Chapter 8. Describe an effective accounting information system. Learning Objectives. Objective 1. Accounting Information Systems

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1 PowerPoint to accompany Chapter 8 Accounting Information Systems Learning Objectives 1. Describe an effective accounting information system 2. Understand both computerised and manual accounting systems 3. Understand how spreadsheets are used in accounting 4. Use the sales journal, the cash receipts journal and the accounts receivable ledger 5. Use the purchases journal, the cash payments journal and the accounts payable ledger Objective 1 Describe an effective accounting information system.

2 Basic Features Control Compatibility Flexibility Cost-benefit relationship Basic Features Internal controls are the methods and procedures used to authorise transactions and safeguard assets. Compatibility means that the system works smoothly with operations, personnel, and the organisational structure. Basic Features Flexibility relates to the system s ability to accommodate changes in the organisation. Af favourable cost-benefit relationship indicates that the cost of controls do not exceed their value to the organisation.

3 Computerised Accounting System Hardware Software Computerised Accounting System Hardware is the electronic equipment that makes up a computer system. Software is a system of programs that di drive the computer to perform various functions. Objective 2 Understand both computerised and manual accounting systems.

4 Three Stages of Data Processing Computerised Accounting System Designing an Accounting System Design of the accounting system begins with the chart of accounts. The chart of accounts lists all accounts and their account number in the ledger.

5 Menu-Driven Accounting System Computer systems are organised by function or task. Computer systems usually have a choice of processing options on a menu. Menu-Driven Accounting System Preparing Accounting Reports Trial Balance Financial Statements Accounts Receivable Detail Accounts Payable Detail Daily Cash Report Income Statement t t Statement t t of Changes in Equity Balance Sheet Cash Flow Statement Use arrow keys to make choice. Press <return> to access choice. Press F7 <escape> to leave menu. REPORTS

6 Objective 3 Understand how spreadsheets are used in accounting. Integrated Accounting Software Computerised accounting systems are organised by modules. These modules are separate but integrated units. A sales transaction entry will update two modules: 1 Accounts Receivable / Sales 2 Inventory / Cost of Sales Anna s Boutique Example Anna wants to budget for expected cash collections in the month of May. Past experience indicates that 50% of credit sales are collected in the month of sales and 50% the following month.

7 Anna s Boutique Example May sales were $250,000. $50,000 were cash sales. April credit sales amounted to $120, What are the expected cash collections during the month of May? Anna s Boutique Example May cash sales $ 50,000 Collection of April s credit sales 60,000 Collection of May s credit sales 100,000 Total $210, Spreadsheets make calculations like these easier. Changes to one number allow that change to flow through the entire spreadsheet. Spreadsheet Example

8 Objective 4 Use the sales journal, the cash receipts journal and the accounts receivable ledger. Special Journals What are special journals? They are accounting journals used to record one specific type of regular transaction. What are some examples? Sales Cash Receipts Payroll Purchases Cash Payments Using the Sales Journal Sales Journal Page 5 Invoice Account Account Post Date Number Debited Number Ref. Amount Jan Joe Co Jan May Co Jan XYZ Co TOTAL 2, / 410

9 Using the Sales Journal Sales Journal Page 5 Invoice Account Account Post Date Number Debited Number Ref. Amount Jan XYZ Co TOTAL 2, / 410 General Ledger Account: Accounts Receivable Account Number: 120 Date Description Post Ref Debit Credit Balance Jan. 2 Sales SJ5 2,200 2,200 Using the Sales Journal Sales Journal Page 5 Invoice Account Account Post Date Number Debited Number Ref. Amount Jan XYZ Co TOTAL 2, /410 General Ledger Account: Credit Sales Account Number: 410 Date Description Post Ref Debit Credit Balance Jan. 2 Sales SJ5 2,200 2,200 Subsidiary Ledger A subsidiary ledger is often used to provide details on individual balances of... customers (accounts receivable) and... suppliers (accounts payable).

10 A Control Account What is a control account? It is the general ledger account. It equals the sum of the individual account balances in a subsidiary ledger. Cash Receipts Journal Debits Credits Sales Accounts Sales Date Cash Discounts Receivable Revenue Jan , ,000 (101) (420) (112) (410) Accounts Receivable XYZ Company Subsidiary Ledger Jrnl. Date Ref. Debit Credit Balance Jan. 2 S CR

11 General Ledger Cash No. 101 Jrnl. Debit Date Ref. Debit Credit Balance Jan. 31 CR.6 1,882 See Exhibit 8-9 page 331 for a comprehensive example Cash Receipts Journal Additional columns are provided to enter other account descriptions and amounts. Cash receipts amounts affecting subsidiary ledger accounts are posted daily to keep customer balances up to date. At month end, foot and crossfoot the journal and post to the general ledger. Objective 5 Use the purchases journal, the cash payments journal and the accounts payable ledger.

12 Purchases Journal This is designed to account for all purchases of inventory, supplies, services, and other assets on credit. Purchases Journal Cash purchases are recorded in the cash payments journal. At month end the journal is footed (totalled) and crossfooted. Posting to the general ledger is similar to posting from sales and cash receipts journals. See Exhibit 8-10 page 334 for a comprehensive example Cash Payments Journal Most payments are by cheque (or electronic transfer) and are recorded in the cash payments journal. The cash payments journal may also be called the: cheque register cash disbursements journal payments register Today it will usually be linked to your online banking.

13 Cash Payments Journal This has columns for: Date Cheque number (or transfer number) Account Debited Debits Other Accounts, Accounts payable Credits Purchase Discounts, Cash at Bank See Exhibit 8-11 page 336 for a comprehensive example General Journal Special journals save much time in recording repetitive transactions and posting to the ledger. However, some transactions do not fit into any of the special journals. General Journal Every accounting system needs a general journal. What entries are recorded in the general journal? depreciation expiration of prepaid insurance accrual of salaries payable adjusting and closing entries

14 General Journal Many companies record sales returns and allowances and purchase returns in the general journal. A credit note (or credit memo) is the document issued by the seller for a credit to a customer s Accounts Receivable. Purchase Returns and Allowances A debit note or debit memo is the business document that states that the buyer no longer owes the seller for the amount of the returned purchases. The buyer debits the Accounts Payable to the seller and credits Inventory. 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.

15 PowerPoint to accompany End of Chapter 8

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