397
Chapter 9
ACCounting informAtion SyStemS
Assessment Questions
AS-1 LO 1
What is an accounting system?
An accounting system refers to the documents and procedures that are used to collect, classify, summarize and
report on a business’s transactions and operations.
AS-2 LO 1
What are the features of an effective accounting information system?
An effective accounting information system must include:
•adequate internal controls to prevent misuse of assets
•accurate information provided on a timely basis
•effective communication across the various components of the system
•exibility to allow for changes as the organization grows and evolves
•maximum benefits at a reasonable cost
AS-3 LO 1
Describe the paper trail in a manual accounting system.
Manual accounting systems include source documents, journals, ledgers and subledgers, trial balances: work sheets, and
financial statements. Source documents are recorded in journals on a daily basis. The journals are posted to subledgers
on a daily basis, and to controlling accounts in the general ledger on a monthly basis. A trial balance is prepared at month
end, usually on a worksheet, adjustments are added, and then the financial statements are prepared. Most companies
using a manual system have subledgers for receivables and payables, at a minimum. Other companies may add
subledgers for merchandise inventory and capital assets as necessary.
Access ameengage.com for integrated resources including tutorials, practice exercises, the digital textbook
and more.
leArning oBJeCtiVeS
LO 1 Explain the ffow of accounting information through
the accounting paper trail
LO 2 Describe and record transactions in special journals
and subsidiary ledgers
LO 3 Identify features of a computerized accounting
system
Appendix
LO 4 Prepare special journals under a periodic inventory
system
Chapter 9 Accounting Information Systems
398
AS-4 LO 2
What are special journals used for?
Special journals are used to record business transactions that occur regularly (e.g. sales, purchases, cash receipts
and payments, payroll, etc.).
AS-5 LO 2
What type of information is found in the sales journal?
The information includes the date, name of the customer, what was sold, the amount of the sale, and the invoice
number.
AS-6 LO 2
What are general journals used for?
All transactions not entered in a special journal are included in the general journal.
AS-7 LO 2
Why are subsidiary ledgers used?
Similar to special journals, subsidiary ledgers are used to provide detailed information regarding individual
accounts. Since a company usually deals with many suppliers and customers at the same time, journal entries get
posted to specific subsidiary ledgers.
AS-8 LO 2
What is the relationship between a controlling account and its corresponding subledgers?
They are directly linked. The total of the balances of the subsidiary ledger accounts is equal to the balance of the
controlling account on a given date.
AS-9 LO 2
What type of information can be found in an accounts payable subsidiary ledger?
It may have the quantity of product purchased from a particular supplier, over what time period, when it was paid
for, what discounts were allowed for early payment, and so on.
AS-10 LO 2
At the end of the accounting period, what is done with the totals in the purchases special journal?
The total of the accounts payable column is posted to the accounts payable controlling account. All other column
totals are posted to the appropriate general ledger account. Any total in the other column is not posted since
amounts were posted earlier during the period.
Chapter 9Accounting Information Systems
399
AS-11 LO 2
When preparing a sales return in the general journal, what accounts are updated? How is the post reference column used
to indicate the accounts are updated?
The accounts receivable amount is used to update both the controlling account and the subledger account for
the customer. This is indicated in the PR column with the accounts receivable controlling account number and a
check mark. All other accounts update the appropriate general ledger account and update the PR column with the
account number.
AS-12 LO 3
How do the elements in a computerized system differ from those in a manual system?
A computerized system is set up similar to a manual system; however, many of the manual processes are
automated. Posting to ledgers and subledgers is done automatically after the journal entry is made. Preparing
reports and financial statements is also an automated process that is done quickly.
AS-13 LO 3
Provide a few examples of reports that can be generated by QuickBooks.
Examples of reports that can be generated by QuickBooks include the Sales by Item Detail report (which shows
the number of units and the dollar amount sold by item), Open Invoices report (which lists the customers who still
owe money to the company as at the end of the period) and the Transactions by Account report (which reports
movements of balances of an account, such as cash).
AS-14 LO 3
What is cloud accounting?
Cloud accounting refers to accounting software that is hosted remotely on the vendor’s computer servers and
accessed by users through the cloud. The user can usually subscribe to access the cloud accounting service for a
fee.
AS-15 LO 3
What are some advantages and disadvantages of cloud accounting?
The main benefit of cloud accounting is that users do not have to install, maintain or upgrade the accounting
software because the software resides remotely. Users can also access the software via different mobile devices
anywhere as long as those devices are connected to the internet. Another advantage is cloud accounting service
providers encrypt data for protection, and usually have multiple servers and redundancy systems in place, so it is
unlikely information would be compromised, even in the event of power outages or natural disasters. However,
Internet connection is also a downside of cloud accounting because users cannot access the software if the
connection is down. If the accounting software is installed on the user’s computer, the user can still access the
software regardless of whether there is an internet connection.
AS-16 LO 3
What are a few examples of cloud-based accounting services?
Some of the most popular cloud-based accounting services are QuickBooks Online, Sage Accountant Solutions,
Xero, FreshBooks, NetSuite, SageCRM and Oracle Cloud.
Chapter 9 Accounting Information Systems
400
AS-17 LO 4
How is using special journals in the periodic inventory system different from using special journals in the perpetual
inventory system?
