Accounting
Principles
Second Canadian Edition
Weygandt · Kieso · Kimmel · Trenholm
Prepared by:
Carole Bowman, Sheridan College
CHAPTER
7
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
Government
Regulation and
Deregulation
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:
1. Show transactions affecting one customer or one
creditor in a single account.
2. Free the general ledger of excessive details.
3. Help locate errors in individual accounts by
reducing the number of accounts combined in one
ledger and by using controlling accounts.
4. 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
Ref
Accts Receivable Dr
Sales Cr
Cost of Goods Sold Dr
Merchandise Inventory Cr
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
7

Invoice
#
Abbot Sisters
May 3

Account
Debited
S1
Under a perpetual inventory system, one entry at selling price in the 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.
Postings are made monthly to the general ledger and daily to the accounts
receivable subsidiary 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 3
7
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 6
10
14
19
26
29
 In
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
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
3
7
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
 Journalizing
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
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
Debits
Cash
Accounts Receivable
Prepaid Insurance
D. A. Karns, Drawings
Purchases
Freight In
$21,300
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:
1. In journalizing, control and subsidiary
accounts must be identified, and
2. 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
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