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Accounting Accounting PrinciplesPrinciplesSecond Canadian EditionSecond Canadian Edition
Prepared by: Carole Bowman, Sheridan College
Weygandt · Kieso · Kimmel · Trenholm
ACCOUNTING ACCOUNTING INFORMATION SYSTEMSINFORMATION SYSTEMS
CHAPTERCHAPTER
77
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.
Accounting Information SystemAccounting Information System
PRINCIPLES OF AN PRINCIPLES OF AN EFFICIENT AND EFFECTIVE EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEMACCOUNTING INFORMATION SYSTEM
Costs Benefits
The accounting system must be cost effective.Benefits of information must outweigh the cost of providing it.
PRINCIPLES OF AN PRINCIPLES OF AN EFFICIENT AND EFFECTIVE EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEMACCOUNTING INFORMATION SYSTEM
It must be relevant!
It must be
reliable! It must be accurate!
It must be
timely!Balance
SheetIncome
StatementOther
Financial Reports
PRINCIPLES OF AN PRINCIPLES OF AN EFFICIENT AND EFFECTIVE EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEMACCOUNTING INFORMATION SYSTEM
Government Regulation and Deregulation
Organizational Growth Increased
Competition
Changing Accounting Principles
Technological Advances
ILLUSTRATION ILLUSTRATION 7-27-2PHASES IN THE DEVELOPMENT PHASES IN THE DEVELOPMENT OF AN ACCOUNTING SYSTEMOF AN ACCOUNTING SYSTEM
Analysis
Follow up Design
Implementation
Planning and identifying
information needs and sources
Evaluating and monitoring effectiveness
and efficiency and correcting any
weaknesses
Creating forms, documents, procedures,
job descriptions, and reports
Installing the system, training personnel, and
making the system operational
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.
SUBSIDIARY LEDGERSSUBSIDIARY LEDGERS
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.
CONTROL ACCOUNTCONTROL ACCOUNT
ILLUSTRATION ILLUSTRATION 7-37-3 RELATIONSHIP OF GENERAL LEDGERS RELATIONSHIP OF GENERAL LEDGERS
AND SUBSIDIARY LEDGERSAND SUBSIDIARY LEDGERSAccounts receivable controls a subsidiary ledger of many
different customers.
GeneralLedger
SubsidiaryLedgers
Cash Owner’sCapital
AccountsReceivable
AccountsPayable
CustomerA
CustomerB
CustomerC
Accounts payable controls a subsidiary ledger of many
different creditors.
CreditorX
CreditorY
CreditorZ
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.
SUBSIDIARY LEDGERSSUBSIDIARY LEDGERS
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.
SPECIAL JOURNALS
ILLUSTRATION ILLUSTRATION 7-57-5 USE OF SPECIAL JOURNALS AND USE OF SPECIAL JOURNALS AND
THE GENERAL JOURNALTHE GENERAL JOURNALSales
JournalCash
ReceiptsJournal
Purchases Journal
Cash PaymentsJournal
GeneralJournal
Used for:
All sales of
merchan-dise on account
Used for:
All cash received
(including cash sales)
Used for:
All purchases
of merchan-dise on account
Used for:
All cash paid
(includingcash
purchases)
Used for:
Transactionsthat cannotbe enteredin 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.
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.
JOURNALIZING THE SALES JOURNAL – JOURNALIZING THE SALES JOURNAL – PERPETUAL INVENTORY SYSTEMPERPETUAL INVENTORY SYSTEM
Date Account Debited
Invoice # Ref Accts Receivable Dr
Sales Cr Cost of Goods Sold Dr
Merchandise Inventory Cr May 3 Abbot Sisters 101 10,600 6,360
7 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
Karns Wholesale SupplySales Journal S1
ILLUSTRATION ILLUSTRATION 7-87-8 PROVING THE ACCURACY OF THE PROVING THE ACCURACY OF THE
ACCOUNTS RECEIVABLE ACCOUNTS RECEIVABLE SUBSIDIARY LEDGERSUBSIDIARY LEDGER
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.
General Ledger
Accounts Receivable $90,230
Accounts Receivable Subsidiary Ledger
Abbot Sisters $26,000Babson Co. 25,920Carson Bros. 7,800Deli Co. 30,510
$90,230
CASH RECEIPTS JOURNAL CASH RECEIPTS JOURNAL PERPETUAL SYSTEMPERPETUAL SYSTEM
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.
Date Accounts Credited Ref Cash Dr
Accounts Receivable
Cr
Sales Cr
CGS Dr/ Inventory
Cr
Other Accounts Cr
May 3 D. A. Karns, Capital 50 5,000 5,000 7 1,900 1,900 1,240 10 Abbot Sisters 10,600 10,600 12 2,600 2,600 1,690 17 Babson Co. 11,350 11,350 21 Notes Payable – 21 6,000 6,000 24 Carson Bros. 7,800 7,800 28 Deli Co. 9,300 9,300 54,550 39,050 4,500 2,930 11,000
Karns Wholesale SupplyCash Receipts Journal
54,550
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.
