Prepared by Coby Harmon University of California, Santa Barbara...

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Prepared byCoby Harmon

University of California, Santa BarbaraWestmont College

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7Learning Objectives

After studying this chapter, you should be able to:

[1] Identify the basic concepts of an accounting information system.

[2] Describe the nature and purpose of a subsidiary ledger.

[3] Explain how companies use special journals in journalizing.

Accounting Information Systems

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Preview of Chapter 7

Accounting PrinciplesEleventh Edition

Weygandt Kimmel Kieso

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Accounting information system (AIS) collects and processes transaction data and communicates financial information to decision makers.

Includes:

All steps in the accounting cycle.

Documents that provide evidence of transactions.

Manual or computerized accounting system.

LO 1 Identify the basic concepts of an accounting information system.

Basic Concepts of AIS

7-5 LO 1 Identify the basic concepts of an accounting information system.

Cost Effectiveness - Benefits must outweigh the costs.

Flexibility - The system should be sufficiently flexible to meet the resulting changes in the

demands made upon it.

Useful Output

Illustration 7-1 Principles of an efficient and effective AIS.


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Software programs (functions include sales, purchases, receivables, payables, cash receipts and disbursements, and payroll).

Generate financial statements.

Advantages:

► Typically enter data only once.

► Many human errors are eliminated.

► More timely information.

Computerized Accounting Systems



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Choosing a software package.

Entry-Level Software.

► Easy data access and report preparation

► Audit trail

► Internal control

► Customization

► Network Compatibility

Enterprise Resource Planning Systems.



Computerized Accounting Systems

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Perform each step in the accounting cycle by hand.

Satisfactory with a low volume of transactions.

Must understand manual accounting systems to understand computerized accounting systems.

Manual Accounting Systems



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Used to keep track of individual balances.

Two common subsidiary ledgers are:

1. Accounts receivable (customers’)

2. Accounts payable (creditors’)

LO 2 Describe the nature and purpose of a subsidiary ledger.

Subsidiary Ledgers

Illustration 7-2 Relationship of general ledger and subsidiary ledgers

7-11 LO 2

Subsidiary LedgersIllustration 7-2 Relationship of general and subsidiary ledgers

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1. Show in a single account transactions affecting one customer or one creditor.

2. Free the general ledger of excessive details.

3. Help locate errors in individual accounts.

4. Make possible a division of labor.

LO 2 Describe the nature and purpose of a subsidiary ledger.

Advantages of Subsidiary Ledgers

Subsidiary Ledgers

7-14 LO 3 Explain how companies use special journals in journalizing.

Used to record similar types of transactions.

If a transaction cannot be recorded in a special journal, the company records it in the general journal.

Illustration 7-5

Special Journals

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Each of the following is a subsidiary ledger except the:

Question

Special Journals

LO 3 Explain how companies use special journals in journalizing.

a. accounts receivable ledger.

b. accounts payable ledger.

c. customer’s ledger.

d. general ledger.


Sales JournalIllustration 7-6

Perpetual inventory system, one entry at selling price in Sales Journal results in a debit to Accounts Receivable and a credit to Sales. Another entry at costresults in a debit to Cost of Goods Sold and a credit to Inventory.

Special Journals

2014


Illustration 7-7

Companies make daily postings from the sales journal to the individual

accounts receivable in the subsidiary ledger.

Posting the Sales Journal

Special Journals

20142014

2014

2014

2014


Posting to the general ledger is done monthly.

Special Journals

Posting the Sales Journal Illustration 7-7

20142014

2014

2014

2014

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Proving the Ledgers


Special Journals

Illustration 7-8

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One-line entry for each sales transaction saves time.

Only totals, rather than individual entries, are posted to the general ledger.

A division of labor results.

Advantages of Sales Journal


Special Journals


In the cash receipts journal, companies record all receipts of cash.

Illustration 7-9Cash Receipts Journal

Special Journals

2014

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Not all of the subsidiary or general ledger accounts are shown on the illustration to the right. See Illustration 7-9 for the complete illustration.

Illustration 7-9Posting the Cash Receipts Journal

Special Journals

Illustration 7-9


Special Journals

Illustration 7-11Proving the Ledgers

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Cash sales of merchandise are recorded in the


Special Journals

Question

a. cash payments journal.

b. cash receipts journal.

c. general journal.

d. sales journal.

