost of Goods
Invoice Dr. Accts. Rec. Sold Dr.
Date Account Debited Number PR Cr. Sales Inventory Cr.
Feb 2 Jason Henry 307  450 315

Daily, each sales

transaction is posted ACCOUNTS RECEIVABLE LEDGER
to the appropriate Jason Henry
accounts receivable Date SJ Debit Credit Balance
subsidiary account. Feb 2 17 450 450
McGraw-Hill/Irwin Slide 14
P1

SALES JOURNAL
SALES JOURNAL Page 17
Cost of Goods
Invoice Dr. Accts. Rec. Sold Dr.
Date Account Debited Number PR Cr. Sales Inventory Cr.
Feb 2 Jason Henry 307  450 315
7 Albert Company 314  500 355
28 Frank Booth 317  250 107
Totals 1,200 777
(106)/(413) (119)/(502)
Accounts Receivable Sales
No. 106 No. 413
Date PR Debit Credit Balance Date PR Debit Credit Balance
Feb 28 SJ 1,200 1,200 Feb 28 SJ 1,200 1,200

McGraw-Hill/Irwin Slide 15
P1

SALES JOURNAL
SALES JOURNAL Page 17
Cost of Goods
Invoice Dr. Accts. Rec. Sold Dr.
Date Account Debited Number PR Cr. Sales Inventory Cr.
Feb 2 Jason Henry 307  450 315
7 Albert Company 314  500 355
28 Frank Booth 317  250 107
Totals 1,200 777
(106)/(413) (502)/(119)
Cost of Goods Sold Inventory
No. 502 No. 119
Date PR Debit Credit Balance Date PR Debit Credit Balance
Feb 28 SJ 777 777 Feb 28 SJ 777 777

McGraw-Hill/Irwin Slide 16
P2

PROVING THE LEDGERS

Schedule of Accounts Receivable
February 28
The Accounts Jason Henry $ 450
Receivable Albert Company 500
controlling Frank Booth 250
account and Total accounts receivable $1,200
the subsidiary
ledger are in Accounts Receivable
balance. No. 106
Date PR Debit Credit Balance
Feb 28 SJ 1,200 1,200

McGraw-Hill/Irwin Slide 17
P1

SALES TAXES

SALES JOURNAL Page 1

Sales Taxes Cost of Goods
Accts. Rec. Payable Sold Dr.
Date Account Debited Inv. No. PR Debit Credit Sales Credit Inventory Cr
Dec. 1 Farve Company 7-1698 103 3 100 75

On
On December
December 1, 1, Farve
Farve Company
Company purchased
purchased merchandise
merchandise
with
with aa selling
selling price
price of
of $100
$100 plus
plus 3%
3% sales
sales tax
tax on
on credit.
credit.
The
The cost
cost of
of the
the merchandise
merchandise was
was $75.
$75.

McGraw-Hill/Irwin Slide 18
P1

SALES TAX

SALES JOURNAL Page 1

Sales Taxes Cost of Goods
Accts. Rec. Payable Sold Dr.
Date Account Debited Inv. No. PR Debit Credit Sales Credit Inventory Cr
Dec. 1 Farve Company 7-1698  103 3 100 75

Each
Each transaction
transaction Column
Column totals
totals are
are
is
is posted
posted daily
daily to
to posted
posted monthly.
monthly.
the
the appropriate
appropriate
Accounts
Accounts ACCOUNTS RECEIVABLE LEDGER
Receivable
Receivable Farve Company
Ledger
Ledger account.
account. Date PR Debit Credit Balance
Jan. 2 SJ1 103 103
McGraw-Hill/Irwin Slide 19
P1

SALES RETURNS AND ALLOWANCES

IfIf aa company
company has
has few
few sales
sales returns,
returns, they
they may
may
be
be recorded
recorded in
in the
the General
General Journal.
Journal.
Date Description PR Debit Credit
Feb. 5 Sales Returns and Allowances 414 150
Accounts Receivable--Jill Day 106/  150

