What is an accounting information system (AIS)?

The system of people, records, and procedures used to collect and process transactions and communicate financial information to decision-makers. It can be manual or computerized.

What are the three principles of an efficient AIS?

Cost-effectiveness, useful output, and flexibility.

AIS principle — cost-effectiveness?

The value of the information the system produces must be worth the cost of producing it.

AIS principle — useful output?

The information must be understandable, relevant, reliable, and timely for the people who use it.

AIS principle — flexibility?

The system should accommodate growth and changing needs without having to be rebuilt from scratch.

What is a subsidiary ledger?

A group of accounts sharing a common characteristic — one account per customer or per supplier — that keeps detail out of the general ledger.

What is the accounts receivable subsidiary ledger?

A ledger with one account for each credit CUSTOMER, showing how much each individual customer owes.

What is the accounts payable subsidiary ledger?

A ledger with one account for each SUPPLIER the company buys from on account, showing how much is owed to each.

What is a control account?

A general-ledger account (e.g., Accounts Receivable, Accounts Payable) whose balance equals the total of all accounts in its subsidiary ledger.

How do a control account and its subsidiary ledger relate?

The control account holds the total; the subsidiary ledger holds the individual pieces. The control balance must equal the sum of the subsidiary balances.

Name benefits of subsidiary ledgers.

They show individual balances, keep the general ledger uncluttered, help locate errors, and let different people record at once (division of labor).

What is a special journal?

A journal used to record a particular type of transaction that occurs frequently, so it can be recorded on one line and posted in totals.

What are the four common special journals?

Sales journal, cash receipts journal, purchases journal, and cash payments journal.

What does the sales journal record?

All sales of merchandise ON ACCOUNT (credit sales of merchandise) — nothing else.

Are cash sales recorded in the sales journal?

No. Cash sales go in the cash receipts journal. The sales journal is for CREDIT sales of merchandise only.

Sales journal — how are individual amounts posted?

Daily, to each customer's account in the accounts receivable subsidiary ledger.

Sales journal — how is the column total posted?

Monthly (once), as a debit to Accounts Receivable and a credit to Sales Revenue.

Sales journal — the cost side under a perpetual system?

Each sale's cost is also captured: the monthly total posts as a debit to Cost of Goods Sold and a credit to Inventory.

What does the cash receipts journal record?

Every transaction in which cash is received — cash sales, collections on account, and other receipts like owner investments or interest.

Cash receipts journal — typical columns?

Cash (Dr), Sales Discounts (Dr), Accounts Receivable (Cr), Sales Revenue (Cr), and Other Accounts (Cr) — plus COGS (Dr)/Inventory (Cr) for cash sales.

Cash receipts journal — how is the Accounts Receivable column handled?

Individual amounts post daily to each customer's subsidiary account; the column total posts monthly to the Accounts Receivable control account.

Cash receipts journal — how is the 'Other Accounts' column posted?

Individually — each amount posts to its own general-ledger account; the column total is NOT posted.

What does the purchases journal record?

All purchases of merchandise ON ACCOUNT. (A single-column purchases journal handles only credit merchandise purchases.)

Purchases journal — how are amounts posted?

Individual amounts post daily to each supplier's subsidiary account; the total posts monthly as a debit to Inventory and a credit to Accounts Payable.

Single-column vs. multi-column purchases journal?

A single-column journal records only credit merchandise purchases; a multi-column version can also record credit purchases of supplies, equipment, etc.

What does the cash payments journal record?

Every transaction in which cash is paid — payments to suppliers, expenses, cash purchases, and owner withdrawals.

Cash payments journal — typical columns?

Cash (Cr), Inventory (Cr, for purchase discounts taken), Accounts Payable (Dr), and Other Accounts (Dr).

Cash payments journal — what does the Inventory credit column capture?

Purchase discounts taken — paying less than the invoice reduces the cost of inventory under a perpetual system.

When are special-journal column TOTALS posted?

Monthly, to the general ledger control and summary accounts.

When are individual customer/supplier amounts posted?

Daily, to the accounts receivable or accounts payable subsidiary ledger, so each balance stays current.

How are amounts in an 'Other Accounts' column posted?

Individually to their own general-ledger accounts — the column has no single total to post.

What does it mean to 'prove the ledgers'?

Prepare a schedule listing each subsidiary balance and total it; that total must equal the related control account balance.

What is a schedule of accounts receivable?

A month-end list of every customer's balance from the receivable subsidiary ledger; its total must equal the Accounts Receivable control account.

What is a schedule of accounts payable?

A month-end list of every supplier's balance from the payable subsidiary ledger; its total must equal the Accounts Payable control account.

What transactions go in the general journal?

Anything that doesn't fit a special journal — sales/purchase returns, purchases of assets on account, and correcting, adjusting, and closing entries.

A customer returns merchandise bought on account — where is it recorded?

In the general journal (debit Sales Returns and Allowances, credit Accounts Receivable) — and the $ is also posted to the customer's subsidiary account.

Purchase of equipment on account — which journal?

The general journal (a single-column purchases journal records only merchandise bought on account).

Advantage of special journals — efficiency?

Routine transactions are recorded on one line and posted in monthly totals, replacing hundreds of individual general-journal entries.

Advantage of special journals — division of labor?

Different employees can keep different journals and ledgers at the same time, speeding up the work.

Do computerized systems change these concepts?

No. Software automates the posting, but transactions are still grouped by type, individual balances tracked in subsidiary detail, and control totals proved against that detail.

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Accounting 1 · Chapter 7 · Free

Chapter 7 — Accounting Information Systems

Accounting information systems — special journals, subsidiary ledgers, and the general journal, and how they speed up the books.

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Describe the purpose of an accounting information system
Use special journals and subsidiary ledgers
Explain how the general journal fits in

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Chapter 7 — Accounting Information Systems

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