Accounting Information Systems Chapter 7 Copyright © 2007 Prentice-Hall. All rights reserved 1 Objective 1 Describe an effective accounting information system Copyright © 2007 Prentice-Hall. All rights reserved 2 Basic Features • Control – – Internal controls are established to ensure that your assets are safeguarded and not being wasted. – They are also established to ensure that employees follow company procedures • Compatibility - Use an accounting system that is appropriate for the size of the company and the complexity of transactions Copyright © 2007 Prentice-Hall. All rights reserved 3 Basic Features • Flexibility- Can your company respond to change effectively? • Cost/benefit relationship – The cost of an accounting system should not outweigh the benefits Copyright © 2007 Prentice-Hall. All rights reserved 4 Objective 2 Understand both computerized and manual accounting systems Copyright © 2007 Prentice-Hall. All rights reserved 5 Computerized Accounting System • Hardware – equipment (computers, printers, monitors, network that links computers) • Software - programs that tells the computer what to do (store data, generate reports) Copyright © 2007 Prentice-Hall. All rights reserved 6 Three Stages of Data Processing Come from source documents like invoices Input Financial statements and other reports Journalizing, posting Processing Output Copyright © 2007 Prentice-Hall. All rights reserved 7 Computerized Accounting System ACCOUNTING RECORDS Journals, Ledgers, Other records HARDWARE INPUT DATA SOFTWARE PROCESSING Copyright © 2007 Prentice-Hall. All rights reserved OUTPUT REPORTS 8 Designing a System – Chart of Accounts Assets Current (11) Plant (12) Cash in Bank (111) Accounts Receivable (115) Inventory (120) Customer A (115001) Customer B (115002) Customer C (115003) Copyright © 2007 Prentice-Hall. All rights reserved Other (13) 9 E7-13 Number 101 102 103 104 105 106 201 221 301 321 401 501 521 Account Cash Accounts receivable Inventory Supplies Computer equipment Accumulated depreciation Accounts payable Note payable, long-term Jerry Mobile, capital Jerry Mobile, withdrawals Sales revenue Cost of goods sold Depreciation expense Copyright © 2007 Prentice-Hall. All rights reserved 10 Processing Transactions – Manual System • Similar transactions are grouped together and recorded in special journals – Sales journal (all sales on account) – Purchases journal (all purchases on account) – Cash receipts journal – Cash disbursements journal – General journal Copyright © 2007 Prentice-Hall. All rights reserved 11 Processing Transactions – Computerized System • Menu Driven • Menu organized by function or task • Posting is automatic – On-line processing – Batch processing Copyright © 2007 Prentice-Hall. All rights reserved 12 Menu-Driven Accounting System Ledger Receivables Payables Inventory Payroll Reports Utilities Transactions Posting Account Maintenance COMPUTERIZED ACCOUNTING SYSTEM Closing Use arrow keys to make choice Press <return> to access choice MAIN Press F7 <escape> to leave menu Copyright © 2007 Prentice-Hall. All rights reserved 13 ERP Systems • “Enterprise Resource Planning Systems” • Integrates all departments and functions across a company into a single unified system Copyright © 2007 Prentice-Hall. All rights reserved 14 Objective 3 Understand how spreadsheets are used in accounting Copyright © 2007 Prentice-Hall. All rights reserved 15 Integrated Accounting Software: Spreadsheet • Computer program designed to perform computational tasks • Organized by cells, defined by a row and a column Copyright © 2007 Prentice-Hall. All rights reserved 16 