7.6: Summary

7.1 Define and Describe the Components of an Accounting Information System

• An accounting information system is a set of business processes that record transactions using journals and ledgers (a paper-based system) or computer files (using a computerized system) to keep track of a company’s money and other assets.
• The key steps in an accounting information system are input, processing, and output.
  • Input: This is any way to record the transaction.
  • Processing: This is a method of combining similar kinds of information (like adding all cash sales together to get a total that is separate from all credit sales; and then adding everything to find total sales).
  • Output: Any way used to display the results of the processing is output.
  • Source document: This is a record that a transaction has taken place; it is often used at the input stage.
  • Storage: This is any method used to save the results generated by the system. Data that is stored is retrieved and used in the input, processing, or output stage. Additional data and information are also stored during these processes.

7.2 Describe and Explain the Purpose of Special Journals and Their Importance to Stakeholders

• We use special journals to keep track of similar types of transactions.
• We use special journals to save time because the same types of transactions occur over and over.
• To decide which special journal to use, first ask, “Is cash involved?” If the answer is “Yes,” then use either the cash receipts or cash disbursements journal.
• The cash receipts journal always debits cash but can credit almost anything (primarily sales, Accounts Receivable, or a new loan from the bank).
• The cash disbursements journal always credits cash but can debit almost anything (Accounts Payable, Notes Payable, sales returns and allowances, telephone expense, etc.).
• The sales journal always debits Accounts Receivable and always credits Sales. If the company uses a perpetual inventory method, it also debits cost of goods sold and credits inventory.
• The purchases journal always debits Purchases (if using the periodic inventory method) or Inventory (if using the perpetual inventory method) and credits Accounts Payable.
• We post the monthly balance from each of the special journals to the general ledger at the end of the month.
• We post from all journals to the subsidiary ledgers daily.
• We use the general journal for transactions that do not fit anywhere else—generally, for adjusting and closing entries, and can be for sales returns and/or purchase returns.
• The accounts receivable subsidiary ledger contains all of the details about individual accounts.
• The total of the accounts receivable subsidiary ledger must equal the total in the Accounts Receivable general ledger account.
• The accounts payable subsidiary ledger contains all of the details about individual accounts payable accounts.
• The total of the accounts payable subsidiary ledger must equal the total in the Accounts Payable general ledger account.

7.3 Analyze and Journalize Transactions Using Special Journals

• Rules of cash receipts journals: Use any time you receive cash. Always debit Cash and credit Accounts Receivable or some other account.
• Rules of cash disbursements journals: Any time a check is issued, there should be a credit to cash and a debit to AP or typically an expense. Always credit Cash and debit Accounts Payable or some other account.
• Rules of sales journals: Use only for sales of goods on credit (when customers charge the amount). Always debit Accounts Receivable and credit Sales and debit Cost of Goods Sold and credit Merchandise Inventory when using a perpetual inventory system.
• Rules of purchases journals: Use only for purchase of goods (inventory) on credit (when you charge the amount). Always debit Merchandise Inventory when using a perpetual inventory system (or Purchases when using a periodic inventory system) and credit Accounts Payable.
• Post daily to the subsidiary ledgers.
• Monthly, at the end of each month, after totaling all of the columns in each journal, post to the general ledger accounts which include the Accounts Receivable and Accounts Payable (general ledger) controlling accounts. Note that the only column that you do not post the total to the general ledger account is the Other Accounts column. There is no general ledger account called Other accounts. As mentioned, each entry in that column is posted individually to its respective account.

7.4 Prepare a Subsidiary Ledger

• A schedule of accounts receivable is a list of all individual accounts and balances that make up accounts receivable.
• A schedule of accounts payable is a list of all individual accounts and balances that make up accounts payable.

