Copyright © by Houghton Mifflin Company. All rights reserved.1 Principles of Financial Accounting 2002e Belverd E. Needles, Jr. Marian Powers Susan Crosson

Copyright © by Houghton Mifflin Company. All rights reserved. 1

Principles of Financial Principles of Financial Accounting 2002eAccounting 2002e

Belverd E. Needles, Jr.Belverd E. Needles, Jr.Marian PowersMarian PowersSusan CrossonSusan Crosson

- - - - - - - - - - -Multimedia Slides by:

Harry Hooper Santa Fe Community College

Chapter 7Chapter 7Accounting Accounting Information Information

SystemsSystems


LEARNING OBJECTIVESLEARNING OBJECTIVES

1. Identify the principles of accounting systems design.

2. Describe how general ledger software and spreadsheet software are used in accounting.

3. Describe the use of microcomputer systems in small businesses .

4. Explain how accountants use the Internet.


LEARNING OBJECTIVES LEARNING OBJECTIVES (continued…)(continued…)

5. Explain the objectives and uses of special-purpose journals.

6. Explain the purposes and relationships of controlling accounts and subsidiary ledgers.

7. Construct and use a sales journal, purchases journal, cash receipts journal, cash payments journal, and other special-purpose journals as needed.

Accounting Systems DesignAccounting Systems Design

OBJECTIVE 1

Identify the principles of

accounting systems design.


Principles of Accounting Principles of Accounting Systems DesignSystems Design

Accounting systems summarize financial data about a business and organize it into useful forms.

Most businesses use computerized accounting systems to provide timely and useful information to decision makers.

Accountants must have an understanding of accounting and computer systems.


Design PrinciplesDesign Principles

Four general principles of

accounting systems design: Cost-benefit principle.

Control principle.

Compatibility principle.

Flexibility principle.


Cost-Benefit PrincipleCost-Benefit Principle

The cost-benefit principle holds that the benefits derived from an accounting system and the information it generates must be equal to or greater than the system’s cost.

Costs may either be tangible or intangible. Tangible costs include personnel, forms,

and equipment. Intangible costs include the cost of wrong

decisions.


Control PrincipleControl Principle

The control principle requires that an

accounting system provide internal

control features in order to protect a

firm’s assets and ensure that data are

reliable.


Compatibility PrincipleCompatibility Principle

The compatibility principle holds that

the design of an accounting system

must be in harmony with the

organizational and human factors of

the business.


Flexibility PrincipleFlexibility Principle

The flexibility principle holds that an

accounting system must be flexible

enough to allow the volume of

transactions to grow and

organizational changes to be made.


DiscussionDiscussion

Q.Q. What are the four general

principles of accounting systems

design?

A.A. The four general principles of

accounting systems design are: (1) cost-

benefit, (2) control, (3) compatibility,

and (4) flexibility.

Computer Software for Computer Software for AccountingAccounting

OBJECTIVE 2

Describe how general ledger

software and spreadsheet

software are used in accounting.


General Ledger SoftwareGeneral Ledger Software

General ledger software is a group of integrated programs that an accountant uses to perform major functions such as accounting for sales and accounts receivable, purchases and accounts payable, and payroll.

Most systems are Windows® based and operate with a graphical user interface (GUI).


Accounting SoftwareAccounting Software Two general ledger software programs

available for this book include: Peachtree® Complete Accounting for

Windows®. General Ledger Software.

Spreadsheet software is often used in addition to general ledger software. These include such programs as: Windows® Excel. Lotus 1-2-3.


Graphical User InterfaceGraphical User Interface



Q.Q. What are two types of software that accountants typically use?

A. The two types of software often used by accountants are general ledger software and spreadsheet

software.

OBJECTIVE 3

Describe the use of microcomputer systems in small business.

Computerized Computerized Accounting SystemsAccounting Systems


Computerized Accounting Computerized Accounting Systems Systems

The computer system is the nerve center of the company.

Enterprise Resource Management (ERM) systems use powerful computers linked together to provide communication and data transfer around the world.

ERMs integrate all functions of a business. The Internet links microcomputers in small and large

companies, providing communications and supporting business transactions.


Microcomputer SystemsMicrocomputer Systems

Most businesses purchase commercial accounting software.

Most software consists of modules. Sales/accounts receivable. Purchases/accounts payable. Cash receipts. Cash disbursements. Payroll. General journal.



Modules should work together to form an integrated accounting program.

Each transaction that enters the system should be supported by a source document.

Source documents verify the validity of a transaction and provide necessary details.



After transactions are processed, a procedure is followed to post them to and update the ledgers and to prepare a trial balance.

The final step is the preparation of financial statements and other accounting reports.



Computerization typically results in: Reduced processing time.

Improved arithmetic accuracy.

Increased data dependability.



Q.Q. Identify three source documents that would support entries into

an accounting system.

A.A. Typical source documents would include: customer invoices, vendor invoices, deposit slips, checks, and time cards.


