Accounting Principles Second Canadian Edition Weygandt · Kieso · Kimmel · Trenholm Prepared by: Carole Bowman, Sheridan College CHAPTER ACCOUNTING INFORMATION SYSTEMS Accounting Information System An accounting information system (AIS) involves collecting and processing data and disseminating financial information to interested parties An AIS may either be manual or computerized PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM The accounting system must be cost effective Benefits of information must outweigh the cost of providing it Costs Benefits PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM It must be relevant! It must be reliable! Balance Sheet Income Statement Other Financial Reports It must be timely! It must be accurate! PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM Technological Advances Org aniz a Gro tional wth Government Regulation and Deregulation d e s a e r Inc tion i t e p Com Changing Accounting Principles ILLUSTRATION 7-2 PHASES IN THE DEVELOPMENT OF AN ACCOUNTING SYSTEM Analysis Follow up Evaluating and monitoring effectiveness and efficiency and correcting any weaknesses Planning and identifying information needs and sources Implementation Installing the system, training personnel, and making the system operational Design Creating forms, documents, procedures, job descriptions, and reports SUBSIDIARY LEDGERS A subsidiary ledger is a group of accounts with a common characteristic, such as customer accounts The subsidiary ledger is assembled to facilitate the recording process by freeing the general ledger from details concerning individual balances Two common subsidiary ledgers are the Accounts Receivable Ledger and the Accounts Payable Ledger CONTROL ACCOUNT The general ledger account that summarizes subsidiary ledger data is called a control account Each general ledger control account balance must equal the composite balance of the individual accounts in the subsidiary ledger ILLUSTRATION 7-3 RELATIONSHIP OF GENERAL LEDGERS AND SUBSIDIARY LEDGERS Accounts receivable controls a subsidiary ledger of many different customers General Ledger Subsidiary Ledgers Cash Accounts Receivable Accounts payable controls a subsidiary ledger of many different creditors Accounts Payable Owner’s Capital Customer Customer Customer A B C Creditor X Creditor Y Creditor Z SUBSIDIARY LEDGERS Advantages of using subsidiary ledgers are that they: Show transactions affecting one customer or one creditor in a single account Free the general ledger of excessive details Help locate errors in individual accounts by reducing the number of accounts combined in one ledger and by using controlling accounts Create a division of labour in posting by allowing one employee to post to the general ledger and a different employee to post to the subsidiary ledger SPECIAL JOURNALS Special journals are used to group similar types of transactions If a transaction cannot be recorded in a special journal, it is recorded in the general journal Special journals permit greater division of labour and reduce time necessary to complete the posting process ILLUSTRATION 7-5 USE OF SPECIAL JOURNALS AND THE GENERAL JOURNAL Sales Journal Used for: All sales of merchandise on account Cash Cash Purchases Payments Receipts Journal Journal Journal General Journal Used for: Used for: Used for: All cash received (including cash sales) Used for: All All cash purchases paid of merchan- (including cash dise on account purchases) Transactions that cannot be entered in a special journal, including correcting, adjusting, and closing entries The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise JOURNALIZING THE SALES JOURNAL – PERPETUAL INVENTORY SYSTEM Karns Wholesale Supply Sales Journal Date Account Debited Invoice # Ref Accts Receivable Dr Sales Cr S1 Cost of Goods Sold Dr Merchandise Inventory Cr Abbot Sisters 101 √ 10,600 6,360 Babson Co 102 √ 11,350 7,370 14 Carson Bros 103 √ 7.800 5,070 19 Deli Co 104 √ 9,300 6,510 21 Abbot Sisters 105 √ 15,400 10,780 24 Deli Co 106 √ 21,210 15,900 27 Babson Co 107 √ 14,570 10,200 90,230 62,190 May Under Under aa perpetual perpetual inventory inventory system, system, one one entry entry at at selling selling price price in in the the Sales Sales Journal Journal results results in in aa debit debit to Accounts Receivable and and aa credit to Sales Another entry entry at at cost cost results results in in aa debit debit to to Cost Cost of of Goods Goods Sold Sold and and aa credit credit to to Merchandise Merchandise Inventory Inventory Postings Postings are are made made monthly monthly to to the the general general ledger ledger and and daily daily to to the the accounts accounts receivable receivable subsidiary ledger ledger ILLUSTRATION 7-8 PROVING THE ACCURACY OF THE ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER Accounts Receivable Subsidiary Ledger General Ledger Accounts Receivable $90,230 Abbot Sisters Babson Co Carson Bros Deli Co $26,000 25,920 7,800 30,510 $90,230 To prove the accuracy of the ledgers it is necessary to determine whether the sum of the accounts receivable subsidiary ledger balances equals the balance in the general ledger’s Accounts Receivable control account CASH RECEIPTS JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Cash Receipts Journal Date Accounts Credited Ref May 10 12 17 21 24 28 D A Karns, Capital 50 Abbot Sisters √ Babson Co Notes Payable – Carson Bros Deli Co √ 21 √ √ Cash Dr 5,000 1,900 10,600 2,600 11,350 6,000 