Accounting

Principles
Second Canadian Edition
Weygandt · Kieso · Kimmel · Trenholm

Prepared by:
Carole Bowman, Sheridan College
 CHAPTER

ACCOUNTING
INFORMATION SYSTEMS
Accounting Information System

 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.
 PRINCIPLES OF AN
EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM
The accounting
system must be
cost effective.
Benefits of
information must
outweigh the cost
of providing it.
Costs Benefits
 PRINCIPLES OF AN
EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM

It must be It must
relevant!
Balance be
timely!
It must Sheet
be Income
reliable! It must be
Statement accurate!
Other
Financial
Reports
 PRINCIPLES OF AN
EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM

Technological
Advances

Government Changing
Regulation and Accounting
Deregulation Principles
 ILLUSTRATION 7-2
PHASES IN THE DEVELOPMENT
OF AN ACCOUNTING SYSTEM
Analysis
Planning and
identifying
information needs
Follow up and sources Design

Evaluating and Creating forms,

monitoring effectiveness documents, procedures,
and efficiency and job descriptions, and
correcting any reports
weaknesses Implementation

Installing the system,

training personnel, and
making the system
operational
 SUBSIDIARY LEDGERS

 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.
 CONTROL ACCOUNT

 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.
 ILLUSTRATION 7-3
RELATIONSHIP OF GENERAL LEDGERS
AND SUBSIDIARY LEDGERS
Accounts receivable controls Accounts payable controls a
a subsidiary ledger of many subsidiary ledger of many
different customers. different creditors.

General Accounts Accounts Owner’s

Ledger Cash
Receivable Payable Capital

Subsidiary
Customer Customer Customer
Ledgers A B C
Creditor Creditor Creditor
X Y Z
 SUBSIDIARY LEDGERS

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.
 SPECIAL JOURNALS

 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.
 ILLUSTRATION 7-5
USE OF SPECIAL JOURNALS AND
THE GENERAL JOURNAL
Cash Cash General
Sales Purchases
Receipts Payments
Journal Journal Journal
Journal Journal
Used for: Used for: Used for: Used for: Used for:

Transactions
All All cash that cannot
All sales All cash purchases be entered
of received paid in a special
of journal,
merchan- (including merchan- (including including
dise on cash dise on cash correcting,
adjusting, and
account sales) account purchases) closing entries

The types of special journals used depend largely on the

types of transactions that occur frequently in a business
enterprise.
JOURNALIZING THE SALES JOURNAL –
PERPETUAL INVENTORY SYSTEM
Karns Wholesale Supply
Sales Journal S1
Account Invoice Accts Receivable Dr Cost of Goods Sold Dr
Date Ref Merchandise Inventory Cr
Debited # Sales 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

 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.
 ILLUSTRATION 7-8
PROVING THE ACCURACY OF THE
ACCOUNTS RECEIVABLE
SUBSIDIARY LEDGER
Accounts Receivable
Subsidiary Ledger
General Ledger
Abbot Sisters $26,000
Accounts Receivable $90,230 Babson Co. 25,920
Carson Bros. 7,800
Deli Co. 30,510
$90,230

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.
 CASH RECEIPTS JOURNAL
PERPETUAL SYSTEM
Karns Wholesale Supply
Cash Receipts Journal
Accounts CGS Dr/
Cash Sales Other
Date Accounts Credited Ref Receivable Inventory
Dr Cr Accounts Cr
Cr 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

54,550

 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.
 CASH RECEIPTS JOURNAL

 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.
ILLUSTRATION 7-11 PROVING
THE LEDGERS AFTER POSTING THE SALES
AND THE CASH RECEIPTS JOURNALS
General Ledger
Accounts Receivable
Debits
Subsidiary Ledger
Cash $54,550
Abbot Sisters $15,400 Accounts Receivable 51,180
Babson Co. 14,570 Cost of Goods Sold 65,120
Deli Co. 21,210 $170,850
$51,180
Credits
Merchandise Inventory $ 65,120
After the posting of the cash Notes Payable 6,000
receipts journal is completed, D. A. Karns, Capital 5,000
Sales 94,730
it is necessary to prove the $170,850
ledgers. The general ledger
totals are in agreement and
the sum of the subsidiary
ledger balances equals the
control account balance.
 PURCHASES JOURNAL
PERPETUAL SYSTEM
Karns Wholesale Supply
Purchases Journal
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.
 ILLUSTRATION 7-13
PROVING THE ACCURACY OF THE
ACCOUNTS PAYABLE SUBSIDIARY
LEDGER
General Ledger Accounts Payable
Merchandise Inventory $63,900 Subsidiary Ledger

Eaton and Howe, Inc. $19,800

Accounts Payable $63,900
Fabor and Son 15,600
Jasper Manufacturing Inc. 28,500
$63,900

To prove the ledgers it is necessary to determine that

the sum of the subsidiary ledger balances equals the
balance in the control account.
 CASH PAYMENTS JOURNAL
PERPETUAL SYSTEM

Karns Wholesale Supply

Cash Payments Journal
Merchandise Accounts Other
Cheque Cash Inventory Payable Accounts
Date # Payee Cr Dr. Dr. Account Debited Ref 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 Son
28 107 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

 Journalizing procedures are similar to cash receipts journal

 Posting procedures are also like the cash receipts journal
 ILLUSTRATION 7-16
PROVING THE ACCURACY OF THE
ACCOUNTS PAYABLE SUBLEDGER
General Ledger
Accounts Payable Debits
Cash $ 9,750
Subsidiary Ledger Accounts Receivable 51,180
Prepaid Insurance 1,200
Eaton and Howe, Inc. $12,600 D. A. Karns, Drawings 500
Fabor and Son 8,700 Purchases 64,300
Freight In 100
$21,300 $127,030

Credits
Accounts Payable $ 21,300
Notes Payable 6,000
D. A. Karns, Capital 5,000
Sales 94,730
$127,030

To prove the ledgers it is necessary to determine that

the sum of the subsidiary ledger balances equals the
balance in the control account.
 EFFECTS ON
GENERAL JOURNAL
 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).
 ILLUSTRATION 7-17
JOURNALIZING AND POSTING THE
GENERAL JOURNAL
General Journal J1
Date Account Title and Explanation Ref Debit Credit
31-May Accounts Payable-Fabor and Sons 500
Merchandise Inventory 500
Record goods returned.

General Ledger
Merchandise Inventory 120
Date Ref Debit Credit Balance
Fabor and Son 2002
Date Ref Debit Credit Balance May 31 S1 62,190 (62,190)
2002 31 CR1 2,930 (65,120)
31 P1 63,900 (1,220)
May 14 P1 6,900 6,900
31 CP1 4,500 3,280
24 CP1 6,900 - 31 G1 500 2,780
26 P1 8,700 8,700
31 G1 500 8,200 Accounts Payable 201
Date Ref Debit Credit Balance
2002
May 31 P1 63,900 63,900
31 CP1 42,600 21,300
31 G1 500 20,800
 COPYRIGHT

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