Ch. 7
Accounting Information Systems: Chapter 7 Study Notes
Chapter Overview
Learning Objectives
Conceptual Learning
C1: Identify the principles and components of accounting information systems.
C2: Explain special journals, controlling accounts, and subsidiary ledgers.
Analytical Learning
A1: Compute days' payable outstanding and explain its use in assessing payments to suppliers.
Procedural Learning
P1: Journalize and post transactions using a sales journal.
P2: Journalize and post transactions using a cash receipts journal.
P3: Journalize and post transactions using a purchases journal.
P4: Journalize and post transactions using a cash payments journal.
Learning Objective C1: Principles and Components of Accounting Information Systems
System Principles
The five system principles of accounting information systems are:
Control: Ensures integrity and compliance within the information system.
Relevance: Information should be relevant to the needs of users and decision-makers.
Compatibility: The system should be compatible with existing systems and processes.
Flexibility: Adaptability of the system to changes in the business environment or operations.
Cost-Benefit: The benefits gained from the system should outweigh the costs incurred.
System Components
Accounting information systems consist of five main components:
Source Documents: Original records that capture data for transactions (e.g., invoices, receipts).
Input Devices: Tools for entering data into the system (e.g., keyboards, scanners).
Information Processors: Systems that process data into meaningful information (e.g., accounting software).
Information Storage: Repositories for storing processed information (e.g., databases, digital file systems).
Output Devices: Means of presenting information to users (e.g., reports, dashboards).
Paperless Systems
Increasingly, accounting systems are incorporating electronic files, thus creating a “paperless” environment.
Learning Objective C2: Special Journals, Controlling Accounts, and Subsidiary Ledgers
Special Journals and Subsidiary Ledgers
Special journals are used to streamline the recording of specific types of transactions, aiding in the management of financial information.
Controlling Accounts and Subsidiary Ledgers Example:
Amounts due from customers are recorded in the Accounts Receivable controlling account, while detailed records are maintained in the Accounts Receivable Ledger.
Similarly, amounts owed to creditors are managed through the Accounts Payable controlling account and tracked in the Accounts Payable Ledger.
Subsidiary ledgers are listings of individual accounts that share common characteristics, helping to maintain detailed financial records.
Accounts Receivable and Accounts Payable Ledgers
After posting all items, the balance in the accounts receivable controlling account must equal the aggregate balances in the accounts receivable subsidiary ledger.
Learning Objective P1: Journalize and Post Transactions Using a Sales Journal
Sales Journal Features
A sales journal records credit sales transactions and is structured with specific columns:
Date
Account Debited
Invoice Number
P R
Accounts Receivable Debit
Sales Credit
Cost of Goods Sold Debit
Inventory Credit
Schedule of Accounts Receivable Example
As of February 28, individual customer balances include:
Albert Co.: $750
Frank Booth: $175
Jason Henry: $675
Kam Moore: $350
Paul Roth: $200
Total Accounts Receivable: $2150
The accounts receivable controlling account in the general ledger must match the totals recorded in the accounts receivable subsidiary ledger.
Learning Objective P2: Journalize and Post Transactions Using a Cash Receipts Journal
Cash Receipts Journal Features
The cash receipts journal records all types of cash inflows, organized into specific columns:
Date
Account Credited
Explanation
P R
Cash Debit
Sales Discount Debit
Accounts Receivable Credit
Sales Credit
Other Accounts Credit
Cost of Goods Sold Debit
Inventory Credit
Example Cash Receipts Journal Entries
On February 7, cash sales of $4,450 were recorded.
Total receipts need to be reconciled in the journal following the organizational structure of columns to ensure accuracy in posting.
Learning Objective P3: Journalize and Post Transactions Using a Purchases Journal
Purchases Journal Features
This journal records purchases made on credit. It has designated columns for:
Date
Account
Date of Invoice
Terms
P R
Accounts Payable Credit
Inventory Debit
Office Supplies Debit
Other Accounts Debit
Example Purchases Journal Entries
Recorded entries reflect transactions with various suppliers. An example is the purchase from Horning Supply Co. on February 3 for $350. Total accounts payable should match the controlling account after postings are completed.
Learning Objective P4: Journalize and Post Transactions Using a Cash Payments Journal
Cash Payments Journal Features
Tracks cash outflows and contains entries for:
Date
Check Number
Payee
Account Debited
P R
Cash Credit
Inventory Credit
Other Accounts Debit
Accounts Payable Debit
Example Cash Payments Journal Entries
For instance, on February 3, a payment of $15 was made to L. & N. Railroad for inventory, affecting both cash and inventory accounts based on debits and credits structured in the journal.
Technology in Accounting
Technology-Based Accounting Systems
Familiar accounting software (e.g., Sage 50, QuickBooks) is designed for user-friendliness and efficiency.
Integrated Software: Ensures actions taken in one part of the accounting system (like entry of a credit sale) automatically update all interconnected sections.
Data Processing Types:
Online Processing: Immediate data entry and processing.
Batch Processing: Accumulating data for processing at scheduled intervals (daily, weekly, monthly).
Cloud Computing: Delivers computing as a service over the web, allowing access to applications without installation on local machines.
Data Analytics and Visualization
Data Analytics
The process of analyzing data to uncover meaningful relationships and trends, empowering staff to make informed, data-driven decisions.
Key for tracking progress against projections or benchmarks.
Data Visualization
The graphical representation of data, which aids comprehension and facilitates better decision-making by presenting information in an accessible and meaningful way.
Days’ Payable Outstanding
Definition
Days’ payable outstanding is a metric used to assess how efficiently a company is managing its accounts payable.
Use
Helps measure the average number of days a company takes to pay its suppliers.
Example Assessment:
Costco Example:
Accounts Payable:
Current Year: $11,679 million
Prior Year: $11,237 million
Two Years Prior: $9,608 million
Cost of Goods Sold:
Current Year: $132,886 million
Prior Year: $123,152 million
Days’ Payable Outstanding:
Current Year: 32.1 days
Prior Year: 33.3 days
Two Years Prior: 31.3 days
Walmart Example:
Days’ payable outstanding measured consistently reflects efficient payment strategies.
Endnote
The data and insights in this chapter can provide invaluable context for understanding accounting practices and systems, vital for both academic and professional applications, in alignment with principles of accounting outlined in the 25th edition of Wild and Shaw's "Fundamental Accounting Principles," published by McGraw-Hill Education in 2021.