Chapter 7
Accounting Information Systems
Conceptual Chapter Objectives
C1: Identify fundamental principles of
accounting information systems
C2: Identify components of accounting
information systems
C3: Explain the goals and uses of special
journals
C4: Describe the use of controlling accounts
and subsidiary ledgers
C5: Explain how technology-based information
systems impact accounting
Analytical Chapter Objectives
A1: Compute segment return on assets and
use it to evaluate segment performance
Procedural Chapter Objectives
P1: Journalize and post transactions
using special journals
P2: Prepare and prove the accuracy of
subsidiary ledgers
P3: Appendix 7-A: Journalize and post
transactions using special journals in
a periodic inventory system.
C1
Fundamental System
Principles
Control Principle
Internal controls for
management to monitor
the business.
Relevance Principle
Provide relevant,
timely and pertinent
information.
Flexibility Principle
System needs to
meet the changing
needs of company.
Compatibility Principle
System must be
compatible with aims
of the company.
Cost-Benefit Principle
Benefits of the system
must outweigh the
costs incurred.
C2
Components of Accounting
Systems
Source Documents
Invoice from
supplier
Employee
earnings
records
Billings to
customers
Increasingly, source
documents are
electronic files
creating a
“paperless” system.
C2
Components of Accounting
Systems
Source
Documents
Input
Keyboards
Scanners
Modems
Bar-Code Reader
C2
Components of Accounting
Systems
Source
Documents
Input
Hardware
Software
Processor
Professional
Judgment
C2
Components of Accounting
Systems
Source
Documents
Processor
Input
Storage
CD
Hard Drive
Tape
Paper
Document
C2
Components of Accounting
Systems
Source
Documents
Processor
Input
Storage
Printer
Monitor
Telephone
CD
Tape
Disk
Electronic
File
Output
C3
Now, let’s look at how we use
special journals in accounting.
C3
Special Journals in Accounting
Sales Journal
Cash Receipts
Journal
For recording
credit sales
For recording
cash receipts
Purchases
Journal
Cash
Disbursements
Journal
For recording
cash payments
For recording
credit purchases
General
Journal
For transactions
not in special
journals
C4
Subsidiary Ledgers
Characteristic
Amounts due
from customers
Amounts owed to
creditors
Controlling
Account
Accounts
Receivable
Accounts
Payable
Subsidary Ledger
Accounts
Receivable Ledger
Accounts Payable
Ledger
Subsidiary ledgers are a listing of individual
accounts with common characteristics.
C4
Accounts Receivable Ledger
After all items are posted,
the balance in the
accounts receivable
controlling account is
equal to the sum of the
balances in the accounts
receivable subsidiary
ledger.
Accounts Receivable Subsidiary
Adams Company
Date
PR
Debit
Credit
1 S5
500
AccountsJan.
Receivable
Subsidiary
Balance
500
Baine Company
Date
PR
Debit
Credit
Jan.
16 S5 Subsidiary
1,000
Accounts
Receivable
Balance
1,000
Cook Company
Date
Jan.
PR
25
S5
Debit
415
Credit
Balance
415
GENERAL LEDGER
Accounts Receivable
Date
PR
Debit Credit
Jan. 31 S5
1,915
No. 106
Balance
1,915
P1
Sales Journal
SALES JOURNAL
Account Debited
Jim Carson
Invoice
Number
824
PR
Accounts
Receivable Dr.
Sales Cr.
600
Page 1
Cost of Goods
Sold. Dr
Inventory Cr.
400
Each transaction yields a debit to Accounts
Receivable and a credit to Sales. Also, we need to
record the cost of the sale for the transaction. This
column total is posted monthly.
P1
Sales Journal
On January 1, Jim
Carson purchased
$600 of merchandise
on account from
Barry’s Bikes. The cost
of the bikes was $400.
Record the entry in the
Sales Journal.
(Assume the use of a perpetual
inventory system.)
P1
Sales Journal
SALES JOURNAL
Date
Account Debited
1 Jim Carson
Daily, each
transaction is posted
to the appropriate
accounts receivable
subsidiary account.
Invoice
Number
PR
Dr. Accts. Rec.
Cr. Sales
824
Page 1
Cost of Goods
Sold Dr.
Inventory Cr.
600
400
ACCOUNTS RECEIVABLE LEDGER
Jim Carson
Date
Jan.
PR
1
Debit
600
Credit
Balance
600
P1
Sales Journal
SALES JOURNAL
Date
Jan.