Because the periodic inventory system does not update merchandise inventory or cost of goods sold until
a physical count is performed at the end of the period, the sales and cash receipts journals will not update
merchandise inventory or cost of goods sold when a sale is made. Also, the purchase and cash payments journal
use purchases and purchase discounts instead of merchandise inventory.
Chapter 9Accounting Information Systems
401
Application Questions group A
AP-1A LO 1
An accounting system includes a “paper trail” of documents and processes used to record and report the financial results
of the business for a given period of time.
Using numbers 1-8, list the order in which the following would occur.
2Record transaction in appropriate journal
7Prepare a trial balance
3Post to subsidary ledgers
8Complete the remaining steps in the accounting cycle
6Reconcile balances in subsidiary ledgers to general ledger control account
1Review source document to determine type of transaction and to which journal it needs to be recorded
4Post individual amounts to appropriate general ledger accounts as required
5Post column totals to appropriate accounts in general ledger
AP-2A LO 2
For each transaction, indicate in which journal it should be recorded.
• Sales Journal (SJ) • Cash Payments Journal (CP)
• Cash Receipts Journal (CR) • General Journal (GJ)
• Purchases Journal (PJ)
CR Sold products for cash
CR Received a loan from the bank
CR Owner invested cash into the business
CP Owner withdrew cash from the business
CP Paid amount owing to a supplier
PJ Received a utility bill, which will be paid later
GJ Returned products to a supplier
GJ Recorded adjustment for depreciation
SJ Sold products on account
AP-3A LO 2
Hidson Inc. is a small retailer. The following is a list of sales transactions for the month of April.
Apr 2 Made a sale on account (Invoice #5703) to B. Fager for $450 (cost $300)
Apr 5 Made a sale on account (Invoice #5704) to J. Dryer for $1,150 (cost $900)
Apr 10 Made a sale on account (Invoice #5705) to T. Burton for $550 (cost $450)
Apr 12 Made a sale on account (Invoice #5706) to JB Inc. for $670 (cost $500)
Record these transactions in the sales journal. Assume all amounts are posted. Show posting references for customer
accounts and for column totals.
Accounts Receivable 110
Inventory 120
Sales Revenue 400
Cost of Goods Sold 500
Chapter 9 Accounting Information Systems
402
Sales Journal Page 3
Date Account invoice # Pr
Accounts receivable/
Sales (Dr/Cr)
CogS/merchandise
inventory (Dr/Cr)
Apr 2 B. Fager 5703 450 300
Apr 5 J. Dryer 5704 1,150 900
Apr 10 T. Burton 5705 550 450
Apr 12 JB Inc. 5706 670 500
Apr 30 Total 2,820 2,150
(110/4 00) (500/120)
AP-4A LO 2
F. Benjamin owns a small fabric store. The following is the list of prices he charges for different types of products.
Product Price Cost
Blue cotton $6 per sheet $4 per sheet
Black silk $20 per yard $15 per yard
White tape $10 per roll $6 per roll
Green felt $4 per yard $2 per yard
During the month of July, the company made the following sales.
Jul 1 Sold 3 rolls of white tape, 5 sheets of blue cotton and 1 yard of black silk to R. Grey, on account (Invoice #5739)
Jul 5 Sold 6 rolls of white tape and 30 yards of green felt to G. Abbott on account (Invoice #5740)
Jul 9 Sold 1 yard of black silk to E. Hines, on account (Invoice #5741)
Jul 11 Sold 10 rolls of white tape, 6 sheets of blue cotton, 3 yards of black silk and 11 yards of green felt to M. Allen,
on account (Invoice #5742)
Jul 14 Sold 12 rolls of white tape, 14 sheets of blue cotton and 9 yards of green felt to B. Cooper, on account (Invoice
#5743)
Record the above transactions in the sales journal. Show references, assuming all postings to the subsidiary and general
ledger accounts were done. Use the following account numbers for general ledger accounts.
Accounts Receivable 110
Merchandise Inventory 120
Sales 400
Cost of Goods Sold 500
Sales Journal Page 6
Date Account invoice # Pr
Accounts
receivable/Sales
(Dr/Cr)
CogS/merchandise
inventory
(Dr/Cr)
Jul 1 R. Grey 5739 80 53
Jul 5 G. Abbott 5740 180 96
Jul 9 E. Hines 5741 20 15
Jul 11 M. Allen 5742 240 151
Jul 14 B. Cooper 5743 240 146
Jul 31 Total 760 461
(110/4 00) (500/120)
Chapter 9Accounting Information Systems
AP-5A LO 2
Riya Cosmetics has provided you with the following information about the transactions the company had during the
month of June.
Jun 2 Received $2,000 from a cash sale to Faces Inc. (cost $1,500)
Jun 6 Received $840 from Beauty Breeze for outstanding accounts receivable
Jun 10 Received $650 for the cash sale of 5 facial scrubs (cost $540) to Seizers Salon
Jun 13 Received $325 in interest earned from Timberland Bank
Jun 25 Took out a loan of $3,000 from the bank
Record these transactions in the cash receipts journal. Assuming all amounts were posted to both the subsidiary and
general ledger accounts, show proper referencing using the following account numbers.
Cash 100
Accounts Receivable 110
Merchandise Inventory 120
Bank Loan 220
