Reflect on what you have learned in the first four units of this course, and assume that you are planning on opening your own new business. Now, consider the structure of a corporation and the financi
Course Learning Outcomes for Unit I
Upon completion of this unit, students should be able to:
1. Prepare corporate financial statements.
1.1 Identify control accounts, subsidiary ledgers, and special journals.
1.2 Compare accounting information systems under generally accepted accounting principles
(GAAP) and International Financial Reporting Standards (IFRS).
2. Interpret financial statements.
2.1 Describe the linkage between the general ledger and subsidiary ledgers.
4. Interpret corporate accounting.
4.1 Identify the role of an accounting information system.
4.2 Identify the levels and risks of computerized accounting systems.
Required Unit Resources
Chapter 7: Accounting Information Systems
Unit Lesson
Accounting Information System
This unit continues the study of financial accounting with the knowledge from previous course work in
accounting. You will be looking at the elements of an accounting information system (AIS). Every organization
requires finance and accounting knowledge. It is strongly recommended that you get the annual report/10-K
for a firm you have an interest in, and use it during the class. The annual report or 10-K contains the firm’s
financial statements; management’s review of the past period; and, often, a few executive remarks regarding
strategy and future plans. Internalize the principles of accounting, and appreciate that all firms that participate
in the economy adhere to the discipline.
AIS: What Is It?
The AIS collects and processes transaction data and communicates information. When researching AIS, you
will find two principle approaches. The first principle approach focuses on the accounting cycle, as an AIS
includes all of the steps in the accounting cycle. The AIS also documents the transactions and records trial
balances, intermediate worksheets, and financial statements (Weygandt et al., 2021). You have seen AIS in
action, perhaps without the label, in small and large organizations. AIS is the information lifeblood that travels
throughout the firm.
The second principle approach focuses on technology. You can find books and research that contain
information on the following topics: artificial intelligence, database management, audit and controls, and
cybersecurity. Your textbook briefly introduces the subject near the end of Chapter 7 in the section entitled
Cybersecurity: A Final Comment.
Computer or Manual?
A firm’s AIS may be manual, semi-automated, or fully automated. Accounting automation was the very first
use of commercial data processing systems in the 1950s. The manual operations are both tedious and errorprone when scaled to a large company (e.g., banks, insurance companies, big manufacturers). While
UNIT I STUDY GUIDE
Accounting Information Systems
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primitive to anyone under the age of 50, these early systems brought improved accuracy and reduced cycle
time in organizations.
A quick computing history is outlined below.
• 1940s: Early computer development (primarily for government use, including the military)
• 1950s: Initial commercial implementation (primarily accounting systems in large firms)
• 1960s: Early communication networks (mostly in large firms, including transportation)
• 1970s: Refinement and further development (some small systems initiated)
• 1980s: Beginnings of micro computing and mobile computing (in all sizes of organizations)
• 1990s: Early commercial use of the Internet (shared public and private networks)
Since the start of this in the 21st century, computing has become a universal capability in almost all
companies. Software packages, again led by accounting, have dramatically lowered the cost of automated
systems. You may be familiar with QuickBooks, a highly popular package used in small and some mediumsized firms. QuickBooks even has versions targeted to different industries.
At the large enterprise level, software systems go by the label enterprise resource planning (ERP). These
packages may cost several million dollars to acquire and implement, but they impact almost every part of the
organization. ERP suppliers include Oracle, SAP, and Microsoft. Depending on your organization’s size and
complexity, the technology organization in conjunction with major user groups will evaluate and implement the
systems that are best suited to the organization.
Accounting Systems
There are two tools grounded in AIS. These tools include subsidiary ledgers and special journals. Without
duplicating our textbook, we can briefly define and illustrate these below.
Subsidiary ledgers are used to divide the general ledger (GL) into groupings (e.g., accounts receivable [A/R],
accounts payable [A/P]). These two ledgers may be referred to as control accounts, as they contain the
individual details on customers and creditors. In the general ledger (GL), the totals will be reflected. It is in
these subsidiary journals where one finds the details on Customer A or Creditor B. The use of subsidiary
accounts greatly streamlines the recording and reporting processes.
Special journals are used to divide the general journal into groupings, much like the subsidiary ledgers did to
the GL. Examples of special journals include sales, cash receipts, purchases, and cash payments. Again,
their goal is to streamline recording and reporting. The use of these journals reduces the absolute number of
entries in the GL.
