1) Why study AIS? a) Simply doing accounting work i) A survey conducted by the Institute of Management Accountants (IMA) indicates that work relating to accounting systems was the single most important activity performed by corporate accountants. b) Auditors must understand numbers before they audit and have confidence in the processes that produce the numbers c) Tax professionals must know that the processes produced numbers that are correct for tax planning and compliance. d) Consulting services are offered to implement new accounting systems 2) What is an AIS? a) A system is a set of two or more interrelated components that interact to achieve a goal. b) Systems are almost always composed of smaller subsystems, each performing a specific function supportive of the larger system. 3) AIS components a) Not just hardware and software, also includes i) People ii) Procedures iii) Data 4) Processing in accounting systems a) Capture transaction inputs. b) Record transaction data in journals c) Record the debits and credits d) Post data from journals to ledgers e) Prepare reports 5) Journals a) Original input captured b) Original debit and credit 6) Types of journals a) General journal i) Records infrequent or non-routine transactions. b) Specialized journals i) Simplify the process of recording large numbers of repetitive transactions ii) Vary according to the type of business iii) Special journals equate to input screens in automated systems 7) Most common transactions (and therefore special journals) are a) Credit sales b) Cash receipts c) Purchases on account d) Cash disbursements 8) Ledgers a) Data repository (storage and summary place) b) Ledgers are used to summarize the financial status, including the current balance, of individual accounts. c) T-accounts--a short hand view of a ledger account 9) The general ledger a) Contains summary-level data for every asset, liability, equity, revenue, and expense account of an organization 10) Subsidiary ledgers (Sub-ledger) a) A subsidiary ledger records all the detailed data for any general ledger account that has many individual sub-accounts. b) For example, a sub-ledger that has an individual record for each customer who owes the company money supports the Accounts Receivable account in the general ledger 11) The relationship between subledgers and general ledgers is that a) The general ledger account is called the control account b) The sum of the subledgers must always be equal to the control account 12) Commonly used subsidiary ledgers a) Accounts receivable for individual customers b) Inventory for individual inventory items c) Accounts payable for individual vendors d) Fixed assets for individual pieces of property 13) Summary of accounting process a) Record transactions to journals b) Make adjusting entries c) Post to ledgers and subledgers d) Prepare a trial balance. e) Make sure subledgers balance to the control account f) Produce the income statement. g) Produce the balance sheet. Instructions for completing handout and quiz on D2L 1) Enter transactions to the appropriate journals (Sales, Purchases, Cash Receipts, Cash Disbursements or General Journal). An example is shown for each special journal. a) Hint: before you begin go down the list of transaction and decide what journal it goes in. 2) Post to the appropriate subledgers and general ledger accounts. a) Hint: use the post column to keep yourself organized as to which amounts you have transferred to the ledgers. b) Hint: if there are several transactions to the same account in a special journal, you only have to transfer the total to the general ledger. 3) Prepare a trial balance 4) Prepare an income statement 5) Prepare a balance sheet. 