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Which of the following is not one of the credit columns in the cash receipts journal:

Special Journals

Question

a. Other accounts

b. Accounts payable

c. Accounts receivable

d. Sales


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Illustration 7-13

Daily postings are made from the purchases journal to the accounts

payable subsidiary ledger.

Purchases Journal

Special Journals

2014

2014

2014

2014


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At the end of the accounting period, the company posts totals to

the general ledger.

Special Journals

Purchases Journal

Illustration 7-13

2014

2014

2014


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Special Journals

Illustration 7-14

Proving the Ledgers


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All of the following are advantages of using subsidiary ledgers except they:

Special Journals

Question

a. show transactions affecting one customer or one creditor in a single account.

b. free the general ledger of excessive details.

c. eliminate errors in individual accounts.

d. make possible a division of labor.


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In a cash payments (cash disbursements) journal, companies record all disbursements of cash.

Illustration 7-16Cash Payments Journal

Special Journals

2014


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Illustration 7-16

Cash Payments Journal

Special Journals

2014

2014

2014

2014


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Illustration 7-16

Cash Payments Journal

Special Journals

2014

2014

2014

2014

2014

2014

2014


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Proving the Ledgers

Special Journals

Illustration 7-17


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Credit purchases of equipment or supplies other than merchandise are recorded in the:

Special Journals

Question



c. general journal.

d. purchases journal.


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Cash payments of merchandise are recorded in the:

Special Journals

Question



c. general journal.

d. purchases journal.


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Special journals substantially reduce the number of entries that companies make in the general journal.

Only transactions that cannot be entered in a special journal are recorded in the general journal.

Also, correcting, adjusting, and closing entries are made in the general journal.

Effects of Special Journals on General Journal

Special Journals


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Special JournalsIllustration 7-18Journalizing and posting thegeneral journal


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The basic concepts related to an accounting information system are the same under GAAP and IFRS.

The use of subsidiary ledgers and control accounts, as well as the system used for recording transactions, are the same under GAAP and IFRS.

The overriding principle in converting to IFRS is full retrospective application of IFRS. Retrospective application—recasting prior financial statements on the basis of IFRS—provides financial statement users with comparable information.

Key Points

A Look at IFRS

LO 4 Compare the procedures for accounting information systems under GAAP and IFRS.

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Key Points

A Look at IFRS

As indicated, the objective of the conversion process is to present a set of IFRS statements as if the company always reported under IFRS. To achieve this objective, a company follows these steps.

1. Identify the timing of its first IFRS statements.

2. Prepare an opening balance sheet at the date of transition to IFRS.

3. Select accounting principles that comply with IFRS, and apply these principles retrospectively.

4. Make extensive disclosures to explain the transition to IFRS.


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Key Points

A Look at IFRS

Once a company decides to convert to IFRS, it must decide on the transition date and the reporting date. The transition date is the beginning of the earliest period for which full comparative IFRS information is presented. The reporting date is the closing balance sheet date for the first IFRS financial statements.

Upon first-time adoption of IFRS, a company must present at least one year of comparative information under IFRS.


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Looking to the Future

A Look at IFRS

The definitional structure of assets, liabilities, equity, revenues, andexpenses may change over time as the IASB and FASB evaluate their overall conceptual framework for establishing accounting standards. In addition, high-quality international accounting requires bothhigh-quality accounting standards and high-quality auditing. Similar to the convergence of U.S. GAAP and IFRS, there is a movement to improve international auditing standards. The International Auditingand Assurance Standards Board (IAASB) functions as an independent standard-setting body. It works to establish high-quality auditing and assurance and quality-control standards throughout the world. Whether the IAASB adopts internal control provisions similar to those in SOX remains to be seen. You can follow developments in the international audit arena at http://www.ifac.org/laasb/.

LO 4

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IFRS Self-Test Questions

A Look at IFRS

Information in a company’s first IFRS statements must:

a. have a cost that does not exceed the benefits.

b. be transparent.

c. provide a suitable starting point.

d. All the above.


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A Look at IFRS

Indicate which of these is false.

a. The use of subsidiary ledgers is the same under IFRS and GAAP.

b. GAAP and IFRS use the same accounting principles.

c. The use of special journals is the same under IFRS and GAAP.

d. At conversion, companies should retrospectively adjust the financial statements presented following IFRS.


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A Look at IFRS

The transition date is the date:

a. when a company no longer reports under its national standards.

b. when the company issues its most recent financial statement under IFRS.

c. three years prior to the reporting date.

d. None of the above.


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