7,800 9,300 54,550 Accounts Receivable Cr Sales Cr CGS Dr/ Inventory Cr Other Accounts Cr 5,000 1,900 1,240 2,600 1,690 10,600 11,350 6,000 7,800 9,300 39,050 4,500 2,930 11,000 54,550 The debit columns for cash and cost of goods sold must be equal to the total of the credit columns for accounts receivable, sales, inventory, and other accounts CASH RECEIPTS JOURNAL Column totals are posted at the end of each month The total of the Other Accounts column is not posted The individual amounts comprising the total are posted separately to the general ledger accounts specified in the Accounts Credited column The individual amounts in the Accounts Receivable column are posted daily to the subsidiary ledger account specified in the Accounts Credited column ILLUSTRATION 7-11 PROVING THE LEDGERS AFTER POSTING THE SALES AND THE CASH RECEIPTS JOURNALS Accounts Receivable Subsidiary Ledger Abbot Sisters Babson Co Deli Co $15,400 14,570 21,210 $51,180 After the posting of the cash receipts journal is completed, it is necessary to prove the ledgers The general ledger totals are in agreement and the sum of the subsidiary ledger balances equals the control account balance General Ledger Debits Cash Accounts Receivable Cost of Goods Sold Credits Merchandise Inventory Notes Payable D A Karns, Capital Sales $54,550 51,180 65,120 $170,850 $ 65,120 6,000 5,000 94,730 $170,850 PURCHASES JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Purchases Journal Date May 10 14 19 26 29 Account Credited Jasper Manufacturing Inc Eaton and Howe Inc Fabor and Son Jasper Manufacturing Inc Fabor and Son Eaton and Howe Inc Terms n/20 n/20 n/20 n/20 n/20 n/20 Ref √ √ √ √ √ √ Merchandise Inventory Dr Accounts Payable Cr 11,000 7,200 6,900 17,500 8,700 12,600 63,900 In a perpetual system, each entry results in a debit to Merchandise Inventory and a credit to Accounts Payable Postings are made daily to the accounts payable subsidiary journal and monthly to the general ledger ILLUSTRATION 7-13 PROVING THE ACCURACY OF THE ACCOUNTS PAYABLE SUBSIDIARY LEDGER General Ledger Merchandise Inventory $63,900 Accounts Payable $63,900 Accounts Payable Subsidiary Ledger Eaton and Howe, Inc $19,800 Fabor and Son 15,600 Jasper Manufacturing Inc 28,500 $63,900 To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account CASH PAYMENTS JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Cash Payments Journal Date May 3 10 19 24 28 31 Cheque # 101 102 103 104 105 106 107 108 Payee Corporate General Ins Canpar Zwicker Jasper Manufaturing Inc Eaton & Howe, Inc Fabor and Son Jasper Manufaturing Inc D.A.Karns Cash Cr 1,200 100 4,400 11,000 7,200 6,900 17,500 500 48,800 Merchandise Accounts Inventory Payable Dr Dr Account Debited Prepaid insurance Other Accounts Ref Dr 130 1,200 Jasper Manufaturing Inc Eaton & Howe, Inc Fabor and Son Jasper Manufaturing Inc D.A Karns, Drawings 306 100 4,400 11,000 7,200 6,900 17,500 4,500 42,600 Journalizing procedures are similar to cash receipts journal Posting procedures are also like the cash receipts journal 500 1,700 ILLUSTRATION 7-16 PROVING THE ACCURACY OF THE ACCOUNTS PAYABLE SUBLEDGER General Ledger Accounts Payable Subsidiary Ledger Eaton and Howe, Inc Fabor and Son $12,600 8,700 $21,300 Debits Cash Accounts Receivable Prepaid Insurance D A Karns, Drawings Purchases Freight In Credits Accounts Payable Notes Payable D A Karns, Capital Sales $ 9,750 51,180 1,200 500 64,300 100 $127,030 $ 21,300 6,000 5,000 94,730 $127,030 To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account EFFECTS ON GENERAL JOURNAL Only transactions that cannot be recorded in a special journal are recorded in the general journal When the entry involves both control and subsidiary accounts: In journalizing, control and subsidiary accounts must be identified, and In posting there must be a dual posting (to the control account and subsidiary ledger) ILLUSTRATION 7-17 JOURNALIZING AND POSTING THE GENERAL JOURNAL General Journal Date Account Title and Explanation 31-May Accounts Payable-Fabor and Sons Merchandise Inventory Record goods returned Date 2002 May 14 24 26 31 Fabor and Son Ref Debit Credit P1 CP1 P1 G1 6,900 6,900 8,700 500 Balance 6,900 8,700 8,200 Ref Debit 500 J1 Credit 500 General Ledger Merchandise Inventory Date Ref Debit Credit 2002 May 31 S1 62,190 31 CR1 2,930 31 P1 63,900 31 CP1 4,500 31 G1 500 120 Balance (62,190) (65,120) (1,220) 3,280 2,780 Accounts Payable 201 Date Ref Debit Credit Balance 2002 May 31 P1 63,900 63,900 31 CP1 42,600 21,300 31 G1 500 20,800 COPYRIGHT Copyright © 2002 John Wiley & Sons Canada, Ltd All rights reserved Reproduction or translation of this work beyond that permitted by CANCOPY (Canadian Reprography Collective) is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd The purchaser may make back-up copies for his / her own use only and not for distribution or resale The author and the publisher assume no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein .. .CHAPTER ACCOUNTING INFORMATION SYSTEMS Accounting Information System An accounting information system (AIS) involves collecting and... interested parties An AIS may either be manual or computerized PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM The accounting system must be cost effective Benefits of information... Regulation and Deregulation d e s a e r Inc tion i t e p Com Changing Accounting Principles ILLUSTRATION 7-2 PHASES IN THE DEVELOPMENT OF AN ACCOUNTING SYSTEM Analysis Follow up Evaluating and monitoring