6) Prepare schedules of AR and AP to test the accuracy of the subledgers 7) Answer quiz questions on D2L (enter any monetary amounts using numbers only format, e.g. 1500.99 not $1,599.99, make sure to enter two decimal places for monetary amounts even if the answer is an even number). Also, round any calculated amounts to two decimal places, as needed. Example of Manual Accounting (The bad old days) The KSU Corporation completed these transactions during January of the current year: January 1, Began business by selling stock for $725,000.00. January 1, Rented office space for 1 month using check number 800 for $10,000.00 to Smithlord Properties. (Example posted to cash disbursement journal). January 2, Purchased office furniture and equipment on credit from McKay Company, invoice mck66 dated January 9, terms 2/10, net 30, $20,499.11. (Example posted to purchases journal). January 2, Sold merchandise on credit to John Nelson. Invoice No. 324, $7,965.37. (Terms for all credit sales are 2/10, n/30). (Example posted to sales journal). January 3, Purchased on credit from Corsair Company office supplies, $1224.54, invoice xx12 dated January 3, due in 30 days. Supplies are expected to last for approximately 4 months. January 3, Received merchandise and invoice F1 dated Jan 1, terms 2/10, n/30; from Farnswood Company, $213,022.22. January 3, Sold merchandise on credit to Thomas Zak, Invoice no 325, $4,666.88. January 10, Sent Farnswood Company Check no. 876 in payment of its January 1 invoice less the discount. January 10, Sold merchandise on credit to Margo Edwards, Invoice no. 326, $8,375.21. January 11. Sold merchandise on credit to Ken Duclose, Invoice no. 327, $5,554.23 January 12, Received payment from John Nelson for the January 2 sales less the discount check number 4444. (Example posted to cash receipts journal). January 13, Received payment from Thomas Zak for the January 3 sales less the discount check number 12345. January 15, Issued check no. 877 payable to payroll, in payment of sales salaries for the first half of the month, $7,950.00. Cashed the check and paid the employees. January 15, Cash sales for the first half of the month were $77,341.22. (Normally cash sales are posted daily, but for the purposes of this problem you are going to post them all at once.) January 19, Received payment from Margo Edwards for the sale of January 10 less the discount check number 8888. January 20, Received merchandise and invoice F2 dated Jan 19, terms 2/10, n/30; from Farnswood Company, $113,044.44. January 27, Sold merchandise on credit to Margo Edwards, Invoice no. 328, $7,158.22 January 28, Sold merchandise on credit to Thomas Zak, Invoice no 329, $28,644.11. January 29, Sold merchandise on credit to Heather Terry, Invoice no 330, $13,123.45. January 31, Issued check no. 879 payable to payroll, in payment of sales salaries for the second half of the month, $7,950.00. Cashed the check and paid the employees. January 31, Cash sales for the second half of the month were $72,345.00. (Normally cash sales are posted daily, but for the purposes of this problem, you are going to post them all at once.) January 31, Paid for utilities (water, power, etc) to Massive Utilities Company $1,454.77 check number 880. January 31, Paid for advertising from The Advertising Experts Inc. for January $12,500.00 check number 881. January 31, Estimated the expected life of the office furniture and equipment to be 5 years with no salvage value. The KSU Corporation will take a full month of straight-line depreciation in January. January 31, Counted ending inventory valued at $ 196,312.00. January 31, Counted office supplies and determined that approximately $800.00 worth of supplies were left and that the rest had been used in January. General Journal Date Description/account Post Debit Credit Sales Journal Date Customer Invoice Number Terms (2/10, net 30 unless otherwise noted) Amount Post S/L 1/2 John Nelson 324 7965.37 Cash Receipts Journal Date Cash Amount Check Number AR Discounts Customer Numb Post SL Cash Sales 1/12 7806.06 4444 7965.37 159.31 Nelson Purchases Journal Date Vendor Invoice Date Invoice Number Terms (2/10, net 30 unless otherwise noted) Purchases Debit Office Supplies Debit Other Accounts Debit AP Credit Post S/L 1/2 McKay 1/9 mck66 Due 2/8 Furniture and equipment 20499.11 20499.11 Cash Disbursements Journal Date Check Number Payee AP Debit Account Amount Debited Purchase Discount Taken Cash Amount Post S/L Jan 1 800 Smithlord Rent Exp 10000.00 10000.00 General Ledger Cash AD-Equipment Sales Payroll Expense AR AP Sales Discounts Depreciation Expense Inventory Notes Payable Purchase Discounts Supplies Expense Purchases Common Stock Utilities Expense COGS Furn and Equipment Supplies Rent Expense Advertising expense Accounts Receivable Sub-Ledger Nelson Zak Edwards Duclose Terry Accounts Payable Sub-Ledger Farnswood Corsair McKay Trial Balance Account Debit Credit Income Statement: Balance Sheet: Schedule of AR Schedule of AP