Accounting principles 11e kieso kimmel chapter 007

Computerized Accounting Systems LO 1 Identify the basic concepts of an accounting information system.Basic Concepts of AIS...  Enterprise Resource Planning Systems.LO 1 Identify the bas

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Prepared by Coby Harmon University of California, Santa Barbara

Westmont College

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7

Learning 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 Principles Eleventh 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:

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

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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.

Basic Concepts of 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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7-8

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 Perform each step in the accounting cycle by hand.

 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:

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

Subsidiary Ledgers

Illustration 7-2 Relationship of general ledger and subsidiary ledgers

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7-11 LO 2

Subsidiary Ledgers Illustration 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

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7-13

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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.

Special Journals

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Each of the following is a subsidiary ledger except the:

Question

a accounts receivable ledger.

b accounts payable ledger.

c customer’s ledger.

d general ledger.

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7-16 LO 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 Inventory

2014

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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

2014 2014

2014

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Posting to the general ledger is done

monthly.

Posting the Sales Journal Illustration 7-7

2014 2014

2014

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Proving the Ledgers

LO 3 Explain how companies use special journals in journalizing.Special Journals

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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.

Advantages of Sales Journal

LO 3 Explain how companies use special journals in journalizing.Special Journals

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

Cash Receipts Journal

2014

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Cash sales of merchandise are recorded in the

Question

a cash payments journal.

b cash receipts journal.

c general journal.

d sales journal.

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All of the following are advantages of using subsidiary

ledgers except they:

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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Credit purchases of equipment or supplies other than

merchandise are recorded in the:

Question

c general journal.

d purchases journal.

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Cash payments of merchandise are recorded in the:

Question

c general journal.

d purchases journal.

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entries that companies make in the general journal

journal are recorded in the general journal.

made in the general journal.

Effects of Special Journals on General Journal

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the same under GAAP and IFRS

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

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

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, 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 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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