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Chapter 07 - Accounting Information Systems
CHAPTER 7
ACCOUNTING INFORMATION SYSTEMS
Related Assignment Materials
Student Learning Objectives Questions
Quick
Studies* Exercises* Problems*
Beyond the
Numbers
Conceptual objectives:
C1. Identify the fundamental
principles and components of
accounting information
systems.
1, 2, 3, 4,
5, 6
7-1, 7-2 7-3
C2. Explain the goals and uses of
special journals.
7, 9, 10, 11,
12
7-3, 7-4,
7-7, 7-10
7-2, 7-4, 7-7,
7-9
7-4
C3. Describe the use of controlling
accounts and subsidiary ledgers.
8, 9, 12 7-5 7-5 7-1, 7-2, 7-3 7-4, 7-6
Analytical objectives:
A1 Compute segment return on
13, 14, 15 7-9 7-11 7-1, 7-2,
P1. Journalize and post transactions
using special journals.
7-6 7-1, 7-3, 7-6,
7-8, 7-9
7-1, 7-2, 7-3 7-6, 7-7
P2. Prepare and prove the accuracy
7-8 7-10 7-1, 7-2, 7-3 7-6
7-1
Chapter 07 - Accounting Information Systems
Additional Information on Related Assignment Material
The Serial Problem for Success Systems continues in this chapter. Problems 7-1A, and the
Comprehensive Problem provided for this chapter can be completed using Excel. Problem 7-1A, 7-2A
and the Serial Problem and the Comprehensive Problem can be completed with Sage 50 Software.
Problem 7-1A, 7-2A and the Serial Problem can be completed with QuickBooks.
Connect (Available on the instructor’s course-specific website) repeats all numerical Quick Studies, all
Exercises and Problems Set A. Connect provides new numbers each time the Quick Study, Exercise or
Problem is worked. It allows instructors to monitor, promote, and assess student learning. It can be
used in practice, homework, or exam mode.
Synopsis of Chapter Revisions
Oimei Company: NEW opener with new entrepreneurial assignment
Streamlined several sections
Updated segment analysis using Callaway Golf
7-2
Chapter 07 - Accounting Information Systems
Chapter Outline Notes
I. Fundamental System Principles—Accounting information systems
procedures allowing managers to control and monitor activities.
B. Relevance Principle
Prescribes that AIS report useful, understandable, timely and
pertinent information for effective decision making.
C. Compatibility Principle
Prescribes that AIS conform with a company's activities, personnel
and structure. It also must adapt to the company’s unique
characteristics.
D. Flexibility Principle
Prescribes that AIS be able to adapt to changes in the company,
business environment, and needs of decisions makers.
E. Cost-Benefit Principle
Requires that the benefits from an activity in AIS outweigh the
costs of that activity. Decisions regarding the other system
principles are affected by this principle.
B. Input Devices
Capture information from source documents and enable its transfer
to the information system's processing component.
C. Information Processors
Systems that interpret, transform, and summarize information for
Means to take information out of an accounting system and make
available to users.
7-3
Education.
1. Special journals are used to record and post transactions of
similar type.
2. Their use reduces recording and posting labor by grouping
similar transactions and periodically posting column totals.
3. Use allows an efficient division of labor—an effective control
procedure.
B. Subsidiary Ledgers
List of individual accounts with a common characteristic. Contains
detailed information on specific general ledger accounts which are
referred to as the control account.
1. Two of the most important subsidiary ledgers are:
a. Accounts receivable ledger—stores transaction data of
2. Subsidiary ledgers are common for other general ledger
1. Generally contains two columns. The first column is use to
record each sale and the total is posted to Accounts Receivable
(debit) and to Sales (credit) in the General Ledger at the end of
the month.
2. It has a second column to record the tracking of the perpetual
inventory cost. This column total is posted to Cost of Goods
Sold (debit) and Inventory (credit).
3. Debits to the accounts of particular customers are individually
posted to the customers account in a subsidiary accounts
receivable ledger a the same time the transaction is recorded in
the special journal.
4. A schedule (list) of accounts receivable is used to prove the
accuracy of the subsidiary ledger. The total of this schedule
1. Every transaction increases Cash and is recorded in special
7-4
2. Special credit columns are usually established for Accounts
Receivable and Sales. A special debit column may be used for
3. A column titled "Other Accounts - Credit" is used to record all
types of receipts that are not frequent enough to justify having
special columns. Each credit in the Other Accounts column
must be posted individually.
4. Credits to the accounts of particular customers are
individually posted to the customer’s account in a subsidiary
Accounts Receivable Ledger.
E. Purchases Journal
Multicolumn journal used to record all purchases on credit.
1. In addition to a special column for Inventory debit and
2. Only the totals of special columns are posted to the General
3. Credits to the accounts of particular creditors are individually
posted to the subsidiary Accounts Payable Ledger.
4. A schedule (list) of accounts payable is used to prove the
accuracy of the subsidiary ledger. The total of this schedule
1. A Check Register is a cash disbursements journal that includes
a column for entering the number of each check.
2. A special Cash credit column is established. Only the total of
this column is posted.
3. Special columns are usually established for Accounts Payable
debit and Inventory credit (for purchase discounts received).
Only the totals of special columns are posted to the General
Ledger.
4. A column titled "Other Accounts -Debit" is used to record all
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Chapter 07 - Accounting Information Systems
Chapter Outline Notes
5. Debits to the accounts of particular creditors are individually
posted to the supplier’s account in a subsidiary Accounts
Payable Ledger.
