CHAPTER 6
Accounting Information Systems
Chapter Overview
Chapter 6 examines accounting information systems—what is included and why it is important to understand how such systems work. The essential features of an accounting information system are outlined, and the components of a computerized accounting system are discussed. Data processing in both a computerized system and a manual system is compared and contrasted. The design of an accounting system is explained, including the chart of accounts, the classification of transactions, the processing of transactions, and the preparation of reports. The chapter then covers the computer spreadsheet and how it can be used in an accounting system.
The next part of the chapter is devoted to special journals, including the sales journal, the cash receipts journal, the purchases journal, and finally the cash payments journal. Detailed illustrations explain the use of all these new journals. Subsidiary ledgers for both accounts receivable and accounts payable are discussed. Posting to the subsidiary and control accounts and balancing the subsidiary ledgers are explained. The role and importance of the general journal are emphasized. After credit and debit memos are presented, decision guidelines aid the student in using special journals and control accounts in the accounting information system. A summary problem reviews students in preparing a cash receipts journal, posting to both the subsidiary and general ledger, and balancing the subsidiary ledger and general ledger.
Learning Objectives
After studying Chapter 6, your students should be able to:
1. Describe the features of an effective accounting information system
2. Understand how both computerized and manual accounting systems work
3. Understand how spreadsheets are used in accounting
4. Use the sales journal, the cash receipts journal, and the accounts receivable subsidiary ledger
5. Use the purchases journal, the cash payments journal, and the accounts payable subsidiary ledger
Chapter Outline
Objective 1: Describe the features of an effective accounting information system
A. An accounting information system is made up of the personnel, records, and procedures that a business uses in generating financial data. The system may be computerized or manual.
1. While a manual system can easily handle a simple business with few transactions each period, a computerized system will handle a heavy transaction load with ease.
2. Businesses computerize and specialize in order to process large amounts of transactions with accuracy and speed. Specialization refers to the process of grouping similar transactions.
B. While the design of the system varies from business to business, depending on the type of business, various features are common to all systems.
C. The system should provide control, compatibility, flexibility and a favorable cost/benefit relationship.
2. The system design must be compatible with operations, personnel, and the organizational structure.
3. The system should be flexible enough to accommodate changes in the organization without having to be completely redone. It should be structured so that all phases of the information system function together effectively.
4. The cost of the system should not outweigh its benefits; managers desire a system that gives maximum benefits at minimum cost.
D. Three components form the heart of a computerized accounting information system:
1. Hardware—the electronic equipment such as computers, disk drives, monitors, and printers. In larger businesses, the hardware can be networked so that information can be shared; a main computer or server stores the programs and data.
2. Software—the set of programs that tells the computer what tasks to perform. Accounting software may be integrated within the company’s management information system or database, the storehouse of computerized information.
3. Company personnel—the people who operate the hardware and software and who must be properly trained in order for the information system to be successful.
Objective 2: Understand how both computerized and manual accounting systems work
A. In both a computerized and a manual accounting system there are three stages of data processing. Exhibit 6-1 illustrates these steps.
1. Inputs are data from source documents. Similar transactions are grouped together to make recording easier.
2. Processing in a manual system includes journalizing, posting, and financial statement preparation. A computerized system often performs some of these tasks for the operator.
3. Outputs are reports, such as the financial statements, used for decision making. Exhibit 6-2 provides an overview of a computerized accounting system.
B. The design for both types of accounting systems is similar:
1. Both begin with the chart of accounts.
a. Both systems assign account numbers to accounts.
b. In a computerized system, the transactions are entered by account number. Account number ranges help identify the type of account. For example, all assets must begin with the number "1". (Refer to Exhibit 6-3 for a chart of accounts for a computerized system.)
2. Each transaction must be classified before it can be recorded.
a. In a manual system, similar transactions are grouped together and recorded in a special journal (i.e., credit sales are recorded in the sales journal).
b. Computerized systems are organized by function or task. The appropriate journal is selected from a menu. See Exhibit 6-4 illustrating a main menu in a computerized accounting system.
(1) In a menu-driven system, the main menu is accessed first, then that menu directs the user to submenues until the desired function is reached.
(2) Posting in a computerized system is automatic and can be performed continuously, called on-line processing, or in groups, called batch processing.
3. Reports are the final stage of data processing. In a computerized system, the desired report is selected from a submenu and the computer prepares the desired report. (Exhibit 6-5 shows a representative reports submenu.)
4. Exhibit 6-6 compares and summarizes the two types of systems.
C. Computerized accounting software is organized into integrated units or modules, so that all units function together. Each module may be a stand-alone program, or the modules may function together as integrated software.
Objective 3: Understand how spreadsheets are used in accounting
A. Spreadsheets are computer programs that link data by means of formulas and functions. These electronic worksheets may be used to solve many different kinds of problems. A simple income statement prepared on a spreadsheet is illustrated in Exhibit 6-7.
B. Spreadsheets are organized into cells, each defined by a row number and a column number.
1. Cells can contain words or labels, numbers, or formulas.
C. Basic arithmetic operations of spreadsheet programs such as Excel are listed in Exhibit 6-8.