Prepared by Coby Harmon University of California, Santa Barbara Westmont College 7-1 Accounting Information Systems Learning Objectives After studying this chapter, you should be able to: [1] Identify the basic concepts of an accounting information system [2] Describe the nature and purpose of a subsidiary ledger [3] Explain how companies use special journals in journalizing 7-2 Preview of Chapter Accounting Principles Eleventh Edition Weygandt Kimmel Kieso 7-3 Basic Concepts of AIS Accounting information system (AIS) collects and processes transaction data and communicates financial information to decision makers Includes: 7-4 All steps in the accounting cycle Documents that provide evidence of transactions Manual or computerized accounting system LO 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 and effective AIS Useful Output Flexibility - The system should be sufficiently flexible to meet the resulting changes in the demands made upon it 7-5 LO Identify the basic concepts of an accounting information system Basic Concepts of AIS Computerized Accounting Systems 7-6 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 LO Identify the basic concepts of an accounting information system Basic Concepts of AIS Computerized Accounting Systems Choosing a software package Entry-Level Software 7-7 ► Easy data access and report preparation ► Audit trail ► Internal control ► Customization ► Network Compatibility Enterprise Resource Planning Systems LO Identify the basic concepts of an accounting information system 7-8 Basic Concepts of AIS Manual Accounting Systems 7-9 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 LO Identify the basic concepts of an accounting information system Subsidiary Ledgers Used to keep track of individual balances Two common subsidiary ledgers are: Accounts receivable (customers’) Accounts payable (creditors’) 7-10 Illustration 7-2 Relationship of general ledger and subsidiary ledgers LO Describe the nature and purpose of a subsidiary ledger Special Journals Cash Payments Journal Illustration 7-16 2014 2014 2014 2014 7-31 LO Explain how companies use special journals in journalizing Special Journals Illustration 7-16 2014 2014 2014 2014 2014 2014 Cash Payments Journal 2014 7-32 LO Explain how companies use special journals in journalizing Special Journals Proving the Ledgers 7-33 Illustration 7-17 LO Explain how companies use special journals in journalizing 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 7-34 LO Explain how companies use special journals in journalizing 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 7-35 LO Explain how companies use special journals in journalizing Special Journals Effects of Special Journals on General Journal 7-36 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 LO Explain how companies use special journals in journalizing Special Journals Illustration 7-18 Journalizing and posting the general journal 7-37 LO Explain how companies use special journals in journalizing A Look at IFRS Key Points 7-38 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 LO Compare the procedures for accounting information systems under GAAP and IFRS A Look at IFRS Key Points 7-39 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 Identify the timing of its first IFRS statements Prepare an opening balance sheet at the date of transition to IFRS Select accounting principles that comply with IFRS, and apply these principles retrospectively Make extensive disclosures to explain the transition to IFRS LO Compare the procedures for accounting information systems under GAAP and IFRS A Look at IFRS Key Points 7-40 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 LO Compare the procedures for accounting information systems under GAAP and IFRS A Look at IFRS 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 Whether the IAASB adopts internal control provisions similar to those in SOX remains to be seen You can follow developments in the international audit arena at http://www.ifac.org/laasb/ 7-41 LO A Look at IFRS 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 7-42 LO Compare the procedures for accounting information systems under GAAP and IFRS A Look at IFRS IFRS Self-Test Questions Indicate which of these 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 7-43 LO Compare the procedures for accounting information systems under GAAP and IFRS A Look at IFRS 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 7-44 LO Compare the procedures for accounting information systems under GAAP and IFRS Copyright “Copyright © 2013 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.” 7-45 ... special journals in journalizing 7-2 Preview of Chapter Accounting Principles Eleventh Edition Weygandt Kimmel Kieso 7-3 Basic Concepts of AIS Accounting information system (AIS) collects and...7 Accounting Information Systems Learning Objectives After studying this chapter, you should be able to: [1] Identify the basic concepts of an accounting information system... 7-4 All steps in the accounting cycle Documents that provide evidence of transactions Manual or computerized accounting system LO Identify the basic concepts of an accounting information