Microcomputer Accounting System Using General Ledger Software Microcomputer Accounting System Using General Ledger Software

OBJECTIVE 4

Explain how accountants use

the Internet.

Accountants and the Internet


InternetInternet

World’s largest computer network.

Access to the Internet requires a

communication device (modem)

with a connection to an Internet

service provider (ISP).


Internet CapabilitiesInternet Capabilities

Electronic mail (E-mail). Sending and receiving of communications over the

network.

World Wide Web. A vast repository of information accessible via a

browser.

Information retrieval. Downloading of files from the network to individual

computers.



Bulletin boards. Allow people with common interests to share

information and ideas over the network.

E-business. Any use of the Internet by business.



Electronic commerce. Businesses and customers are increasingly using

the Internet to sell/buy products. Creates many new challenges for accountants

Search Engines. Internet sites that enable the user to

research or search for information.



Q.Q. What are five capabilities that the Internet offers?

A.A. There are numerous benefits of the Internet, five of which are: (1) E-mail, (2) World Wide Web, (3) information retrieval, (4) bulletin boards, and (5) electronic commerce.

OBJECTIVE 5

Explain the objectives and uses

of special-purpose journals.

Manual Data Processing: Manual Data Processing: Journals and ProceduresJournals and Procedures


Steps and Devices in a Manual Steps and Devices in a Manual Accounting SystemAccounting System


Special-Purpose JournalsSpecial-Purpose Journals

Special-purpose journals offer a more efficient and economical way to process similar repetitive transactions.

A general journal is still required even if special-purpose journals are used. It is used to record transactions that do not fall into any of the special categories.



Most business transactions fit into one of four categories and can be recorded in a special-purpose journal.

1. Sale of merchandise on credit: recorded in sales journal.

2. Purchase on credit: recorded in purchases journal.

3. Receipt of cash: recorded in cash receipts journal.

4. Disbursement of cash: recorded in cash payment



Using a special-purpose journal greatly reduces the work involved in entering and posting transactions.

Instead of posting every debit and credit for each transaction the use of special-purpose journals allows the posting of column totals (representing many transactions).



Q.Q. True or False: If a firm uses special- purpose journals it no longer

needs a general journal.

A.A. False. A general journal is still required even if special-purpose journals are used. It is used to record transactions that do not fall into any of the special categories.

OBJECTIVE 6

Explain the purposes and

relationships of controlling

accounts and subsidiary ledgers.

Controlling Accounts and Controlling Accounts and Subsidiary LedgersSubsidiary Ledgers



A controlling account (control account) is an account in the general ledger that maintains the total balance of all related accounts in a subsidiary ledger.

A subsidiary ledger is a ledger separate from the general ledger that contains a group of related accounts.

The total of the balances in the subsidiary ledger accounts equals the balance in the corresponding controlling account.



Example: The balance in the Accounts Receivable controlling

account in the general ledger should equal the total of the account maintained for each customer in the subsidiary ledger.

Postings to the controlling account in the general ledger are made at least once a month, whereas postings to subsidiary ledgers should be made daily.


Relationship of Subsidiary Accounts to the Controlling AccountRelationship of Subsidiary Accounts to the Controlling Account



Most companies have subsidiary ledgers for: Accounts Receivable. Accounts Payable. Notes Receivable. Short-Term Investments. Equipment.



Subsidiary ledgers should be used when management needs information on individual items composing the balance in a general ledger (controlling) account.



Q.Q. What is a controlling account?

A.A. A controlling account (control account) is an account in the general ledger that maintains the total balance of all related accounts in a subsidiary ledger.

OBJECTIVE 7

Construct and use a sales journal,

purchases journal, cash receipts

journal, cash payments journal, and

other special-purpose journals as

needed.

Constructing and Using Constructing and Using Special-Purpose JournalsSpecial-Purpose Journals


Sales JournalSales Journal

The sales journal contains all credit

sales.

Cash sales would be recorded in the

cash receipts journal.



DateAccount Debited

Invoice Number Terms

Post. Ref.

Amount (Dr. / Cr. A/R / Sales)

July1 P. Clark 721 2/10,n/30 750

5 G. Jones 722 2/10,n/30 5008 E. Cumberland 723 2/10,n/30 335

1,585

Posted to A/RPosted to A/R Posted to SalesPosted to Sales

xx

x



Procedural Steps.

1. Enter each sales invoice in the sales journal

on a single line. Record date, customer

name, invoice number, and amount.

2. At the end of each day, post each individual

sale to customer’s Accounts Receivable

account in the ledger. Mark the Post. Ref.

column to indicate it has been posted.



Procedural Steps (continued…)

3. At the end of the month, sum the Amount

column to determine the total credit sales and

post the total to the general ledger accounts

(debit Accounts Receivable and credit Sales).

4. Verify the posting accuracy by adding the

account balances of the accounts receivable

ledger and matching the total with the

Accounts Receivable controlling account.



Because the individual accounts in the subsidiary ledger are updated daily, and the controlling account in the general ledger is updated monthly, they are only equal once a month.