Account Debited
Invoice
Number
1 Jim Carson
A ü in the posting
reference column
indicates the
transaction was
posted to the
subsidiary account.
824
PR
ü
Page 1
Accounts
Cost of Goods
Receivable Dr.
Sold Dr.
Sales Cr.
Inventory Cr.
600
400
ACCOUNTS RECEIVABLE LEDGER
Jim Carson
Date
Jan.
PR
1
S1
Debit
600
Credit
Balance
600
P1
Sales Journal
SALES JOURNAL
Date
Jan.
Invoice
Number
Account Debited
1 Jim Carson
824
7 Tom Talley
825
22 Sue Wright
826
PR
ü
Accts.
Receivable Dr.
Sales Cr.
Page 1
Cost of Goods
Sold Dr.
Inventory Cr
600
400
900
600
200
134
1,700
1,134
ü
ü
31 Total
GENERAL LEDGER
Accounts Receivable
Date
PR
Debit Credit
Jan. 31
1,700
Post the total to the
General Ledger
accounts.
No. 106
Balance
1,700
GENERAL LEDGER
Sales
Date
Jan. 31
PR
Debit
No. 413
Credit Balance
1,700
1,700
P1
Sales Journal
Date
Jan.
Account Debited
Invoice
Number
1
Jim Carson
824
7
Tom Talley
825
22 Sue Wright
826
31 Total
PR
ü
ü
ü
Accts.
Receivable Dr.
Sales Cr.
Cost of Goods
Sold Dr.
Inventory Cr
600
400
900
600
200
134
1,700
1,134
(106/413)
(502/119)
Here is the Sales Journal after recording
some additional sales.
P1
ü
Sales Journal
SALES JOURNAL
Date
Jan.
Account Debited
Invoice
Number
1 Jim Carson
824
7 Tom Talley
825
22 Sue Wright
826
PR
ü
ü
ü
Accts.
Receivable Dr.
Sales Cr.
Page 1
Cost of Goods
Sold Dr.
Inventory Cr
600
400
900
600
200
134
1,700
1,134
31 Total
GENERAL LEDGER
Accounts Receivable
Date
PR
Debit Credit
Jan. 31 S1
1,700
No. 106
Balance
1,700
GENERAL LEDGER
Sales
Date
Jan. 31
PR
S1
Debit
No. 413
Credit Balance
1,700
1,700
P1
Sales Journal
SALES JOURNAL
Date
Jan.
Account Debited
Invoice
Number
1 Jim Carson
824
7 Tom Talley
825
22 Sue Wright
826
PR
ü
ü
ü
Accts.
Receivable Dr.
Sales Cr.
Page 1
Cost of Goods
Sold Dr.
Inventory Cr
600
400
900
600
200
134
1,700
1,134
31 Total
GENERAL LEDGER
Accounts Receivable
Date
PR
Debit Credit
Jan. 31 S1
1,700
(106/413)
(502/119)
No. 106
Balance
1,700
GENERAL LEDGER
Sales
Date
Jan. 31
PR
S1
Debit
No. 413
Credit Balance
1,700
1,700
P2
Proving the Ledgers
Barry's Bikes
Schedule of Accounts Receivable
The Accounts
January 31
Receivable Jim Carson
$
600
controlling Tom Talley
900
account and Sue Wright
200
the subsidiary Total accounts receivable
$ 1,700
ledger are in
balance.
GENERAL LEDGER
Accounts Receivable
Date
PR
Debit Credit
Jan. 31 S1
1,700
No. 106
Balance
1,700
P2
Sales Taxes
SALES JOURNAL
Date
Account Debited
Jan. 4 Joan Oakes
Inv.
No.
635
Page 1
Sales Taxes
Accts. Rec.
Payable
PR
Debit
Credit
486
36
Sales
Credit
Cost of Goods
Sold Dr.
Inventory Cr
450
On January 4, Jeri’s Jewelry sold a necklace for
$450 plus 8% sales tax on credit to Joan Oakes.
$450  .08 = $36
The cost of the merchandise was 302.
302
P2
Sales Tax
SALES JOURNAL
Date
Jan.
Account Debited
4 Joan Oakes
Each
transaction is
posted daily to
the appropriate
Accounts
Receivable
Ledger account.
Inv.
No.
PR
Page 1
Sales Taxes
Accts. Rec.
Payable
Debit
Credit
635
486
36
Sales
Credit
Cost of Goods
Sold Dr.
