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shipping, making purchase orders, and receiving cash are examples of events. Only
some of the events are recorded in journals and posted to the general ledger.
Organizing data by using source documents, journals, and the general ledger. In a traditional manual AIS, information about business events was
first captured in source documents. Sales orders, packing slips and invoices are examples of source documents. As seen from the sample invoice shown in Figure 2.1,
a source document provides a detailed description of one event.
Figure 2.1
Invoice for ELERBE,
Inc.
INVOICE
Invoice No.
Invoice Date
Customer ID
Customer Name
9302
5/21/03
3451
Educate, Inc.
Customer Address
Contact Person
Phone
Subtotal
ISBN
Title
Author
0-256-12596-7
0-146-18976-4
Intro. to Business
Princ. of Accounting
Barnes
Johnson
Unit Price
$78.35
$70.00
Fairhaven, MA
Costa
(508) 888-4531
$26,170.00
Quantity Extended Price
200
150
$15,670.00
$10,500.00
Although source documents have detailed information about each event, data
must be organized and stored in other ways in order to provide useful information.
For example, the dollar amounts of the company’s sales and accounts receivable are
needed for preparing financial statements and interim financial reports. You are probably familiar with the process for recording some types of events from your financial
accounting course. Data about events with accounting significance are aggregated and
recorded in journals. The journal entries are posted to the general ledger, and the balance in the general ledger accounts at any point in time can be calculated by starting
with the beginning balance and then adding and subtracting the debit and credit
amounts posted from the journal. Thus, journal entries and postings to the general
ledger are one way to organize data about events of accounting significance.
Complete the requirements in boxes 2.d and 2.e to review general ledger accounting and consider its limitations before moving on.
Focus on Problem Solving 2.d
Recording Accounting Data
ELERBE, Inc.
Review the narrative in Exhibit 2.6. Consider the following events that occurred in 2003:
(continued)
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2. The management of ELERBE, Inc., would like to know the quantity of specific products in stock.
Can this question be answered based on the manual system? Suggest any modifications to this
system that will help in addressing this information need.
The solution to this Focus on Problem Solving box appears on page 51. Check your answer and make sure you understand
the solution before reading further.
In order to obtain a customer’s balance, as requested in box 2.e, you would
have to locate the relevant source documents that describe sales and payments for
a particular customer. If you had a large number of source documents and these
documents were arranged chronologically (by date), it would be quite difficult to
obtain customer or inventory balances. Manual systems addressed this problem by
using subsidiary ledgers to organize information by various entities (e.g., customers,
suppliers, or products). In a manual system subsidiary ledgers are often used for
accounts receivable, accounts payable, inventory, payroll, and fixed assets. We
briefly explain one of these subsidiary ledgers as an example.
The accounts receivable ledger is organized by customer. All sales and cash
collections for a particular customer were posted to a page maintained for that
customer in order to track balances due. Of course, amounts were also posted
to the general ledger. Figure 2.2 illustrates how information was organized in a
subsidiary ledger. The figure shows the subsidiary ledger page for one customer.
The beginning balance appears at the top of the page. Debits and credits are recorded
as credit sales and cash collections occur. The posting reference column shows
the page in which the transaction was recorded in the journal and provides an
audit trail.
Figure 2.2
Accounts Receivable
Subsidiary Ledger—
Manual Accounting
System
Educate Inc.
Fairhaven, MA
Date
Description
Post.
Ref.
Debit
Credit
Beginning balance
Balance
0
May 21
Sale
GJ21
June 20
Cash collection
GJ22
26,170
26,170
26,170
0
Files in a Computerized AIS
The previous section emphasized the manual recording of events. The basic flow
of information described earlier can also be seen in a computerized AIS. However,
the way in which data are stored and organized in a computerized system is different from a manual AIS. This section demonstrates how data are organized in a
computerized AIS.
Exhibit 2.7 briefly introduces important file concepts that you will need to learn
in order to understand how data are organized in a computerized system. Carefully
read the definitions in the exhibit. Additional discussion of these concepts and terms
can be found later in this chapter.