G. General Journal Transactions
Used to record transactions that do not fit in any of the special
journals. Examples:
1. Adjusting entries.
2. Closing entries.
3. Correcting entries.
4. Other transactions may include sales returns, purchases
returns, and purchases of plant assets by issuing a note and
1. Multipurpose off-the-shelf software programs are designed to
be user friendly and menu driven (Examples: Peachtree and
QuickBooks).
2. Some software can operate efficiently as an integrated system
3. Technology has reduced recordkeeping time and thereby
allows more time for analysis and managerial decision
making.
B. Data Processing in Accounting—systems differ with regard to how
input is entered and processed.
1. On-line processing—enters and processes data as soon as
source documents are available. Updates databases
immediately. Examples: airline reservations, credit card
records, and rapid mail-order processing.
2. Batch processing accumulates source documents for a period
of time and then processes them all at once such as daily,
1. Local area network (LAN)—links computers with hard-wire
hookups.
2. Large computer networks extending over long distances often
rely on modem or wireless communication.
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Chapter 07 - Accounting Information Systems
Chapter Outline Notes
D. Enterprise-Resource Planning (ERP) Software
Programs that manage a company's vital operations. Largest
suppliers of these programs are SAP and Oracle.
E. Cloud Computing
1. Delivery of computing as a service rather than a product.
2. Uses applications via the web instead of installing them on
individual computers.
V. Global View—Compares U.S. GAAP to IFRS
A. System principles and components are similar worldwide.
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Chapter 07 - Accounting Information Systems
Alternate Demonstration Problem
Chapter 7
Bedrock Company completed these transactions during February of the
current year:
Feb 1 Owner, F. Stone invested $100,000 cash in the business.
1 Sent Flint Company check No. 413 for a cash purchase of
inventory $ 75,000.
2 Sold inventory costing $500 on credit to Dale Dent for $800,
Invoice No. 711. (Terms of all credit sales are 2/10, n/60.)
3 Received inventory and an invoice dated January 30, terms
2/10, n/60, from Able Company, $1,750.
4 Sold inventory costing $850 on credit to Gary Glen for $1,250,
Invoice No. 712.
5 Purchased on credit from Best Company inventory, $1,855;
store supplies, $75; and office supplies, $35. Invoice dated
February 4, terms n/10, EOM.
7 Borrowed $5,000 by giving First National Bank a promissory
note payable.
9 Purchased office equipment on credit from More Company,
invoice dated February 6, terms n/10, EOM, $625.
9 Sent Able Company Check No. 414 in payment of its January 30
invoice less the discount.
11 Sold inventory costing $1,000 on credit to Carl Cole for $ 1,650
Invoice No. 713.
12 Received payment from Dale Dent of the February 2 sale less
the discount.
14 Received payment from Gary Glen of the February 4 sale less
the discount.
1
4
14 Received inventory and an invoice dated February 11, terms
2/10, n/60, from Old Company, $1,985.
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Chapter 07 - Accounting Information Systems
Feb. 14 Issued Check No. 415, payable to Payroll, in payment of sales
salaries for the first half of the month, $855. Cashed the check
and paid the employees.
14 Cash sales for the first half of the month, $18,460. Cost of this
merchandise was $ 9,500. (Normally, cash sales are recorded
daily; they are recorded only twice in this problem to reduce
the number of repetitive entries.)
14 Post to the customer and creditor accounts and also post any
amounts that should be posted as individual amounts to the
general ledger accounts. (Normally, such items are posted
daily; but you are asked to post them only twice in this
problem.)
16 Purchased inventory on credit from Best Company, $410; store
supplies, $45; and office supplies, $30. Invoice dated February
12, terms n/10, EOM.
17 Received a credit memorandum from Old Company for
unsatisfactory inventory received on February 14 and returned
for credit, $85.
18 Received a credit memorandum from More Company for office
equipment received on February 9 and returned for credit,
$130.
21 Received payment from Carl Cole for the sale of February 11
less the discount.
21 Issued Check No. 416 to Old Company in payment of its invoice
of February 11 less the return and the discount.
24 Sold inventory costing $475 on credit to Carl Cole for $835,
Invoice No. 714.
26 Sold inventory costing $375 on credit to Gary Glen for $775,
Invoice No. 715.
28 Issued Check No. 417, payable to Payroll, in payment of sales
salaries for the last half of the month, $855. Cashed the check
and paid the employees.
28 Cash sales for the last half of the month, $20,215. Cost of this
merchandise was $ 11,500.
Feb 28 Post to the customer and creditor accounts and post any
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Chapter 07 - Accounting Information Systems
amounts that should be posted as individual amounts to
general ledger accounts.
28 Foot and crossfoot the journals and make the month-end
postings.
Required:
1. Open the following general ledger accounts: Cash, Accounts
Receivable, Inventory, Store Supplies, Office Supplies, Office
Equipment, Notes Payable, Accounts Payable, F. Stone, Capital,
Sales, Sales Discounts, Cost of Goods Sold, and Sales Salaries
Expense.
2. Open the following accounts receivable ledger accounts: Carl Cole,
Dale Dent, and Gary Glen.
3. Open the following accounts payable ledger accounts: Able
Company, Best Company, More Company, and Old Company.
4. Enter the transactions in a Sales Journal, a Purchases Journal, a
Cash Receipts Journal, a Cash Disbursements Journal, and a General
Journal similar to the ones illustrated in this chapter. Post when
instructed to do so.
5. Prepare a trial balance and prove the subsidiary ledgers by preparing
schedules of accounts receivable and payable
7-10
7-11