Integrated Accounting Software: Spreadsheet A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 B Account Title Cash Supplies Accounts payable Salaries payable Suzanne Byrd, capital Service revenue Rent expense Supplies expense Depreciation expense Interest expense Totals C Trial Balance Dr. Cr. 9,400 700 200 Labels Cell B4 Numbers 6,000 8,000 4,000 100 14,200 14,200 Copyright © 2007 Prentice-Hall. All rights reserved Formulas 17 E7-15 A 1 2 3 4 5 6 7 8 Years of Life 9 Equipment 10 B C 20 60,000 Annual Depreciation = Cost / Years of Life Annual Depreciation = B9/C8 Copyright © 2007 Prentice-Hall. All rights reserved 18 Objective 4 Use the sales journal, the cash receipts journal, and the accounts receivable ledger Copyright © 2007 Prentice-Hall. All rights reserved 19 Special Journals • Accounting journals used to record one specific type of transaction • Save time • Save money Copyright © 2007 Prentice-Hall. All rights reserved 20 Special Journals Transaction Special Journal Sales on account Sales journal Cash receipts Cash receipts journal Purchases on account Purchases journal Cash payments All others Cash payments journal General journal Copyright © 2007 Prentice-Hall. All rights reserved Posting Abbreviation S CR P CP J 21 Sales Journal Sales Journal DATE INVOICE NO. ACCOUNT DEBITED POST REF ACCOUNTS RECEIVABLE DR. SALES REVENUE CR. COST OF GOODS SOLD DR. INVENTORY CR. Debit Accounts Receivable and credit Sales Revenue. Debit Cost of Goods Sold and credit Inventory Copyright © 2007 Prentice-Hall. All rights reserved 22 Cash Receipts Journal Cash Receipts Journal DEBITS CREDITS OTHER ACCOUNTS DATE CASH SALES DISC ACCTS REC SALES REV ACCOUNT TITLE PR AMT COST OF GOODS SOLD DR. INVENTORY CR. Debit Cash and credit some other account Copyright © 2007 Prentice-Hall. All rights reserved 23 Subsidiary Ledger • Provides details on individual balances – Customers (accounts receivable) – Suppliers (accounts payable) Copyright © 2007 Prentice-Hall. All rights reserved 24 Control Account • The general ledger account • Equals the sum of the individual account balances in a subsidiary ledger Copyright © 2007 Prentice-Hall. All rights reserved 25 ACCOUNT ACCOUNTS RECEIVABLE BALANCE JRNL REF DEBIT Jan S7 1,500 Jan Cr3 DATE ITEM ACCOUNT CREDIT DEBIT CREDIT 1,500 500 Controlling Account 1,000 ST. JOHN’S CAFE BALANCE DATE ITEM JREF Jan 1 DEBIT S7 ACCOUNT CREDIT DEBIT 500 CREDIT 500 MARKET STREET GRILL BALANCE DATE ITEM JREF Jan 8 DEBIT S7 ACCOUNT CREDIT 300 DEBIT CREDIT Subsidiary Accounts 300 WELLWOOD INN BALANCE DATE ITEM JREF DEBIT Jan 5 S7 700 Jan 10 CR3 CREDIT DEBIT CREDIT 700 500 200 Copyright © 2007 Prentice-Hall. All rights reserved 26 Objective 5 Use the purchase journal, the cash disbursements journal, and the accounts payable ledger Copyright © 2007 Prentice-Hall. All rights reserved 27 Purchases Journal Purchases Journal CREDITS DEBITS OTHER ACCOUNTS DATE ACCOUNT CREDITED TERMS PR ACCOUNTS PAYABLE INVENTORY SUPPLIES ACCOUNT TITLE PR AMOUNT Debit Inventory or some other account and credit Accounts Payable Copyright © 2007 Prentice-Hall. All rights reserved 28 Cash Payments Journal Cash Payments Journal DEBITS DATE CK NO ACCOUNT DEBITED PR OTHER ACCOUNTS ACCOUNTS PAYABLE CREDITS INVENTORY CASH Credit Cash….debit other accounts Copyright © 2007 Prentice-Hall. All rights reserved 29 ACCOUNT ACCOUNTS PAYABLE BALANCE DATE JRNL REF ITEM Jan P7 Jan CP3 ACCOUNT DEBIT CREDIT DEBIT CREDIT 800 800 100 Controlling Account 700 FAVER EQUIPMENT COMPANY BALANCE DATE ITEM JREF Jan 1 DEBIT CREDIT P7 ACCOUNT DEBIT CREDIT 500 500 REAL TECHNOLOGIES BALANCE DATE ITEM JREF Jan 8 DEBIT