CASH RECEIPTS JOURNALCASH RECEIPTS JOURNAL
ILLUSTRATION ILLUSTRATION 7-117-11 PROVING THE LEDGERS AFTER POSTING THE PROVING THE LEDGERS AFTER POSTING THE SALES AND THE CASH RECEIPTS JOURNALSSALES AND THE CASH RECEIPTS JOURNALS
Accounts ReceivableSubsidiary Ledger
Abbot Sisters $15,400Babson Co. 14,570Deli Co. 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 LedgerDebits
Cash $54,550Accounts Receivable 51,180Cost of Goods Sold 65,120
$170,850
CreditsMerchandise Inventory $ 65,120Notes Payable 6,000D. A. Karns, Capital 5,000Sales 94,730
$170,850
PURCHASES JOURNAL PURCHASES JOURNAL PERPETUAL SYSTEMPERPETUAL SYSTEM
Merchandise Inventory Dr. Date Account Credited Terms Ref. Accounts Payable Cr. May 6 Jasper Manufacturing Inc. n/20 11,000 10 Eaton and Howe Inc. n/20 7,200 14 Fabor and Son n/20 6,900 19 Jasper Manufacturing Inc. n/20 17,500 26 Fabor and Son n/20 8,700 29 Eaton and Howe Inc. n/20 12,600 63,900
In 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.
Karns Wholesale SupplyPurchases Journal
ILLUSTRATION 7-13 PROVING THE ACCURACY OF THE
ACCOUNTS PAYABLE SUBSIDIARY LEDGER
To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account.
Accounts Payable Subsidiary Ledger
Eaton and Howe, Inc. $19,800Fabor and Son 15,600Jasper Manufacturing Inc. 28,500
$63,900
General LedgerMerchandise Inventory $63,900
Accounts Payable $63,900
CASH PAYMENTS JOURNAL CASH PAYMENTS JOURNAL PERPETUAL SYSTEMPERPETUAL SYSTEM
Journalizing procedures are similar to cash receipts journalPosting procedures are also like the cash receipts journal
Karns Wholesale SupplyCash Payments Journal
DateCheque
# PayeeCash
Cr
Merchandise Inventory
Dr.
Accounts Payable
Dr. Account Debited Ref
Other Accounts
Dr.May 3 101 Corporate General Ins. 1,200 Prepaid insurance 130 1,200
3 102 Canpar 100 100 7 103 Zwicker 4,400 4,400
10 104 Jasper Manufaturing Inc. 11,000 11,000 Jasper Manufaturing Inc.19 105 Eaton & Howe, Inc. 7,200 7,200 Eaton & Howe, Inc.24 106 Fabor and Son 6,900 6,900 Fabor and Son28 107 Jasper Manufaturing Inc. 17,500 17,500 Jasper Manufaturing Inc.31 108 D.A.Karns 500 D.A. Karns, Drawings 306 500
48,800 4,500 42,600 1,700
ILLUSTRATION ILLUSTRATION 7-167-16 PROVING THE ACCURACY OF THE PROVING THE ACCURACY OF THE ACCOUNTS PAYABLE SUBLEDGERACCOUNTS PAYABLE SUBLEDGER
To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account.
Accounts Payable Subsidiary Ledger
Eaton and Howe, Inc. $12,600Fabor and Son 8,700
$21,300
General LedgerDebitsCash $ 9,750Accounts Receivable 51,180Prepaid Insurance 1,200 D. A. Karns, Drawings 500Purchases 64,300Freight In 100
$127,030
CreditsAccounts Payable $ 21,300Notes Payable 6,000D. A. Karns, Capital 5,000Sales 94,730
$127,030
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).
EFFECTS ON EFFECTS ON GENERAL JOURNALGENERAL JOURNAL
ILLUSTRATION ILLUSTRATION 7-177-17 JOURNALIZING AND POSTING THE JOURNALIZING AND POSTING THE
GENERAL JOURNALGENERAL JOURNALJ1
Date Account Title and Explanation Ref Debit Credit31-May Accounts Payable-Fabor and Sons 500
Merchandise Inventory 500 Record goods returned.
General Journal
120Date Ref Debit Credit Balance2002
May 31 S1 62,190 (62,190) 31 CR1 2,930 (65,120) 31 P1 63,900 (1,220) 31 CP1 4,500 3,280 31 G1 500 2,780
General LedgerMerchandise Inventory
201Date Ref Debit Credit Balance2002
May 31 P1 63,900 63,900 31 CP1 42,600 21,300 31 G1 500 20,800
Accounts Payable
Date Ref Debit Credit Balance2002
May 14 P1 6,900 6,900 24 CP1 6,900 - 26 P1 8,700 8,700 31 G1 500 8,200
Fabor and Son
COPYRIGHTCOPYRIGHT
Copyright © 2002 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by CANCOPY (Canadian Reprography Collective) is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his / her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.