7.5 Describe Career Paths Open to Individuals with a Joint Education in Accounting and Information Systems

• Data analytics, artificial intelligence systems, data security credentials, blockchain applications, and forensic accounting are some of the areas that provide newer career avenues for accounting professionals.
• Taxes will continue to be prepared using software that pulls information from the accounting information system.
• Integrating accounting software with inventory management and electronic payment as used by Walmart and Amazon will set new standards of business process automation.
• Forensic accounting, data security, artificial intelligence, and data analytics, are all areas for which companies and government agencies will be seeking accounting graduates who are also knowledgeable about information systems.

Key Terms

accounting information system (AIS)

set of business processes that record transactions using journals and ledgers (for paper systems) and computer files (for computerized systems) to keep track of a company’s transactions, process the data associated with these transactions, and produce output useful for internal and external decision-making and analysis

accounts payable subsidiary ledger

special ledger that contains information about all vendors and the amounts we owe them; the total of all accounts in the accounts payable subsidiary ledger must equal the total of accounts payable control account in the general ledger

accounts receivable control

accounts receivable account in the general ledger

accounts receivable subsidiary ledger

special ledger that contains information about all customers and the amounts they owe; the total of all accounts in the accounts receivable subsidiary ledger must equal the total of accounts receivable control account in the general ledger

artificial intelligence

computerized systems that are taught to use reasoning and other aspects of human intelligence to mimic some of the tasks humans perform

audit trail

step-by-step trail of evidence documenting the history of a transaction from its inception and all the steps it went through until its completion

big data

data sets from online transactions and other sources that are so large that new software and methods have been created to analyze and mine them so they can provide insight into trends and patterns of the business

blockchain

underlying technology Bitcoin is built on; provides a single shared ledger used by all of the parties to a transaction resulting in cheaper, more secure, and more private transactions

cash disbursements journal

special journal that is used to record outflows of cash; every time cash leaves the business, usually when we issue a check, we record in this journal

cash receipts journal

special journal that is used to record inflows of cash; every time we receive checks and currency from customers and others, we record these cash receipts in this journal

cloud computing

using the internet to access software and information storage facilities provided by companies (there is usually a charge) rather than, or in addition to, storing this data on the company’s computer hard drive or in paper form

cryptocurrency

digital currency that uses encryption techniques to verify transfer of the funds but operates independently of a bank

data

parts of accounting transactions that constitute the input to an accounting information system

data analytics

analyzing the huge amount of data generated by all the electronic transactions occurring in a business

data/information storage

way to save data and information; can be on paper, computer hard drive, or through the internet to save in the cloud

enterprise resource planning (ERP)

system that helps a company streamline its operations and helps management respond quickly to change

expert system

software program that is built on a database; software asks question and uses the response to ask the next question or offer advice

forensic accounting

using accounting and computer skills to look for fraud and to analyze financial records in hard copy and electronic formats

point of sale

point of time when a sales transaction occurs

point-of-sale system (POS)

computerized system to record and process a sale immediately when it occurs, usually by scanning the product bar code

purchases journal

special journal that is used to record purchases of merchandise inventory on credit; it always debits the merchandise inventory account (if using the perpetual inventory method) or the Purchases account (if using the periodic method)

sales journal

special journal that is used to record all sales on credit; it always debits accounts receivable and credits sales, and if the company uses the perpetual inventory method it also debits cost of goods sold and credits merchandise inventory

schedule of accounts payable

table showing each amount owed and to whom it must be paid; total of the schedule should equal the total of accounts payable in the general ledger

schedule of accounts receivable

table showing each customer and the amount owed; total of the schedule should equal the total of accounts receivable in the general ledger

source document

paper document or electronic record that provides evidence that a transaction has occurred and includes details about the transaction

special journal

book of original entry that is used to record transactions of a similar type in addition to the general journal

turn-around document

paper document that starts off as an output document from one part of the accounting information system (billing sends bill to customer), that becomes input to another part of the accounting information system upon completion of the next phase of the process (accounts receivable receives payment made on bill)