Merchandise Inventory 119 100

Cost of Goods Sold 502 100

A
A company
company with
with many
many sales
sales returns
returns may
may use
use
aa Sales
Sales Returns
Returns and
and Allowances
Allowances Journal.
Journal.
McGraw-Hill/Irwin Slide 20
P1

CASH RECEIPTS JOURNAL

CASH RECEIPTS JOURNAL Page 1
Accts. Cost of Goods
Cash Sales Rec. Other Sold Dr.
Accounts Credited Explanation PR Dr. Disc. Dr. Cr. Sales Cr. Accts. Cr. Inventory Cr

Categories
Categories of
of Cash
Cash Receipts
Receipts
• Cash
Cash from
from cash
cash sales
sales
• Cash
Cash from
from credit
credit customers
customers
• Cash
Cash from
from other
other sources
sources
McGraw-Hill/Irwin Slide 21
P1

CASH RECEIPTS JOURNAL

CASH RECEIPTS JOURNAL Page 1
Sales Accts.
Accounts Cash Disc. Rec. Other
Date Credited Explanation PR Dr. Dr. Cr. Sales Cr. Accts. Cr.
Feb 7 Sales Cash Sales 4,450 4,450

16 Jason Henry Invoice 656 441 9 450

31 Interest Revenue Bank Acct. 409 250 250
31 Total 5,141 9 450 4,450 250
(101) (415) (106) (413) ( )


Amount is not posted individually to an account.


Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.

McGraw-Hill/Irwin Slide 22
P1 FOOTING, CROSSFOOTING, AND
POSTING

Debit Columns Credit Columns

Cash Dr. $ 5,141 Accounts Receivable Cr. $ 450
Sales Discount Dr. 9 Sales Cr. 4,450
Other Accounts Cr. 250
$ 5,150 $ 5,150

McGraw-Hill/Irwin Slide 23
P1

PURCHASES JOURNAL
Purchases Journal Page 3
Accts. Offc.
Invoice Pay. Inventory Sup. Other
Date Account Date Terms PR Cr. Dr. Dr. Accts. Dr.
Feb 3 Ace Mfg. Company 2/5 2/10,n/30 200 200
18 Homing Supply 2/18 n/30 125/ 350 200 75
28 Smith Company 2/28 2/10,n/30 300 300
28 Total 850 700 75 0
(201) (119) (124)

The
The Purchases
Purchases Journal
Journal is
is used
used toto
record
record all
all purchases
purchases on
on credit.
credit.

McGraw-Hill/Irwin Slide 24
P1

PURCHASES JOURNAL
Purchases Journal Page 3
Accts. Offc.
Invoice Pay. Inventory Sup. Other
Date Account Date Terms PR Cr. Dr. Dr. Accts. Dr.
Feb 3 Ace Mfg. Company 2/5 2/10,n/30 200 200

18 Homing Supply 2/18 n/30 125/  350 275 75
28 Smith Company 2/28 2/10,n/30  300 300
28 Total 850 775 75 0
(201) (119) (124)


 Amount is not posted individually to an account.

 Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.

McGraw-Hill/Irwin Slide 25
P2

PROVING THE LEDGER

Schedule of Accounts Payable
February 28
The Accounts Ace Mfg. Company $ 200
Payable Homing Supply 350
controlling Smith Company 300
account and Total accounts payable $ 850
the subsidiary
ledger are in Accounts Payable
balance. No. 201
Date PR Debit Credit Balance
Feb 28 PJ 850 850

McGraw-Hill/Irwin Slide 26
P1

CASH DISBURSEMENTS JOURNAL

Cash Disbursements Journal Page 1
Other
Ch. Inventory. Accts. Accts.
Date No. Payee Account Debited PR Cash Cr. Cr. Dr. Pay. Dr.
Jun. 2 101 Fife Company Fife Company 196 4 200
15 102 Jane Hooks Salary Expense 622 300 300
28 103 Langley Products Purchases 505 100 100
30 Total 596 4 400 200
(101) (119) ( )(201)

The Cash Disbursements Journal is used to

record all payments of cash.