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As you can see and have read, manual processes can be extremely burdensome and slow. The subsidiary
ledgers and special journals were developed to make the process more efficient but are no match for today’s
software systems. However, it is important that you understand what takes place behind the curtain to
participate in a firm’s finance and accounting organization in a meaningful way.
Cybersecurity
Information security is important on both a personal and professional level. Make certain to review the
Required Unit Resources section for this unit, and conduct some personal research.
Cybersecurity is in the news both generally and in business almost daily. Your business, especially if mediumsized or larger, will have specific hardware and software that implement the firm’s security practices. This may
start with physical access to your site and add more specific access requirements to portions of the physical
structure. From a software point of view, businesses that use the Internet must consider remote access to
their systems and additional access security to their information, including accounting. Your company’s data
is a valuable asset that must be protected. If you are not directly involved with your firm’s technology support,
I recommend that you meet and discuss your firm’s practices with them. The chances are that there will be a
security program in place as well as internal materials that you may access, which will describe the hardware
and software environment in use.
From a personal point of view, we all have information on a wide variety of electronic equipment (e.g.,
watches, phones, tablets, personal computers). Just as a business, you (and family members) need to be
cognizant of the value of your personal information as well as the physical assets that may be in a residence.
Generally Accepted Accounting Principles and International Financial Reporting Standards
The last topic in this unit introduces two accounting standards, the generally accepted accounting principles
(GAAP) and the International Financial Reporting Standards (IFRS). In the United States, GAAP was created
to make rules and guidelines for businesses in order to help them record their financial activity. Businesses
are expected to follow the GAAP when it is time to report their finances through statements. GAAP was
created with a rule foundation whereas IFRS was created with a principle base.
IFRS was developed by the International Accounting Standards Board (IASB). The main focus of IFRS is to
keep consistency and clearness in the world of finance. IFRS has become the universal standards that pubic
businesses follow when it comes in getting their financial statements done (Jasuja et al., n.d.).
There are some differences between them. One is how GAAP might be stricter when it comes to the required
documents that businesses need to present in their financial statements. Inventory reversal is forbidden in the
GAAP, yet it is allowed in IFRS under certain conditions. GAAP also requires businesses to show their
earnings “from year to year” (Jasuja et al., n.d., para. 2), so investors will clearly see their results over multiple
accounting periods.
Another IFRS example can be applied to business taxes. Businesses do not report what they paid, but
instead, they report the statutory rates. This is intended to let the investors know the average taxes and
expenses of a certain business. The idea is to make business affairs easier with other businesses around the
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world and to be on the same page when making the financial statements. Also, these standards make it
easier for investors to compare the businesses performance with their peers worldwide (Jasuja et al., n.d.).
GAAP users in the United States may resist the use of IFRS since they might not be ready to make financial
statements using the IFRS. They might also resist the change if they think it could be more expensive than
beneficial. There are times where it is hard to take away a habit that a corporation has used for many years;
just because it is successful in other parts of the world does not mean it will meet U.S. requirements.
Regarding the accounting standards, what do you think will be the eventual resolution, or do you think we will
continue to have different reporting across the globe? Remember that almost all companies of any
significance produce and sell services and products in multiple locations.
References
Jasuja, N., Mayurisansare, K., & Praveen, K. T. (n.d.). GAAP vs IFRS. Diffen.
http://www.diffen.com/difference/GAAP_vs_IFRS
Weygandt, J. J., Kimmel, P. D., & Mitchell, J. E. (2021). Accounting principles (14th ed.). Wiley.
https://online.vitalsource.com/#/books/9781119707080
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
This nongraded learning activity is an opportunity for you to test your understanding of the concepts and
material that you are studying in this unit. The following end of chapter review and practice items have been
selected to encourage critical and conceptual thinking. Conceptual thinking is a great way to study because it
gives you a chance to process, practice, and apply what you have learned. These review and practice items
are suggestions and are not graded. You are free to also select any additional or other practice and review
items in addition to or instead of the selected items below.
• Brief Exercises (BE7.3)
• Brief Exercises (BE7.9)
• Exercises (E7.1)
• Exercises (E7.3)
• Problems: Set A (P7.3A)
If you have any questions or do not understand a concept, contact your professor for clarification. Completing
