Accounting Ch. 7

Front 1

Accounting Information Systems

Back 1

collect and process data from transactions and events, organize them in useful reports, and communicate results to decision makers. This knowledge gives decision makers a competitive edge as they gain a better understanding of information constraints, measurement limitations, and potential applications. It allows them to make more informed decisions and to better balance the risks and returns of different strategies. Accounting information systems consist of people, records, methods, and equipment. The systems are designed to capture information about a company's transactions and to provide output including financial, managerial, and tax reports.

Front 2

5 Basic Principles of Accounting Information Systems

Back 2

Control

Relevance

Compatibility

Flexibility

Cost-Benefit

Front 3

Control Principle

Back 3

The control principle prescribes that an accounting information system have internal controls. Internal controls are methods and procedures enabling managers to control and monitor business activities. They include policies to direct operations toward common goals, procedures to ensure reliable financial reports, safeguards to protect company assets, and methods to achieve compliance with laws and regulations.

Front 4

Relevance principle

Back 4

an accounting information system reports useful, understandable, timely, and pertinent information for effective decision making.

Front 5

Compatibility Principle

Back 5

an accounting information system conform with a company's activities, personnel, and structure. It also must adapt to a company's unique characteristics. The system must not be intrusive but must work in harmony with and be driven by company goals. Many start-up entrepreneurs require a simple information system. Large global companies, such as Disney, demand both a merchandising and a manufacturing information system able to assemble data from its global operations.

Front 6

Flexibility Principle

Back 6

an accounting information system be able to adapt to changes in the company, business environment, and needs of decision makers. Technological advances, competitive pressures, consumer tastes, regulations, and company activities constantly evolve.

Front 7

Cost-Benefit principle

Back 7

benefits from an activity, in an accounting information system outweigh the costs of that activity. The costs and benefits of an activity, such as producing a specific report, will impact the decisions of both external and internal users. Decisions regarding other systems principles (control, relevance, compatibility, and flexibility) are also affected by the cost-benefit principle.

Front 8

Components of Accounting Systems

Back 8

Source documents

Input devices

Information processors

Information storage

Output devices

Front 9

Input devices

Back 9

capture information from source documents and enable its transfer to the system's information processing component. These devices often involve converting data on source documents from written or electronic form to a form usable for the system. Keyboards, scanners, and modems are some of the most common input devices in practice today.

Front 10

Information processors

Back 10

Systems that interpret, transform, and summarize information for use in analysis and reporting.An important part of an information processors in accounting systems is professional judgment, which is essential. Other parts of an information processors include journals, ledgers, working papers, and posting procedures. Each assists in transforming raw data to useful information.

Front 11

Information storage

Back 11

The accounting system component that keeps data in a form accessible to information processors. After being input and processed, data are stored for use in future analyses and reports. The database must be accessible to preparers of periodic financial reports.Manual systems consist almost exclusively of paper documents, but most modern systems depend on electronic storage devices. Information storage can be online, meaning that data can be accessed whenever, and from wherever, it is needed. Off-line storage means access usually requires assistance and authorization. Information storage is increasingly augmented by Web sources such as SEC databases, benchmarking services, and financial and product markets.

Front 12

Output devices

Back 12

Output devices are the means to take information out of an accounting system and make it available to users. Common output devices are printers, monitors, projectors, and Web communications.

Output devices provide users a variety of items including graphics, analysis reports, bills to customers, checks to suppliers, employee paychecks, financial statements, and internal reports. When requests for output occur, an information processors takes the needed data from a database and prepares the necessary report, which is then sent to an output device.

Front 13

special journal

Back 13

used to record and post transactions of similar types. Most merchandisers have four major types of transactions. They sell to customers on account (credit sales), they receive cash (cash receipts), they purchase merchandise on account (credit purchases), and they pay cash (cash payments). Special journals improve the efficiency of the journalizing and posting process.

Front 14

subsidiary ledger

Back 14

a list of individual accounts with a common characteristic. A subsidiary ledger contains detailed information on specific accounts in the general ledger, such as a subsidiary ledger for accounts receivable or a subsidiary ledger for accounts payable.

Front 15

Controlling account

Back 15

The Accounts Receivable/payable account is said to "control" the accounts receivable/payable ledger and is called a controlling account.

Front 16

subsidiary ledgers provide at least four benefits:

Back 16

1. Removal of excessive details, and detailed accounts, from the general ledger.

2. Up-to-date information readily available on specific customers and suppliers.

3. Aid in error identification for specific accounts.

4. Potential efficiencies in recordkeeping through division of labor.

Front 17

4 Types of Special Journals

Back 17

Sales Journal – Used to record all sales of inventory on credit.

Cash Receipts Journal – Used to record all receipts of cash, including sales of inventory for cash.

Purchases Journal – Used to record all credit purchases, including those for inventory.

Cash Disbursements Journal – Used to record all payments of cash.

Front 18

columnar journal

Back 18

any journal with more than one column for recording dollar amounts.

Front 19

footing

Back 19

special journal's account columns totalled

Front 20

check register

Back 20

When a cash disbursements journal has a column for check numbers, it is sometimes called a check register.