(Account Executive)

1. (Account Executive) Chapter 3: Introduction to Tally ERP9 Prof. Sachin K. Jadhav

2. CHAPTER 3 ACCOUNTING INFORMATION SYSTEMS

3. Accounting Information System • An accounting information system (AIS)involves collecting and processing data and disseminating financial information to interested parties. • An AIS may either be manual or computerized.

4. Costs Benefits PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM The accounting systemmust be cost effective. Benefits of information must outweigh the cost of providing it.

5. It must be timely! Balance Sheet It must be relevant! It must be reliable! Income Statement It must be accurate! Other Financial Reports PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM

6. Technological Advances Organizational Growth Increased Competition Government Regulation and Deregulation Changing Accounting Principles PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM

7. ILLUSTRATION 7-2PHASES IN THE DEVELOPMENT OF AN ACCOUNTING SYSTEM Analysis Planning and identifying information needs and sources Follow up Design Evaluating and monitoring effectiveness and efficiency and correcting any weaknesses Creating forms, documents, procedures, job descriptions, and reports Implementation Installing the system, training personnel, and making the system operational

8. SUBSIDIARY LEDGERS • A subsidiary ledgeris a group of accounts with a common characteristic, such as customer accounts. • The subsidiary ledger is assembled to facilitate the recording process by freeing the general ledger from details concerning individual balances. • Two common subsidiary ledgers are the Accounts Receivable Ledgerand the Accounts Payable Ledger.

9. CONTROL ACCOUNT • The general ledger account that summarizes subsidiary ledger data is called a control account. • Each general ledger control account balance must equal the composite balance of the individual accounts in the subsidiary ledger.

10. Customer A Customer B Customer C Creditor X Creditor Y Creditor Z ILLUSTRATION 7-3RELATIONSHIP OF GENERAL LEDGERS AND SUBSIDIARY LEDGERS Accounts receivable controls a subsidiary ledger of many different customers. Accounts payable controls a subsidiary ledger of many different creditors. General Ledger Owner’s Capital Accounts Payable Accounts Receivable Cash Subsidiary Ledgers

11. SUBSIDIARY LEDGERS Advantages of using subsidiary ledgersare that they: 1. Show transactions affecting one customer or one creditor in a single account. 2. Free the general ledger of excessive details. 3. Help locate errors in individual accounts by reducing the number of accounts combined in one ledger and by using controlling accounts. 4. Create a division of labour in posting by allowing one employee to post to the general ledger and a different employee to post to the subsidiary ledger.

12. SPECIAL JOURNALS • Special journalsare used to group similar types of transactions. • If a transaction cannot be recorded in a special journal, it is recorded in the general journal. • Special journals permit greater division of labour and reduce time necessary to complete the posting process.

13. ILLUSTRATION 7-5USE OF SPECIAL JOURNALS AND THE GENERAL JOURNAL The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise. Cash Receipts Journal Cash Payments Journal General Journal Sales Journal Purchases Journal Used for: All purchases of merchan-dise on account Used for: All cash paid (including cash purchases) Used for: Transactions that cannot be entered in a special journal, including correcting, adjusting, and closing entries Used for: All sales of merchan-dise on account Used for: All cash received (including cash sales)

14. JOURNALIZING THE SALES JOURNAL – PERPETUAL INVENTORY SYSTEM Karns Wholesale Supply Sales Journal S1 • Under a perpetual inventory system, one entry at selling price in the Sales Journalresults in a debit to Accounts Receivable and a credit to Sales. Another entry at costresults in a debit to Cost of Goods Sold and a credit to Merchandise Inventory. • Postings are made monthly to the general ledger and daily to the accounts receivable subsidiary ledger.

15. ILLUSTRATION 7-8PROVING THE ACCURACY OF THE ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER To prove the accuracy of the ledgers it is necessary to determine whether the sum of the accounts receivable subsidiary ledger balances equals the balance in the general ledger’s Accounts Receivable control account. General Ledger Accounts Receivable $90,230 Accounts Receivable Subsidiary Ledger Abbot Sisters $26,000 Babson Co. 25,920 Carson Bros. 7,800 Deli Co. 30,510 $90,230

16. CASH RECEIPTS JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Cash Receipts Journal • The debit columns for cash and cost of goods sold must be equal to the total of the credit columns for accounts receivable, sales, inventory, and other accounts. 54,550

17. CASH RECEIPTS JOURNAL • Column totals are posted at the end of each month. • The total of the Other Accounts column is not posted. The individual amounts comprising the total are posted separately to the general ledger accounts specified in the Accounts Credited column. • The individual amounts in the Accounts Receivable column are posted daily to the subsidiary ledger account specified in the Accounts Credited column.

18. ILLUSTRATION 7-11PROVING THE LEDGERS AFTER POSTING THE SALES AND THE CASH RECEIPTS JOURNALS Accounts Receivable Subsidiary Ledger Abbot Sisters $15,400 Babson Co. 14,570 Deli Co. 21,210 $51,180 After the posting of the cash receipts journal is completed, it is necessary to prove the ledgers. The general ledger totals are in agreement and the sum of the subsidiary ledger balances equals the control account balance. General Ledger Debits Cash $54,550 Accounts Receivable 51,180 Cost of Goods Sold 65,120 $170,850 Credits Merchandise Inventory $ 65,120 Notes Payable 6,000 D. A. Karns, Capital 5,000 Sales 94,730 $170,850

19. PURCHASES JOURNAL PERPETUAL SYSTEM Karns Wholesale Supply Purchases Journal • In a perpetual system, each entry results in a debit to Merchandise Inventory and a credit to Accounts Payable. • Postings are made daily to the accounts payable subsidiary journal and monthly to the general ledger.      

20. ILLUSTRATION 7-13PROVING THE ACCURACY OF THE ACCOUNTS PAYABLE SUBSIDIARY LEDGER To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account. Accounts Payable Subsidiary Ledger Eaton and Howe, Inc. $19,800 Fabor and Son 15,600 Jasper Manufacturing Inc. 28,500 $63,900 General Ledger Merchandise Inventory $63,900 Accounts Payable $63,900

21. CASH PAYMENTS JOURNAL PERPETUAL SYSTEM • Journalizing procedures are similar to cash receipts journal • Posting procedures are also like the cash receipts journal Karns Wholesale Supply Cash Payments Journal

22. ILLUSTRATION 7-16PROVING THE ACCURACY OF THE ACCOUNTS PAYABLE SUBLEDGER General Ledger Debits Cash $ 9,750 Accounts Receivable 51,180 Prepaid Insurance 1,200 D. A. Karns, Drawings 500 Purchases 64,300 Freight In 100 $127,030 Credits Accounts Payable $ 21,300 Notes Payable 6,000 D. A. Karns, Capital 5,000 Sales 94,730 $127,030 To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account. Accounts Payable Subsidiary Ledger Eaton and Howe, Inc. $12,600 Fabor and Son 8,700 $21,300

23. EFFECTS ON GENERAL JOURNAL • Only transactions that cannot be recorded in a special journal are recorded in the general journal. • When the entry involves both control and subsidiary accounts: 1. In journalizing, control and subsidiary accounts must be identified, and 2. In posting there must be a dual posting (to the control account and subsidiary ledger).

24. ILLUSTRATION 7-17JOURNALIZING AND POSTING THE GENERAL JOURNAL

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