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We will discuss transaction files in more depth in Chapters 9 and 10, concerning
the acquisitions cycle, and Chapter 11, concerning the revenue cycle.
Relationships between Transaction and Master Files
Figure 2.3 shows the relationship between the files used to record Order# 0100011.
The records related to the other orders are not shown to simplify the presentation.
Figure 2.3
Relationship between
Files Used in
ELERBE’s Revenue
Cycle (Only records
related to Order#
0100011 in Table 2.6
are shown.)
Customer File
(master file)
Customer#
Name
Address
Contact Person
Phone
3451
Educate, Inc.
Fairhaven, MA
Costa
508-888-4531
Order File
(transaction file)
Order#
Order Date
Customer#
0100011
05/11/2003
3451
Order_Detail File
(transaction file)
Order#
ISBN
Quantity
0100011
0-256-12596-7
300
0100011
0-146-18976-4
260
Inventory File
ISBN
(master file)
Author
0-256-12596-7 Barnes
Title
Quantity Quantity
Price On Hand Allocated
Introduction to Business $78.35
4,000
300
0-146-18976-4 Johnson Principles of Accounting $70.00
8,000
260
As Figure 2.3 demonstrates, the four files used by ELERBE are related. The diagram is arranged with an emphasis on the Order and Order_Detail files. The four
files work together to record information about an order as follows:
1. The Order File gives the date that Order# 0100011 was accepted by
ELERBE. It also indicates the Customer# (3451).
2. To learn about the customer making the order, the system “refers” to the
reference data in the record for Customer# 3451 in the Customer File.
3. To learn what items were ordered, the system checks the Order_Detail File
for records involving Order# 0100011. As can be seen, 200 copies of one
book were ordered, and 150 copies of another were ordered.
4. To obtain the author, title, and price of the books ordered, the system refers
to the reference data in the Inventory File for the books with the same ISBNs.
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Figure 2.4
Summary Fields for
an Inventory Item
on source documents. In a current AIS, data may be directly entered into one
or more transaction files in a system, and the computer may then print a source
document that is used later in the process (e.g., picking ticket printed during order
entry). We consider the preparation of all source documents to be part of the record
activity.
Update
The term update refers to the act of changing the summary data in a master file to
reflect the effect of events. As an example, after the sale of inventory, the Quantity_
On_Hand field is updated by reducing the balance. When inventory is ordered,
it is also necessary to update the total amount of an inventory item that is reserved
for future exchanges. Figure 2.4 provides an example of summary fields (circled)
for inventory items. Box 2.i requires you to interpret the data for the inventory
items.
Focus on Problem Solving 2.i
Understanding Updates of Summary Fields (U4)
As you can see in Figure 2.4, the particular inventory item has (a) a quantity on hand of 15, (b) a
quantity allocated of 13, (c) a quantity available of 2, and (d) a quantity sold of 7 (shipped). The
quantity allocated refers to the quantity of inventory that is committed for future deliveries under existing customer orders.
(continued)
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(concluded)
Required:
1. Suppose that 8 of the 13 units that had already been ordered were shipped and that the inventory record for the product was updated. How would this affect the amounts in (a) through (d)?
2. Suppose that in addition to the above event, a new order for one more unit was accepted, and
the inventory record was updated. How would this affect the amounts in (a) through (d)?
The solution to this Focus on Problem Solving box appears on page 52. Check your answer and make sure you understand
the solution before reading further.
File Maintenance
File maintenance activities capture and organize reference data about master files.
They include adding master records, changing reference data in master records, and
deleting master records. In many cases, master records for entities must be created
before transactions can be processed. Once new products or services, customers, and
suppliers are approved, master records are added to the master files. The system is
then permitted to record transactions involving these entities. Only reference data
are created or changed in maintenance activities. Summary fields are not affected.
Figure 2.5 shows a sample screen for file maintenance concerning an inventory item.
Figure 2.5
File Maintenance for
an Inventory Item
Note that there are two summary fields, quantity on hand and quantity available,
at the bottom of the screen. Those fields are not displayed in white, indicating that
they cannot be changed during file maintenance.