Accounting principles 10e by kieso chapter 07

7-16 SO 3 Explain how companies use special journals in journalizing.Sales Journal Illustration 7-6 Perpetual inventory system, one entry at selling price in Sales Journal results in a d

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7-1

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CHAPTER 7

Accounting Information System

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7-3

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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.

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

Basic Concepts of AIS

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7-5 SO 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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 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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7-9

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Used to keep track of individual balances.

Two common subsidiary ledgers are:

1 Accounts receivable (customers’)

2 Accounts payable (creditors’)

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

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.

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

Advantages of Subsidiary Ledgers

Subsidiary Ledgers

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7-13

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SO 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.

Special Journals

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Each of the following is a subsidiary ledger except the:

a accounts receivable ledger.

b accounts payable ledger.

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7-16 SO 3 Explain how companies use special journals in journalizing.

Sales Journal

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 cost

results in a debit to Cost of Goods Sold and a credit to Merchandise Inventory

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Companies make daily postings from the sales journal to the individual accounts receivable in the

subsidiary ledger

Posting the Sales Journal

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Posting to the general ledger is done

monthly.

Posting the Sales Journal Illustration 7-7

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Proving the Ledgers

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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

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

Cash Receipts Journal

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Cash sales of merchandise are recorded in the:

a cash payments journal.

b cash receipts journal.

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7-25 SO 4 Indicate how companies post a multi-column journal.

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

the general ledger.

Purchases Journal

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SO 4 Indicate how companies post a multi-column journal.

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All of the following are advantages of using subsidiary

ledgers except they:

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.

Question

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

Cash Payments Journal

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Cash Payments

Journal

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Cash Payments Journal

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Credit purchases of equipment or supplies other than

merchandise are recorded in the:

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Cash payments of merchandise are recorded in the:

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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

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Key Points

 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.

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Key Points

 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

 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

The definitional structure of assets, liabilities, equity, revenues, and expenses 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 both high-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 Auditing and 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

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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.

IFRS Self-Test Questions

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Indicate which of these statements 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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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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