Sales TaxesSales Taxes

Taxes collected for city or state. Requires an additional Sales Tax

Payable column in the sales journal. Foot column once a month and post to

the Sales Tax Payable account in the general ledger.


Purchases JournalPurchases Journal

The purchases journal is used to record

purchases on credit.

Cash purchases are recorded in the cash

payments journal, not the purchases journal.

Single column purchases journal is used for

merchandise purchases only. Other purchases

are entered in the general journal.

Multi column purchases journal is used for

other purchase accounts (e.g. supplies).


Purchases JournalPurchases Journal

Procedural Steps.

1. Enter each purchase invoice in the purchases

journal on a single line.

2. At the end of each day, post each individual

purchase to the supplier’s account in the

accounts payable subsidiary ledger. Indicate

in the Post. Ref. column that a purchase has

been posted.


Purchases JournalPurchases Journal Procedural Steps (continued…)

3. At the end of the month, sum the Amount column to determine the total purchases and post the total to the general ledger accounts (debit Purchases and credit Accounts Payable).

4. Verify the posting accuracy by adding the account balances of the accounts payable ledger and matching the total with the Accounts Payable controlling account.


Cash Receipts JournalCash Receipts Journal

All transactions involving the receipt of

cash are recorded in the cash receipts

journal.

Examples of transactions recorded in

cash receipts journal: Cash sales.

Cash from credit customers.

Cash from other sources.



Cash receipts journal has more than

one column since the receipt of cash

will always result in a debit to cash.

The credit may be to various accounts

(e.g., Accounts Receivable, Sales).



Debit columns may include: Cash.

Sales Discounts.

Other Accounts.

Credit columns may include: Accounts Receivable.

Sales.

Other Accounts.



Procedural Steps.

1. At the end of each day, post each

individual cash sale to the accounts

receivable account in the accounts

receivable subsidiary ledger. Indicate in

the Post. Ref. column that a transaction

has been posted.




2. At the end of each day, post each

transaction in the Other Accounts column.

As each transaction is posted, write the

account number in the Post. Ref. column to

indicate that the posting has been done.



Procedural Steps (continued…)3. At the end of the month, total the column in the cash

receipts journal. The sum of the Debits column totals must equal the sum of the Credits column totals.

4. Post the Debits column totals by posting the total of the Cash column as a debit to the Cash account and the total of the Sales Discounts column as a debit to the Sales Discounts account.




5. Post the Credits column totals: Total of the Accounts Receivable column as a credit to

the Accounts Receivable controlling account. Total of the Sales column as a credit to the Sales account.

6. Write the account numbers below each column as

the totals are posted.

7. Other accounts are checked at the bottom


Cash Payments JournalCash Payments Journal

All transactions involving the

payments of cash are entered in the

cash payments journal (cash

disbursements journal).



Credit columns usually consist of:

Cash.

Purchases Discounts.

Other Accounts.

Debit columns usually consist of:

Accounts Payable.

Other Accounts.


Cash Payments JournalCash Payments Journal Procedural Steps.

1. Post the Accounts Payable column daily to the individual accounts in the accounts payable subsidiary ledger. Indicate in the Post. Ref. column that the transaction has been posted.

2. Post the debits/credits in the Other Accounts columns to the general ledger daily. When posted, write the account number in the Post. Ref. column to indicate the posting has been made.




3. At the end of the month, the sum of the Credits column totals must equal the sum of the Debits column totals.

4. Post the column totals for Cash, Purchases Discounts, and Accounts Payable at the end of the month to their respective accounts in the general ledger. Indicate in the Post. Ref. column that postings have been made.


General JournalGeneral Journal

Transactions that do not involve sales, purchases, cash receipts, or cash payments should be recorded in the general journal.

Typically there will be only a few transactions that are entered directly in the general journal.

Adjusting and closing entries are also recorded in the general journal.


The Flexibility ofThe Flexibility ofSpecial-Purpose JournalsSpecial-Purpose Journals

Special-purpose journals reduce and simplify the work of accounting and allow for the division of labor.

Special-purpose journals should be designed to fit the business in which they are used.



Q.Q. What are the two primary benefits of

using special-purpose journals?

A.A. Special-purpose journals reduce

and simplify the work of

accounting and allow for the

division of labor.


OK, LET’S REVIEW…OK, LET’S REVIEW…

1. Identify the principles of accounting systems design.

2. Describe how general ledger software and spreadsheet software are used in accounting.

3. Describe the use of microcomputer systems in small businesses.

4. Explain how accountants use the Internet.


WE ALSO COVERED…WE ALSO COVERED…

5. Explain the objectives and uses of special-purpose journals.

6. Explain the purposes and relationships of controlling accounts and subsidiary ledgers.

7. Construct and use a sales journal, purchases journal, cash receipts journal, cash payments journal, and other special-purpose journals as needed.

Documents

Copyright © by Houghton Mifflin Company. All rights reserved.1 Principles of Financial Accounting 2002e Belverd E. Needles, Jr. Marian Powers Susan Crosson