CREDIT P7 ACCOUNT DEBIT CREDIT 100 Subsidiary Accounts 100 NOTTINGHAM SALES BALANCE DATE ITEM JREF Jan 5 P7 Jan 10 CP3 DEBIT CREDIT DEBIT CREDIT 200 100 Copyright © 2007 Prentice-Hall. All rights reserved 200 100 30 General Journal • Used for transactions that do not fit into any of the special journals including adjusting and closing entries Copyright © 2007 Prentice-Hall. All rights reserved 31 Balancing the Ledgers • At the end of the accounting period: – Total debits and credits of account balances in the general ledger are equal – Control account balances are equal to the sum of the appropriate subsidiary ledger accounts Copyright © 2007 Prentice-Hall. All rights reserved 32 S7-6 Transactions: CR a. Cash sale of inventory CP b. Payment of rent J c. Depreciation of computer equipment P d. Purchases of inventory on account e. Collection of accounts receivable CR f. Expiration of prepaid insurance J g. Sale on account S Copyright © 2007 Prentice-Hall. All rights reserved 33 S7-6 Transactions: CP h. Payment on account CP i. Cash purchase of inventory CR j. Collection of dividend revenue earned on an investment CP k. Prepayment of insurance CR l. Borrowing money on a long-term note payable P m. Purchase of equipment on account S n. Cost of goods sold along with a credit sale Copyright © 2007 Prentice-Hall. All rights reserved 34 P7-34B (March 2) Sales Journal DATE INVOICE NO. Mar 2 ACCOUNT DEBITED POST REF 191 L E Wooten Page 1 ACCOUNTS RECEIVABLE DR. SALES REVENUE CR. COST OF GOODS SOLD DR. INVENTORY CR. 2,350 1,390 L E Wooten Mar 2 S1 2,350 Copyright © 2007 Prentice-Hall. All rights reserved 2,350 35 P7-34B (March 3) Purchases Journal CREDITS Page 1 DEBITS OTHER ACCOUNTS DATE ACCOUNT CREDITED TERMS 3/10, Mar 3 Delwood n/60 PR ACCOUNTS PAYABLE 5,900 INVENTORY SUPPLIES ACCOUNT TITLE PR AMOUNT 5,900 Delwood Plaza Mar 3 P1 5,900 Copyright © 2007 Prentice-Hall. All rights reserved 5,900 36 P7-34B (March 4) Cash Receipts Journal DEBITS CREDITS OTHER ACCOUNTS DATE CASH Mar 4 3,410 SALES DISC ACCTS REC SALES REV ACCOUNT TITLE PR 3,410 Copyright © 2007 Prentice-Hall. All rights reserved AMT COST OF GOODS SOLD DR. INVENTORY CR. 1,820 37 P7-34B (March 5) Cash Payments Journal DEBITS DATE CK NO ACCOUNT DEBITED Mar 5 473 Furniture PR OTHER ACCOUNTS ACCOUNTS PAYABLE 1,080 Copyright © 2007 Prentice-Hall. All rights reserved CREDITS INVENTORY CASH 1,080 38 P7-34B (March 8) Cash Receipts Journal DEBITS CREDITS OTHER ACCOUNTS DATE CASH Mar 4 3,410 8 120 SALES DISC ACCTS REC SALES REV ACCOUNT TITLE PR AMT COST OF GOODS SOLD DR. INVENTORY CR. 1,820 3,410 Interest Revenue Copyright © 2007 Prentice-Hall. All rights reserved 120 39 P7-34B (March 9) Sales Journal INVOICE NO. DATE Mar 2 9 ACCOUNT DEBITED POST REF Page 1 ACCOUNTS RECEIVABLE DR. SALES REVENUE CR. COST OF GOODS SOLD DR. INVENTORY CR. 191 L E Wooten 2,350 1,390 192 Cortez Co 6,250 3,300 Cortez Co Mar 9 S1 6,250 Copyright © 2007 Prentice-Hall. All rights reserved 6.250 40 P7-34B (March 10) Cash Payments Journal DEBITS DATE CK NO ACCOUNT DEBITED PR OTHER ACCOUNTS ACCOUNTS PAYABLE CREDITS INVENTORY CASH Mar 5 473 Furniture 1,080 1,080 10 474 Inventory 770 770 Copyright © 2007 Prentice-Hall. All rights reserved 41 P7-34B (March 12) Cash Receipts Journal DEBITS CREDITS OTHER ACCOUNTS DATE CASH Mar 4 3,410 8 120 12 2,303 SALES DISC ACCTS REC SALES REV ACCOUNT TITLE PR AMT COST OF GOODS SOLD DR. INVENTORY CR. 1,820 3,410 Interest Revenue 47 2,350 120 Wooten L E Wooten Mar 2 Mar 12 S1 CR1 2,350 2,350 2,350 Copyright © 2007 Prentice-Hall. All rights reserved -042 End of Chapter 7 Copyright © 2007 Prentice-Hall. All rights reserved 43