McGraw-Hill/Irwin Slide 27
P1

CASH DISBURSEMENTS JOURNAL

Cash Disbursements Journal Page 1
Other
Ch. Inventory. Accts. Accts.
Date No. Payee Account Debited PR Cash Cr. Cr. Dr. Pay. Dr.
Feb 2 105 Ace Mfg. Company Ace Mfg. Company  196 4 200
15 106 Jerry Hale Salary Expense 622 250 250
28 103 Smith Company Smith Company 294 6 300

30 Total 740 10 250 500
(101) (119) ( )(201)
( )

 Amount is not posted individually to an account.

Amount is posted individually to subsidiary ledger.

Acct. No. Amount is posted to specified account.

McGraw-Hill/Irwin Slide 28
P1

GENERAL JOURNAL TRANSACTIONS

Adjusting
Adjusting
Entries
Entries
Reversing
Reversing
Entries
Entries
Closing
Closing
Entries
Entries
Other
Other
transactions
transactions not
not
recorded
recorded in
in
Special
Special Journals
Journals
McGraw-Hill/Irwin Slide 29
C5 TECHNOLOGY-BASED ACCOUNTING
SYSTEMS
Off-the-Shelf Software Integrated Software
Familiar accounting Actions taken in one
programs such as part of the system
Peachtree® and automatically affect
QuickBooks® are
related parts. For
designed to be user
instance, when a
friendly and menu
driven. credit sale is entered,
several parts of the
system are
automatically
updated.
McGraw-Hill/Irwin Slide 30
C5

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).

McGraw-Hill/Irwin Slide 31
C5 COMPUTER NETWORKS IN
ACCOUNTING

Server

Work Stations

Computer
Computer networks
networks are
are links
links among
among computers
computers
giving
giving different
different users
users access
access to
to common
common
databases
databases and
and programs.
programs.
McGraw-Hill/Irwin Slide 32
C5 ENTERPRISE RESOURCE PLANNING
SOFTWARE (ERP)
Enterprise
Enterprise resource
resource planning
planning software,
software, such
such as
as SAP
SAP®®
or
or Oracle
Oracle®®,, include
include the
the programs
programs that
that manage
manage aa
company’s
company’s vital
vital operations.
operations. They
They extend
extend from
from order
order
taking
taking to
to manufacturing
manufacturing to to accounting.
accounting. When
When working
working
properly,
properly, these
these integrated
integrated systems
systems cancan speed
speed the
the
decision
decision process,
process, identify
identify costs
costs for
for reduction,
reduction, and
and
give
give managers
managers control
control over
over operations.
operations.

McGraw-Hill/Irwin Slide 33
A1

SEGMENT RETURN ON ASSETS

A
A good
good AIS
AIS collects
collects financial
financial data
data for
for aa
company’s
company’s various
various segments.
segments.

A
A segment
segment isis aa part
part ofof aa
company
company thatthat is
is
separately
separately identified
identified by by its
its
products,
products, services,
services, or or
geographic
geographic market.
market.

McGraw-Hill/Irwin Slide 34
A1

SEGMENT RETURN ON ASSETS

Segment return Segment operating income

on assets = Segment average assets

This
This ratio
ratio reflects
reflects the
the
profitability
profitability of
of the
the
segment.
segment.
McGraw-Hill/Irwin Slide 35
A1

SEGMENT RETURN ON ASSETS

Total exceeds 100% because companies can report

more than one type of segment.
McGraw-Hill/Irwin Slide 36
A1

SEGMENT RETURN ON ASSETS

Harley-Davidson's Segment
Return on Assets ($ millions)
2006 2005 2004
Operating Average Return on Operating Average Return on Return on
Segment* Income Assets Assets Income Assets Assets Assets
Motorcycles $ 1,414 $ 1,765 80% $ 1,300 $ 1,746 74% 70%
Financial Services 211 2,658 8% 192 2,294 8% 9%
* A segment's operating income is income before taxes, and assets is identifiable assets

McGraw-Hill/Irwin Slide 37
 END OF CHAPTER 7

McGraw-Hill/Irwin Slide 38