Inventory Cr
450
302
Column totals are
posted monthly.
ACCOUNTS RECEIVABLE LEDGER
Joan Oakes
Date
Jan.
PR
4
S1
Debit
486
Credit Balance
486
P2
Sales Returns and Allowances
If a company has few sales returns, they may
be recorded in the General Journal.
Feb. 5 Sales Returns and Allowances
Accounts Receivable--Jill Day
414
150
106/ ü
Merchandise Inventory
119
Cost of Goods Sold
502
150
100
A company with many sales returns may use
a Sales Returns and Allowances Journal.
100
P2
Cash Receipts Journal
CASH RECEIPTS JOURNAL
Accounts
Credited
Explanation
PR
Cash
Dr.
Sales
Disc.
Dr.
Page 1
Cost of
Accts.
Goods Sold
Rec.
Other Dr. Inventory
Cr. Sales Cr. Accts. Cr.
Cr
Categories of Cash Receipts
• Cash from cash sales
• Cash from credit customers
• Cash from other sources
P2
Cash Receipts Journal
CASH RECEIPTS JOURNAL
Date
Accounts
Credited
May 7 Sales
Explanation
Cash Sales
16 Jane Waters
Invoice 656
31 Interest Revenue
Bank Acct.
31 Total
PR
Cash
Dr.
üü
ü
300
409
15
Page 1
Sales
Disc.
Dr.
300
441
9
450
15
756
(101)
Accts.
Rec.
Other
Cr. Sales Cr. Accts. Cr.
9
(415)
450
(106)
300
(413)
üü Amount is not posted individually to an account.
ü
Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.
15
(üü)
P2
Purchases Journal
The Purchases Journal is
used to record all
purchases on credit.
P2
Purchases Journal
Purchases Journal
Date
Account
May 7 Langley Products
Invoice
Date
5/18
28 Fife Company
5/27
PR
ü
n/30
125/ ü
2/10,n/30
ü
5/5 2/10,n/30
18 Office World
31 Total
Terms
Page 3
Accts.
Pay. Inventory
Cr.
Dr.
300
300
150
125
200
175
25
650
475
150
(201)
üü
ü
Offc.
Sup.
Other
Dr. Accts. Dr.
(119)
(124) (
Amount is not posted individually to an account.
Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.
25
25
üü
)
P2
Cash Disbursements Journal
The Cash
Disbursements
Journal is used to
record all
payments of cash.
P2
Cash Disbursements Journal
Cash Disbursements Journal
Date
Jun. 2
Ch.
No.
Payee
Account
Debited
101 Fife Company
Fife Company
15
102 Jane Hooks
Salary Expense
28
103 Langley Products Purchases
30
Total
PR
Page 1
Cash
Cr.
ü
196
622
300
300
505
100
100
596
(101)
üü
ü
Other
Inventory. Accts. Accts.
Cr.
Dr.
Pay. Dr.
4
4
(119) (
200
400
200
( üü ) )(201)
Amount is not posted individually to an account.
Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.
P2
General Journal Transactions
Adjusting
Entries
Reversing
Entries
Closing
Entries
Other
transactions not
recorded in
Special Journals
C5
Technology-Based Accounting
Systems
Hardware
Processing units
Hard Drives
RAM
Modems
CD-ROM Drives
Speakers
Monitors
Servers
Printers
Software
Programs with a
series of
commands
directing operations
of computer
hardware such as
data input, storage,
processing, or
output
C5
Computer Technology in
Accounting
Integrated
accounting
programs
automatically
update related
accounts,
journals, and
ledgers for a
single
transaction.
C5
Data Processing in Accounting

On-line processing
enters and processes
data immediately.

Batch processing
accumulates information
for a period of time and
then processes all the
data at one time (daily,
weekly, or monthly).
C5
Computer Networks in
Accounting
Server
Work Stations
Computer networks are links among computers
giving different users access to common
databases and programs.
C5
Enterprise Resource Planning
Software
Enterprise resource planning software, such as
SAP or Oracle, links ordering, inventory,
production, purchasing, planning, tracking and
human resources for many of the world’s largest
companies.
A1
Segment Return on Assets
A good AIS collects financial data for a
company’s various segments.
A segment is a part
of a company that is
separately identified
by its products,
services, or
geographic market.
A1
Segment Return on Assets
Segment return
on assets
=
Segment operating income
Segment average assets
This ratio reflects the
profitability of the
segment.
End of Chapter 7