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الأحد، 3 أبريل، 2016

Summarization chapter 7- ACCOUNTING INFORMATION SYSTEMS




Summarization chapter 7
- ACCOUNTING INFORMATION SYSTEMS



Basic Concepts of Accounting Information Systems

The accounting information system collects and processes transaction data and communicates fi nancial information to decision-makers. It includes each of the steps in the accounting cycle 

An accounting system may be either manual or computerized. Most businesses these days use
some sort of computerized accounting system,

systems are based on certain basic principles. These principles, as described
 (1) cost effectiveness,
(2) usefulness
 (3) flexibility


Computerized Accounting Systems

Computerized systems have a number of advantages over manual systems.
 First, the company typically enters data only once in a computerized system
 Second, because the computer does most steps automatically, it eliminates many errors resulting from human intervention in a manual system, such as errors in posting or preparation of financial statements.
 Computerized systems also provide information up-to the minute. More timely information results in better business decisions. Many different general ledger software packages are available


CHOOSING A SOFTWARE PACKAGE

To identify the right software for your business, you must understand your company’s
operations. For example, consider its needs with regard to inventory, billing,
payroll, and cash management. In addition, the company might have specifi c
needs that are not supported by all software systems. For example, you might
want to track employees’ hours on individual jobs or to extract information for
determining sales commissions. Choosing the right system is critical because
installation of even a basic system is time-consuming, and learning a new system
will require many hours of employee time


1-ENTRY-LEVEL SOFTWARE

Companies with revenues of less than $5 million and up to 20 employees generally use entry-level programs like QuickBooks 


Quality entry-level packages typically involve more than recording transactions
and preparing financial statements. Here are some common features and benefits:
*Easy data access and report preparation. Users can easily access information related to specifi c customers or suppliers. For example, you can view all transactions, invoices, payments, as well as contact information for a specifi c client.
• Audit trail. As a result of the Sarbanes-Oxley Act, companies are now far more concerned that their accounting system minimizes opportunities for fraud. Many programs provide an “audit trail”
that enables the tracking of all transactions.
• Internal controls. Some systems have an internal accounting review that identifi es suspicious transactions or likely mistakes such as wrong account numbers or duplicate transactions.
• Customization. This feature enables the company to create data fields
 specific to the needs of its business.
• Network-compatibility. Multiple users in the company can access the system at the same time.



2-ENTERPRISE RESOURCE PLANNING SYSTEMS (ERP)


Enterprise resource planning (ERP) systems are typically used by manufacturing
companies with more than 500 employees and $500 million in sales. The
best-known of these systems are SAP AG’s SAP ERP (the most widely used) and
Oracle’s ERP. ERP systems go far beyond the functions of an entry-level general
ledger package. They integrate all aspects of the organization, including accounting,
sales, human resource management, and manufacturing. Because of the complexity
of an ERP system, implementation can take three years and cost fi ve times as
much as the purchase price of the system. Purchase and implementation of ERP
systems can cost from $250,000 to as much as $50 million for the largest multinational corporations. 


Manual Accounting Systems

Manual accounting systems perform each of the steps in the accounting cycle by hand
For example, someone manually enters each accounting transaction in the journal and manually posts each to the ledger. Other manual computations must be made to obtain ledger account balances and to prepare a trial balance and financial statements.


Subsidiary Ledgers

A subsidiary ledger is a group of accounts with a common characteristic example, all accounts receivable

1. The accounts receivable (or customers’) subsidiary ledger, which collects transaction
data of individual customers.
2. The accounts payable (or creditors’) subsidiary ledger, which collects transaction
data of individual creditors.

A general ledger account summarizes the detailed data from a subsidiary
ledger. For example, the detailed data from the accounts receivable subsidiary
ledger are summarized in Accounts Receivable in the general ledger. The general
ledger account that summarizes subsidiary ledger data is called a control account.




At the end of an accounting period, each general ledger control account and subsidiary ledgers
balance must equal the composite balance of the individual accounts in
the related subsidiary ledger. 

Advantages of Subsidiary Ledgers
Subsidiary ledgers have several advantages:
1. They show in a single account transactions affecting one customer or
one creditor, thus providing up-to-date information on specifi c account
balances.
2. They free the general ledger of excessive details. As a result, a trial balance of
the general ledger does not contain vast numbers of individual account balanc
3. They help locate errors in individual accounts by reducing the number of
accounts in one ledger and by using control accounts.
4. They make possible a division of labor in posting. One employee can post
to the general ledger while someone else posts to the subsidiary ledgers.


Special Journals




Effects of Special Journals on the General Journal Special journals
 for sales, purchases, and cash substantially reduce the number
of entries that companies make in the general journal. Only transactions that
cannot be entered in a special journal are recorded in the general journal.
For example, a company may use the general journal to record such transactions
as granting of credit to a customer for a sales return or allowance, granting of
credit from a supplier for purchases returned, acceptance of a note receivable
from a customer, and purchase of equipment by issuing a note payable. Also,
correcting, adjusting, and closing entries are made in the general journal.
The general journal has columns for date, account title and explanation,
reference, and debit and credit amounts. When control and subsidiary
accounts are not involved, the procedures for journalizing and posting of
transactions are the same as those described in earlier chapters. When control
and subsidiary accounts are involved, companies make two changes from the
earlier procedures:
1. In journalizing, they identify both the control and the subsidiary accounts.
2. In posting, there must be a dual posting: once to the control account and
once to the subsidiary account.



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